The SEC’s Division of Investment Management said, in a Guidance Update published this week, that it would not object if related investment advisors registered jointly with the SEC and operating a single advisory business aggregate investments made by certain investors for purposes of determining if those investors are “qualified clients.”
The question comes up in the context of Rule 205-3 under the Advisers Act, which provides an exemption from the prohibition on charging advisory clients compensation based on a share of capital gains upon or capital appreciation of a client’s funds. Under Rule 205-3, an investment adviser may charge such performance-based compensation if a client, including a private fund investor, is a “qualified client.” Among other things, an investor is a qualified client if “immediately after entering into the contract [it] has at least $1,000,000 under the management of the investment adviser,” or has a net worth of more than $2 million.