Nev. Admin. Code § 90.Sec. 8 - NEW
1.
It is unethical or dishonest practice for an investment adviser to enter into,
extend or renew an investment advisory contract if the contract provides for
compensation to the investment adviser on the basis of a share of capital gains
upon or capital appreciation of the funds or any portion of the funds of a
client unless:
(a) The investment adviser is
not licensed and is not required to be licensed pursuant to
NRS
90.330; or
(b) The following conditions are met:
(1) The client entering into the contract is
a qualified client, as defined by Rule 205-3 under the Investment Advisers Act
of 1940; and
(2) To the extent not
otherwise disclosed on Part 2 of the Uniform Application for Investment Adviser
Registration (Form ADV), the investment adviser discloses to the client, in
writing, all material information relating to the proposed advisory
arrangement, including, without limitation:
(I) That the fee arrangement may create an
incentive for the investment adviser to make investments that are riskier or
more speculative than would be the case in the absence of a performance
fee;
(II) That the investment
adviser may receive increased compensation with regard to unrealized
appreciation as well as realized gains in the account of the client, if
applicable;
(III) The periods that
will be used to measure investment performance throughout the contract and the
significance of such periods in the computation of the fee;
(IV) The nature of any index that will be
used as a comparative measure of investment performance, the significance of
the index and the reason the investment adviser believes that the index is
appropriate; and
(V) If the
compensation of the investment adviser is based in part on the unrealized
appreciation of securities for which market quotations are not readily
available within the meaning of Rule 2a-4(a)(1) under the Investment Company
Act of 1940, how the securities will be valued and the extent to which the
valuation will be independently determined.
2. If an investment adviser enters
into a contract and satisfies the conditions set forth in this section that are
in effect when the contract is entered into, the investment adviser will be
considered to satisfy the conditions set forth in this section, but if a
natural person or company who is not a party to the contract subsequently
becomes a party, including, without limitation, an equity owner of a private
investment company advised by the investment adviser, the conditions set forth
in this section that are in effect when the natural person or company becomes a
party to the contract will apply with regard to the natural person or company.
For the purposes of this subsection, a transfer of an equity ownership in a
private investment company by gift or bequest, or pursuant to an agreement
related to a legal separation or divorce, will not cause the transferee to
become a party to the contract.
3.
As used in this section:
(a) "Client"
includes, without limitation:
(1) Each equity
owner of a private investment company, unless the equity owner:
(I) Is the investment adviser who enters into
the contract; or
(II) Is not
charged a fee on the basis of a share of capital gains or capital
appreciation;
(2) An
investment company registered under the Investment Company Act of 1940;
or
(3) A business development
company, as defined in section 202(a)(22) of the Investment Advisers Act of
1940.
(b) "Company" has
the meaning ascribed to it in section 202(a)(5) of the Investment Advisers Act
of 1940. The term does not include a company that is required to be registered
under the Investment Company Act of 1940 but is not registered.
(c) "Private investment company" means a
company that would be defined as an investment company under section 3(a) of
the Investment Company Act of 1940, but for the exception provided from that
definition by section 3(c)(1) of the Act.
Notes
NRS 90.420, 90.750
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