1. The PERE Real Estate CFOs Forum Regulation Coming? October 7, 2009 New York R. Eric Emrich Chief Financial Officer Lubert-Adler Partners, LP

2. PRIVATE FUND INVESTMENT ADVISERS REGISTRATION ACT OF 2009 Less than 15 clients Does not hold itself out publicly as an investment adviser, and Does not advise an investment company under the Investment Company Act of 1940 Effectively eliminates the private adviser exemption

3. Implications Registration Private fund advisers with more than $30MM under management would register with SEC Private fund advisers with less than $30MM under management would register with principal state Limited exemption would still exist for foreign private advisers with less than $25MM under management in US

4. Implications Registration Private fund – any fund defined in Section 3 of ICA, but exempt under 3(c)(1) or 3(c)(7) and either organized in US or 10% US owned As expected – many hedge funds, private equity funds, venture capital and real estate funds would be a private fund. Not so expected - family offices, structured finance vehicles and other large unregistered pools of capital could be private funds.

5. Implications Registration File Form ADV Prohibition on assignment of advisory contracts SEC rules on advertisement of prior performance Insider trading restrictions Restrictions on principal and agency trades Cash solicitation requirements Resolutions of conflicts of interest Compliance policies and procedures Maintenance of books and records Valuation policies Trade allocation policies Proxy voting rules

6. Other Implications of Registration Can only charge performance fees (carried interest/promote) from qualified clients By definition, 3(c)(7) funds would not have a problem 3(c)(1) funds could have problems Qualified clients are those with net worth of $1.5MM or $750K under management Advisers could have to alter their fees

7. New SEC Powers Require additional records and reports 1. For assessment of systemic risk; 2. For the protection of investors 3. In the public interest Enhanced ability to interpret/define terms used in legislation

8. Required Disclosures Assets under management Use of leverage (including off-balance sheet) Counterparty credit risk exposures Trading and investment positions Trading practices Does this raise privacy issues?

9. Costs of Registration Chief Compliance Officer with knowledge and authority to enforce program Written Code of Ethics Complete written compliance program under Rule 206(4) Advisory agreements in compliance with Advisers Act

10. Costs of Registration continued SEC Examinations Funds audited Principals and other senior people will need to pass examinations (i.e. Series 65)

11. How to Register Part I – Basic information on the adviser, including : organization jurisdiction, principal place of business; ownership and control of the adviser; states licensed or registered in; and any material civil, criminal or administrative proceedings. Submit electronically to SEC through Investment Adviser Regulatory Depository (IARD). But need to establish an account by submitting entitlement forms with FINRA Prepare the Form ADV

12. How to Register continued Part II - Operations, business practices and potential conflicts of interest. Completed and maintained by advisor. - Nature of services and fees - Methods of securities analysis and sources of information - Affiliations with other entities in the securities industry and any conflicts of interest - Whether the adviser has discretion to select brokers - educational and business background of those providing investment advice and other control persons Deliver to client (fund) and potential clients Legal review

13. Other Legislative Proposals Levin – remove 3(c)(7) and 3(c)(1) exceptions of the ICA Kanjorski House bill 10/1/09 exempts venture capital fund advisers

14. Existing Custody Rules Annual Audit for each fund distributed 120 days after year end Must use Qualified Custodian for most advisers Statement of accounts to clients at least quarterly either by adviser or custodian Adviser with right to debit fees is not custody if (a)Fee calculated by 3 rd party custodian, or (b) Detailed calculation (amount, method and value) sent to clients

15. SEC Custody Rule Proposal 5/15/09 Surprise annual inspection of funds and securities by independent auditor Advisers ability to debit fees = custody Type II SAS 70 internal control review for advisers with physical custody All qualified custodians would be required to send periodic statements to clients

16. Anti Fraud Rule Applies to private investment funds now Prohibits engaging in any course of business that operates as a fraud or deceit on any current or prospective client Requires reasonable efforts to supervise its employees to prevent violations of securities rules Fiduciary Obligation to act solely in the best interest of its clients

17. Questions?