Blackstone Alternative Alpha Fund, et al., 66943-66951 [2019-26309]
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Federal Register / Vol. 84, No. 235 / Friday, December 6, 2019 / Notices
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
C2–2019–025 on the subject line.
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Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
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Number SR–C2–2019–025. This file
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submissions should refer to File
Number SR–C2–2019–025 and should
be submitted on or before December 27,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–26308 Filed 12–5–19; 8:45 am]
BILLING CODE 8011–01–P
31 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87587A; File No. SR–
CboeBZX–2019–100]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Remove Its
Partial Post Only at Limit Order Type;
Correction
December 2, 2019.
Securities and Exchange
Commission.
ACTION: Notice; correction.
AGENCY:
The Securities and Exchange
Commission published a document in
the Federal Register on November 29,
2019, concerning a Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Remove its Partial Post
Only at Limit Order Type. The
document contained a typographical
error.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Christopher W. Chow, Division of
Trading and Markets, Securities and
Exchange Commission, 100 F Street NE,
Washington, DC 20549, (202) 551–5622.
Correction
In the Federal Register of November
29, 2019 in FR Doc. 25833, on page
65878, in the third and fourth line in the
subheading under the heading
‘‘SECURITIES AND EXCHANGE
COMMISSION’’ in the third column,
correct the reference to ‘‘Cboe EDGX
Exchange, Inc’’ instead to ‘‘Cboe BZX
Exchange, Inc.’’
Dated: December 2, 2019.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–26299 Filed 12–5–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33707; 812–14967]
Blackstone Alternative Alpha Fund, et
al.
December 2, 2019.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
under sections 17(d) and 57(i) of the
Investment Company Act of 1940 (the
‘‘Act’’) and rule 17d–1 under the Act to
permit certain joint transactions
otherwise prohibited by sections 17(d)
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and 57(a)(4) of the Act and rule 17d–1
under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit business
development companies (‘‘BDCs’’) and
closed-end management investment
companies to co-invest in portfolio
companies with each other and with
certain affiliated investment funds and
accounts.
APPLICANTS: Blackstone Alternative
Alpha Fund (‘‘BAAF’’); Blackstone
Alternative Alpha Fund II (‘‘BAAF II’’);
Blackstone Alternative Alpha Master
Fund (‘‘BAAF Master Fund’’);
Blackstone Alternative Multi-Strategy
Fund (‘‘BAMSF’’, and together with
BAAF, BAAF II and the BAAF Master
Fund, the ‘‘BAAM Regulated Funds’’);
Blackstone Alternative Asset
Management, L.P. (‘‘BAAM’’), the
investment adviser to BAAF, BAAF II
and BAAF Master Fund; Blackstone
Alternative Investment Advisors LLC
(‘‘BAIA’’), the investment adviser to
BAMSF; the investment advisers set
forth in Schedule A to the application
(together with BAAM and BAIA, the
‘‘BAAM Advisers’’); the Existing
Affiliated Investors set forth on
Schedule A to the application.1
FILING DATES: The application was filed
on October 24, 2018, and amended on
June 3, 2019 and September 10, 2019.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on December 27, 2019, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F St.
NE, Washington, DC 20549–1090.
1 The Existing Affiliated Investors, together with
their direct and indirect wholly-owned subsidiaries,
are entities (i) whose primary investment adviser is
a BAAM Adviser and (ii) that either (A) would be
an investment company but for section 3(c)(1),
3(c)(5)(C) or 3(c)(7) of the Act or (B) rely on the rule
3a–7 exemption thereunder from investment
company status.
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Federal Register / Vol. 84, No. 235 / Friday, December 6, 2019 / Notices
Applicants: 345 Park Avenue, New
York, New York 10154.
FOR FURTHER INFORMATION CONTACT:
Asen Parachkevov, Senior Counsel, or
Kaitlin Bottock, Branch Chief, at (202)
551–6821 (Chief Counsel’s Office,
Division of Investment Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
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Applicants’ Representations
1. BAAF, BAAF II and BAAF Master
Fund, each a Massachusetts business
trust, are externally managed, nondiversified, closed-end management
investment companies. Each of BAAF’s,
BAAF II’s and BAAF Master Fund’s
investment objective is to seek to earn
attractive long-term risk-adjusted
returns by primarily investing in nontraditional or ‘‘alternative’’ strategies.
