How Qualified Client Rule Changes Affect Fund Managers

Law360, New York (April 5, 2012, 1:03 PM EDT) -- Registered investment advisers generally can charge "performance fees" only to qualified clients. If there is a performance fee, such as the typical carried interest, then investors in a fund managed by a registered adviser need to be qualified clients.

This issue is not a problem in C7 (qualified purchaser) funds, because qualified purchasers are qualified clients. However, a C1 (not more than 100 holders) fund may have investors that are not qualified clients.

Many fund managers have registered as investment advisers, or are in the process of registering as investment advisers.

The U.S. Securities and Exchange Commission has amended the qualified...

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