Adam Hooper: Can you give us a 30,000 foot or from a manager’s perspective of what does that look like to accept these funds? Is there anything that they need to do differently? Is there anything they need to do to accommodate working with with a custodian or trust company that might be outside of how they would typically handle non-qualified money?

Mat Sorensen: Yeah, I think there’s two things that you’ll want to have in your offering docs and two things from a legal tax. Process to know the one is UDFI that we talked about earlier. So most offering docs, if they take retirement account dollars are going to have a section in there on unrelated business, income tax or unrelated business, taxable income, and UDFI, and this is a little disclosure you need to have in there that basically says, Hey, if you’re a retirement account investor, we may have this tax you’re going to need to work it out with your tax professional, just so you know.

You’ve gotten the disclosure and it’s on the account investor to know what they’re doing. And then they got to determine how to deal with that tax. But the fund doesn’t pay the tax. It’s not a consequence for them, so it’s just for the investor. And then you gotta let the investor make up their mind of, okay, is this fund still a good deal?

Given, they may be using debt to leverage their investment and I might have to pay some tax on the UDFI at some point. So that’s one consideration and that’s a real one. The second is if 25% or more of the assets are quote-unquote plan assets, there could be fiduciary liability or fiduciary responsibility you have with the funds.

However, in the real estate space, there is something called a rock or real estate operating company. So let’s say I end up raising 40% of the money from retirement accounts in my fund. I have to deal with this plan asset rule that says you’re a fiduciary. However, if I’m a reorg, which means 50% or more of my assets are invested in real property and held for investment, not like I’m going to immediately sell it that same year, but it’s held for investment I’m exempt from that responsibility.

So I think in the real estate space and in the venture capital space, they have an a V cock V venture capital operating company. And there’s an, they have an exemption out of it too. And so we see a lot of IRAs go that way. So from a fund manager, if you’ve ever been told, Oh, you’re going to have fiduciary liability.

There’s a plan asset rule. If you’re like, no, I’m a real estate fund. I’m going to have 50% or more of our assets in real estate. You’re going to be exempted out of that anyways.