Section 205 of the Investment Advisers Act of 1940 and Rule 205-3 thereunder prohibit an investment adviser registered with the Securities and Exchange Commission (the “SEC”) 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). Section 418 of 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 June 14, 2016, the SEC issued an order (the “Order”) approving an increase in the net worth threshold for “qualified clients” from $2 million to $2.1 million. The assets-under-management threshold will remain at $1 million.

The Order will be effective on August 15, 2016. Investment advisory contracts entered into prior to the Order’s effective date will not be affected by the Order.

______________________________________________________

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.