Nevada Administrative Code
Chapter 90 - Securities
Section 90.Sec. 8 - NEW

Universal Citation: NV Admin Code 90.Sec. 8

Current through December 12, 2024

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.

Added to NAC by Sec'y of State by R018-21A, eff. 6/2/2023

NRS 90.420, 90.750

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