A "client" of a company that would be considered an investment company under Section 3(a) of the Investment Company Act of 1940, but for the exception to the "client" definition in Section 3(c)(1) of that Act, will be the limited partner or other equity owner of that company, by administrative order of the Indiana Securities Division effective August 29, 2011. The Securities Division realized that because hedge funds, i.e., certain investment advisers to private funds, are partnerships they fall outside of Indiana's exception to the prohibition against charging performance-based fees, by requiring as one of the six criteria for claiming the exception that the client be a company or natural person (who has at least $500,000 under management or a net worth of $1 million). By re-defining the clients of a company to be the company's limited partners or equity owners for purposes of the performance-based fee prohibition rule only, advisers meeting the exception's other five criteria can charge a performance-based fee, the type of fee they are in the practice of charging.
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