Exemption deadline looms for California GPs

The California Department of Corporations (CDOC) has changed its registration process for investment advisors, in effect forcing small private equity firms in the state to file for a “New Exemption”.

Larger California-based firms will likely need not take any action on account of their registration with the US Securities & Exchange Commission (SEC). It is those firms managing less than $150 million and designated “exempt reporting advisers” under federal law that should be aware of the changes. 

Until recently California provided a registration exemption for any firm that advised fewer than 15 clients, with each fund managed by the firm generally considered a single client. But to satisfy the new criteria small firms must now only provide advice to “Qualifying Private Funds”. These funds are required to consist of only “qualified purchasers” – investors with at least $5 million in investments and have less than 100 investors. 

Under the changes small California firms must file reports that any exempt reporting adviser is required to file with the SEC with the CDOC. 

The first report, the deadline of which is 26 October, must be filed through the Investment Adviser Registration Depository. Some firms have already fulfilled this requirement by sharing their SEC filings via section 2 of Form ADV.