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ADISA Issues Call to Action to Stop NASAA’s “One Size Fits All” Proposed REIT Concentration Limits

ADISA, a trade association representing the alternative and direct investment industry, has created a custom website for the public to utilize in contacting their state securities administrators regarding the North American Securities Administrators Association’s proposed REIT concentration limits.

Primarily, the proposed amendment would impose a uniform ceiling on an investor’s exposure to non-traded REITs and affiliates with a “concentration limit” of 10 percent of an investor’s “liquid net worth.”

“ADISA welcomes constructive elements of the proposed amendment, such as its accredited investor exception, but does not agree that the suggested approach serves investors well,” said John Grady, ADISA president-elect and chairman of its legislative and regulatory committee.

“The goal of this website and the customizable letter found on it is to allow the public, especially the investors affected, as well as industry professionals, to voice their opinion to the state securities administrator representing their needs,” said John Harrison, ADISA’s executive director and CEO.

ADISA submitted a comment letter to NASAA last month requesting that the association either withdraw the amendment or re-work it to create a more flexible approach that better recognizes the investing community’s need for, and interest in, diversified investment portfolios. ADISA surveyed its membership to gauge its reaction to the proposed amendment.

Following is an excerpt from the letter, outlining ADISA’s fundamental concerns with the proposed amendment:

• “A ‘one size fits all’ approach, even with an exception for accredited investors, simply does not take into account each individual investor’s circumstances and the responsibilities of his or her financial advisor to determine the optimal mix of investments for that individual investor’s portfolio.

• While the proposed amendment suggests a uniform concentration limit, each state administrator can use any of fourteen listed qualitative and quantitative factors to modify the concentration standard for any given program.

• The inclusion of the term ‘affiliate’ in the amendment has the potential to create a different limit for each program subject to the REIT Guidelines, as the term is very broad and may cause various other programs and entities to be included in the proposed concentration limit.

• Using an investor’s ‘liquid net worth’ for purposes of calculating his or her maximum exposure to non-traded REITs is not an appropriate metric, as it incorrectly links an investor’s ability to invest in these programs to his or her separate decision regarding the level of liquidity the investor maintains for various and possibly wholly unrelated reasons.”

To read the letter in its entirety, click here.

The Alternative and Direct Investment Securities Association bills itself as the largest national trade association serving alternative investment and securities industry professionals who are active in offering, managing and distributing private and public direct investments. The association was founded in 2003 and has approximately 4,500 members.

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