BAAF and BAAF II are ‘‘feeder’’ funds
that invest substantially all of their
assets in BAAF Master Fund. Each of
BAAF, BAAF II and BAAF Master Fund
have a six-member Board, of which four
members are Non-Interested Trustees.2
2. BAMSF, a Massachusetts business
trust, is currently the sole series of
Blackstone Alternative Investment
Funds, and operates as a diversified,
open-end management investment
company. BAMSF’s investment
objective is to seek capital appreciation
primarily through investing in nontraditional or ‘‘alternative’’ strategies.
BASMF has a six-member Board, of
which four members are Non-Interested
Trustees.
3. Each Adviser 3 is a subsidiary of
The Blackstone Group, L.P.
2 ‘‘Board’’ means the board of trustees (or
equivalent) of the BAAM Regulated Funds and any
other Regulated Fund (as defined below).
‘‘Non-Interested Trustees’’ means the NonInterested Trustees of the BAAM Regulated Funds
and any other Regulated Fund who are not
‘‘interested persons’’ within the meaning of section
2(a)(19) of the Act.
3 The term ‘‘Adviser’’ means (i) the BAAM
Advisers and (ii) any future investment adviser that
controls, is controlled by or is under common
control with a BAAM Adviser and is registered as
an investment adviser under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’) that
intends to participate in the Co-Investment Program
(as defined below).
The term ‘‘Primary Adviser’’ means any future
investment adviser that (i) controls, is controlled by
or is under common control with an Adviser, (ii)
is registered as an investment adviser under the
Advisers Act, and (iii) is not an Adviser. For the
avoidance of doubt, a Primary Adviser will not be
treated as an Adviser under the requested Order,
but will be subject to conditions 2(c)(iv) and 15 of
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(‘‘Blackstone’’). Blackstone is a leading
global alternative asset manager, whose
alternative asset management businesses
include investment vehicles focused on
private equity, real estate, hedge fund
solutions, non-investment grade credit,
secondary private equity funds of funds
and multi-asset class strategies.
Blackstone’s four business segments are
(1) private equity, (2) real estate, (3)
hedge fund solutions and (4) credit.
4. The BAAM Advisers operate as a
self-contained advisory business within
Blackstone’s hedge fund solutions
group. Each BAAM Adviser is under
common control with BAAM and BAIA,
the Adviser to each of the BAAM
Regulated Funds, and collectively the
BAAM Advisers conduct a single
advisory business for purposes of the
requested Order. The BAAM Advisers
are each either separately registered as
investment advisers with the
Commission, or are relying advisers that
rely on the registration of another
BAAM Adviser. No BAAM Adviser is a
relying adviser of any Blackstoneaffiliated investment adviser from
outside of the self-contained group.
5. Applicants seek an order to permit
one or more Regulated Funds 4 to be
able to participate with one or more
other Regulated Funds and/or one or
more Affiliated Investors 5 in the same
the requested Order. A Primary Adviser will not
rely on the requested Order with respect to any
investment vehicles it manages other than to the
extent those vehicles are sub-advised by an Adviser.
4 ‘‘Regulated Fund’’ means any of the BAAM
Regulated Funds and any future closed-end
management or future open-end management
investment company or future series of an open-end
investment company (i) that has elected to be
regulated as a business development company
(‘‘BDC’’) or is registered under the Act, (ii) whose
investment adviser is an Adviser and (iii) who
intends to participate in the Co-Investment
Program.
Section 2(a)(48) of the Act defines a BDC to be
any closed-end investment company that operates
for the purpose of making investments in securities
described in sections 55(a)(1) through 55(a)(3) of the
Act and makes available significant managerial
assistance with respect to the issuers of such
securities.
5 ‘‘Affiliated Investor’’ means (i) the Existing
Affiliated Investors, (ii) any Affiliated Proprietary
Account and (iii) any Future Affiliated Investor.
