Private Fund Adviser Exemption Under State Law requires that all investors must be qualified with 1 million in assets managed or 2 million net worth not primary residence. Which statement reflects this requirement?

• A. All investors must be qualified with 1 million AUM or 2 million net worth
• B. All investors must be Accredited Investors
• C. All investors must be residents of the state
• D. No investor qualification is required

Answer: (A)

Private fund adviser exemptions rely on the investors’ ability to handle sophisticated investments. To qualify for the exemption, every investor must be a qualified client who meets either of the thresholds: at least $1,000,000 of assets under the adviser’s management, or a net worth of at least $2,000,000 (net worth excluding the primary residence). This exact standard is what allows the adviser to avoid state registration in many cases, reflecting the idea that only investors with substantial assets or net worth participate in these private funds.

Accredited investor status is a related but different rule used for private placements, not the private fund adviser exemption. Requiring state residency isn’t part of this exemption, and saying no investor qualification is required contradicts the rule.