Section 139.23 - Registration Exemption for Investment Advisers to Private Funds(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise: (1) Private Fund Adviser--An investment adviser who provides advice: (A) solely to one or more Private Funds; or(B) solely to one or more Private Funds and other clients, who are not Private Funds, to whom advice may be provided pursuant to another exemption from investment adviser registration provided under the Texas Securities Act or Board rules.(2) Private Fund--An issuer that would be an investment company as defined in the Investment Company Act of 1940, §3, but for an exclusion from the definition of an investment company in §3(c)(1) or §3(c)(7) of that Act, 15 U.S.C. §80a.(3) 3(c)(1) Fund--A Private Fund that relies solely on the exclusion from the definition of an investment company under §3(c)(1) of the Investment Company Act of 1940, 15 U.S.C. §80a - RSA 3(c)(l).(4) Private Equity Fund--A Private Fund that meets the definition of a private equity fund in the Instructions to Part 1A of Form ADV.(5) Real Estate Fund--A Private Fund that meets the definition of a real estate fund in the Instructions to Part IA of Form ADV.(6) Venture Capital Fund--A Private Fund that meets the definition of a venture capital fund in SEC Rule 203(l)-1 ( 17 CFR §275.203(l)-1, as amended).(b) Exemption for Private Fund Advisers. Subject to the additional requirements of this section, the State Securities Board, pursuant to the Texas Securities Act, §4004.001, exempts from the investment adviser registration requirements of the Texas Securities Act, §4004.052, a Private Fund Adviser satisfying each of the following conditions and limitations: (1) The Private Fund Adviser files with the Securities Commissioner each report and amendment thereto that an exempt reporting adviser is required to file with the SEC pursuant to SEC Rule 204-4 (17 CFR § 275.204-4, as amended). These filings are to be made electronically through the Investment Adviser Registration Depository (IARD). A report shall be deemed filed when the report required by subsection (b) of this section is filed and accepted by the IARD on the state's behalf.(2) Except as provided in paragraph (3) of this subsection, neither the Private Fund Adviser, nor any of its advisory affiliates, as that term is defined in the Instructions to Part 1A of Form ADV, are subject to the following disqualifications:(A) any of those described in Rule 262 of SEC Regulation A (17 CFR § 230.262, as amended);(B) has been convicted within five years prior to the filing of the notice required under this exemption of any felony or misdemeanor involving the offer, purchase, or sale of any security or the rendering of investment advice, or any felony involving embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud;(C) is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily, or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of a security or the rendering of investment advice;(D) is the subject of a United States Postal Service fraud order that is currently effective and was issued within the last five years;(E) is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of a security or the rendering of investment advice;(F) is subject to an order issued by a state or federal authority that bars the person from association with an entity regulated by the authority that issued the order, or from engaging in the business of securities, insurance, or banking, or savings association or credit union activities; or(G) is the subject of a suspension or expulsion from membership in or association with a member of a self-regulatory organization that is currently effective and was issued within the last five years.(3) Exceptions from disqualifications. The prohibitions of paragraph (2) of this subsection shall not apply if: (A) the party subject to the disqualification is duly licensed or registered to conduct securities related business or render investment advisory services in the state in which the order, judgment, or decree creating the disqualification was entered against such party; or(B) before investment advisory services are rendered under this section, the Securities Commissioner, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification upon a showing of good cause.(c) Additional requirements for Private Fund Advisers to certain 3(c)(1) Funds. In order to qualify for an exemption pursuant to this section, a Private Fund Adviser who advises at least one 3(c)(l) Fund that is not a Private Equity Fund, Real Estate Fund, or Venture Capital Fund shall comply with the following additional requirements: (1) the Private Fund Adviser shall advise only those 3(c)(1) Funds (other than Private Equity Funds, Real Estate Funds, and Venture Capital Funds) whose outstanding securities (other than short-term paper) are beneficially owned entirely by persons who would each meet the definition of a qualified client in SEC Rule 205-3 (17 CFR § 275.205-3, as amended), at the time the securities are purchased from the issuer; provided that if an entity was organized and exists only for the purpose of acquiring an interest in the 3(c)(1) Fund, each beneficial owner of such entity must be a qualified client; and(2) the Private Fund Adviser shall comply with § RSA 116.17 of this title (relating to Custody of Funds or Securities of Clients by Registered Investment Advisers) as if registered.(d) Federal covered investment advisers. If a Private Fund Adviser is registered with the SEC, the adviser shall not be eligible for this exemption and shall comply with the state notice filing requirements applicable to federal covered investment advisers in the Texas Securities Act, Chapter 4004, Subchapter G.(e) Investment adviser representatives. An investment adviser representative is exempt from the registration requirements of the Texas Securities Act, §4004.102, if he or she is employed by or associated with an investment adviser that is exempt from investment adviser registration in this state pursuant to this section and does not otherwise act as an investment adviser representative.(f) Requests for records. (1) Upon a written request from the Securities Commissioner or the Commissioner's authorized representative, an investment adviser relying on an exemption provided by this section shall make available to the Commissioner all records subject to the custody or control of the investment adviser related to any private fund to which the investment adviser provides investment advice.(2) Failure to comply with this subsection will result in the loss of the exemption provided by this section.7 Tex. Admin. Code § 139.23
The provisions of this §139.23 adopted to be effective March 31, 2014, 39 TexReg 495; Amended by Texas Register, Volume 49, Number 45, November 8, 2024, TexReg 8876, eff. 11/14/2024