Are you charging a performance fee?

If you are a registered investment adviser and charging a performance fee, all investors in the fund will need to be “qualified clients” as defined under the Advisers Act. The definition of qualified client is subject to adjustments for inflation but currently includes:

  • a natural person who or a company that immediately after entering into the advisory contract has at least $1,000,000 under the management of the investment adviser;
  • a natural person who or a company that the investment adviser entering into the contract (and any person acting on his behalf) reasonably believes, immediately prior to entering into the advisory contract, either:
    • has a net worth (together, in the case of a natural person, with assets held jointly with a spouse) of more than $2,000,000 at the time the contract is entered into (excluding the value of such person’s primary residence); or
    • is a qualified purchaser as defined in section 2(a)(51)(A) of the Investment Company Act of 1940 at the time the contract is entered into; or
  • a natural person who immediately prior to entering into the contract is:
    • an executive officer, director, trustee, general partner, or person serving in a similar capacity, of the investment adviser; or
    • an employee of the investment adviser (other than an employee performing solely clerical, secretarial or administrative functions with regard to the investment adviser) who, in connection with his or her regular functions or duties, participates in the investment activities of such investment adviser, provided that such employee has been performing such functions and duties for or on behalf of the investment adviser, or substantially similar functions or duties for or on behalf of another company for at least 12 months.