July 26, 2004
Neither proposed Rule 203b3-2 nor Release IA-2266 makes any specific reference to advisers of family-owned investment entities. Should these advisers be required to register? These entities are generally relatively small in terms of numbers of owners and, by definition, are generally limited to members of a family. Arguably, family investment entities do not fall within the definition of private funds since they may not meet the third prong ot the test. They are not offered on the basis ot the managers investment advisory skills, ability or experience. Rather, they are created for family unity and cohesiveness. However, if a family entity is deemed to be a private fund, its adviser must refer to Rule 203b3-1 to determine how to count its clients. This may be too restrictive in that many family members are not minors or do not live in the same principal residence. This is especially true where there are large, multigenerational families involved. I believe that there is no compelling reason for requiring registration of the manager of a family investment entity and that it would be appropriate to devise an exemption tailored for such managers. Perhaps the exemption could be based on the qualified purchaser definition set forth in Section 2a51Aiiof the Investment Company Act of 1940 without the 5 million requirement.