Understanding Blue Sky Fees: What Fund Managers Need to Know

Understanding Blue Sky Fees: What Fund Managers Need to Know

For fund managers navigating the complex regulatory landscape, Blue Sky fees are an important aspect to consider when setting up and managing a fund. But what exactly are they, and how do they impact fund formation?

What Are Blue Sky Fees?

Blue Sky fees are state filing fees required by individual states to ensure compliance with their securities laws, commonly referred to as Blue Sky laws. These laws are designed to protect investors from fraudulent sales practices and promote transparency within the investment space. Unlike federal securities regulations overseen by the SEC, Blue Sky laws vary from state to state, with each state having its own set of rules and registration requirements.

How Do They Apply to Fund Managers?

For fund managers raising capital from investors across the United States, Blue Sky compliance is critical. Whenever a fund offers its interests to investors, the offering must be registered or exempt from registration in each state where the investors reside. Each state typically charges a filing fee as part of this process, which fund managers must account for in their operational budgets.

Blue Sky fees are generally required at two points:

1. Initial Offering: When a fund first offers its securities, it needs to file for Blue Sky compliance in each state where it plans to have investors.

2. Annual Maintenance: Many states also require an annual renewal of these filings to keep the fund compliant as long as it has investors from that state.

The amount of the fee can vary significantly depending on the state, and failing to comply can result in penalties, fines, or restrictions on raising capital within that state.

Why Is This Important for Fund Managers?

Blue Sky compliance is a crucial step in legally raising capital from investors. By ensuring proper filing and paying the appropriate fees, fund managers can mitigate risks and avoid potential legal setbacks. Working with professionals who are experienced in Blue Sky regulations can streamline the process and ensure ongoing compliance with state securities laws.