‘‘Future Affiliated Investor’’ means an entity
(i)(A) whose investment adviser is an Adviser or (B)
whose investment adviser is a Primary Adviser and
whose sub-adviser is an Adviser (a ‘‘Sub-Advised
Affiliated Investor’’), and (ii) that either (A) would
be an investment company but for an exemption in
section 3(c)(1), 3(c)(5)(C) or 3(c)(7) of the Act or (B)
relies on the rule 3a–7 exemption thereunder from
investment company status, and (iii) that intends to
participate in the Co-Investment Program.
‘‘Affiliated Proprietary Account’’ means any
account of an Adviser or its affiliates or any
company that is an indirect, wholly- or majorityowned subsidiary of an Adviser or its affiliates,
which, from time to time, may hold various
financial assets in a principal capacity. For the
avoidance of doubt, none of the Regulated Funds,
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investment opportunities through a
proposed co-investment program where
such participation would otherwise be
prohibited under sections 17(d) and
57(a)(4) of the Act and rule 17d–1
thereunder (the ‘‘Co-Investment
Program’’).
6. For purposes of the requested
Order, ‘‘Co-Investment Transaction’’
means any transaction in which one or
more Regulated Funds (or one or more
Wholly-Owned Investment Subsidiaries,
as defined below) participates together
with one or more other Regulated Funds
(or one or more Wholly-Owned
Investment Subsidiaries, as defined
below) and/or one or more Affiliated
Investors in reliance on the requested
Order. ‘‘Potential Co-Investment
Transaction’’ 6 means any investment
opportunity in which a Regulated Fund
(or its Wholly-Owned Investment
Subsidiary, as defined below) could not
participate together with one or more
Affiliated Investors and/or one or more
other Regulated Funds without
obtaining and relying on the requested
Order.7 Funds that are advised or subadvised by affiliates of Blackstone other
than an Adviser or Primary Adviser will
not participate in the Co-Investment
Program. No Primary Adviser will be
the source of any Potential CoInvestment Transactions under the
requested Order. Potential CoInvestment Transactions will not be
shared outside of the Co-Investment
Program.
7. Applicants state that a Regulated
Fund may, from time to time, form a
special purpose subsidiary (a ‘‘WhollyOwned Investment Subsidiary’’).8 A
the Existing Affiliated Investors or any Future
Affiliated Investors shall be deemed to be Affiliated
Proprietary Accounts for purposes of the requested
Order.
6 Investment opportunities that are sourced by
sub-advisers that are not BAAM Advisers are
excluded from the definition of Potential CoInvestment Transactions. Only investments that are
sourced by BAAM Advisers will be considered
Potential Co-Investment Transactions that are
subject to condition 1 of the requested Order.
7 All existing entities that currently intend to rely
upon the requested Order have been named as
applicants. Any other existing or future entity that
subsequently relies on the Order will comply with
the terms and conditions of the application.
8 ‘‘Wholly-Owned Investment Subsidiary’’ means
an (i) whose sole business purpose is to hold one
or more investments on behalf of a Regulated Fund
(and, in the case of an SBIC Subsidiary (as defined
below), maintain a license under the SBA Act (as
defined below) and issue debentures guaranteed by
the SBA (as defined below)); (ii) that is whollyowned by a Regulated Fund (with such Regulated
Fund at all times holding, beneficially and of
record, 100% of the voting and economic interests);
(iii) with respect to which the Board of the
Regulated Fund has the sole authority to make all
determinations with respect to the Wholly-Owned
Investment Subsidiary’s participation under the
conditions of the requested Order; and (iv) that is
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Wholly-Owned Investment Subsidiary
would be prohibited from investing in a
Co-Investment Transaction with another
Regulated Fund or any Affiliated
Investor because it would be a company
controlled by its parent Regulated Fund
for purposes of sections 17(d) and
57(a)(4) of the Act and rule 17d–1
thereunder. Applicants request that a
Wholly-Owned Investment Subsidiary
be permitted to participate in CoInvestment Transactions in lieu of the
applicable Regulated Fund and that the
Wholly-Owned Investment Subsidiary’s
participation in any such transaction be
treated, for purposes of the requested
Order, as though the parent Regulated
Fund were participating directly.
