Pursuant to section 205 of the Investment Advisers Act of 1940 (the “Advisers Act”), an investment adviser registered with the Securities and Exchange Commission (the “SEC”) is generally prohibited from entering into an investment advisory contract with a client that provides for performance-based compensation, unless the client is a “qualified client.” Currently, a “qualified client” is, among other things, one that has at least $1 million under management with the adviser or a net worth of more than $2 million (excluding the value of the client’s primary residence).

The Dodd-Frank Wall Street Reform and Consumer Protection Act required that, beginning in 2011, the SEC adjust these dollar amount thresholds for inflation every five years, rounding to the nearest $100,000. In accordance with this requirement, on May 18, 2016, the SEC announced its intention to issue an order (the “Order”) that would raise the net worth threshold necessary to be a “qualified client” from $2 million to $2.1 million. The assets-under-management threshold would remain at $1 million. The Order will be issued unless the SEC orders a hearing. Anyone seeking a hearing must submit a written request to the SEC by 5:30pm on June 13, 2016. The SEC stated that it anticipates the Order will be effective 60 days after it is issued. Investment advisory contracts entered into prior to the Order’s effective date would not be affected by the Order.

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If you have any questions regarding the matters covered in this memo, please contact any of the partners and counsel listed below or your primary attorney in Seward & Kissel’s Investment Management Group.