8. When considering Potential CoInvestment Transactions for any
Regulated Fund, an Adviser will
consider only the Objectives and
Strategies,9 Board-Established Criteria,10
investment policies, investment
positions, capital available for
investment, and other pertinent factors
applicable to that Regulated Fund. The
participation of a Regulated Fund in a
an entity that would be an investment company but
for an exemption in section 3(c)(1) or 3(c)(7) of the
Act.
The term ‘‘SBIC Subsidiary’’ means a WhollyOwned Investment Subsidiary that is licensed by
the Small Business Administration (the ‘‘SBA’’) to
operate under the Small Business Investment Act of
1958, as amended, (the ‘‘SBA Act’’) as a small
business investment company (a ‘‘SBIC’’).
9 The term ‘‘Objectives and Strategies’’ means a
Regulated Fund’s investment objectives and
strategies, as described in the filings made with the
Commission by the Regulated Fund under the
Securities Exchange Act of 1934, as amended, the
Securities Act of 1933, as amended (the ‘‘1933 Act’’)
and the Act, and the Regulated Fund’s reports to
shareholders.
10 The term ‘‘Board-Established Criteria’’ means
criteria that the Board of the applicable Regulated
Fund may establish from time to time to describe
the characteristics of Potential Co-Investment
Transactions regarding which an Adviser to the
Regulated Fund should be notified under condition
1 of the requested Order. The Board-Established
Criteria will be consistent with the Regulated
Fund’s then-current Objectives and Strategies. If no
Board-Established Criteria are in effect, then the
Regulated Fund’s Adviser will be notified of all
Potential Co-Investment Transactions that fall
within the Regulated Fund’s then current
Objectives and Strategies. Board-Established
Criteria will be objective and testable, meaning that
they will be based on observable information, such
as industry/sector of the issuer, minimum earnings
before interest, taxes, depreciation, and
amortization of the issuer, asset class of the
investment opportunity or required commitment
size, and not on characteristics that involve
discretionary assessment. The Adviser to the
Regulated Fund may from time to time recommend
criteria for the applicable Board’s consideration, but
Board-Established Criteria will only become
effective if approved by a majority of the NonInterested Trustees. The Non-Interested Trustees of
a Regulated Fund may at any time rescind, suspend
or qualify its approval of any Board-Established
Criteria, though Applicants anticipate that, under
normal circumstances, the Board would not modify
these criteria more often than quarterly.
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Potential Co-Investment Transaction
may only be approved by a Required
Majority, as defined in section 57(o) of
the Act (a ‘‘Required Majority’’), of the
trustees of the Board eligible to vote on
that Co-Investment Transaction under
section 57(o) of the Act (the ‘‘Eligible
Trustees’’).11 When selecting
investments for the Affiliated Investors,
an Adviser will select investments
separately for each Affiliated Investor,
considering, in each case, only the
investment objective, investment
policies, investment position, capital
available for investment, and other
pertinent factors applicable to that
particular Affiliated Investor.
9. With respect to participation in a
Potential Co-Investment Transaction by
a Regulated Fund, the applicable
Adviser will present each Potential CoInvestment Transaction and the
proposed allocation of each investment
opportunity to the Eligible Trustees. The
Required Majority of a Regulated Fund
will approve each Co-Investment
Transaction prior to any investment by
the Regulated Fund.
10. Applicants state that the majority
of the BAAM Advisers’ employees work
on matters for Close Affiliates 12 and
information about potential investment
opportunities is routinely disseminated
among such Adviser’s employees. Other
than to satisfy compliance obligations,
information regarding Potential CoInvestment Transactions will not be
shared with Remote Affiliates,13 which
would include other investment
advisers that operate in other Blackstone
business groups, except in unusual
circumstances, as the Blackstone
business groups each generally target
different investment strategies or asset
classes and there are information barrier
policies in place between the Blackstone
business groups. Applicants further note
within the BAAM Advisers, the
personnel overlap and coordination
among portfolio management teams
ensures that all relevant investment
11 The defined terms Eligible Trustees and
Required Majority apply as if each Regulated Fund
were a BDC subject to section 57(o) of the Act.
12 The term ‘‘Close Affiliate’’ means the Advisers,
the Regulated Funds, the Affiliated Investors and
any other person described in section 57(b) of the
Act (after giving effect to rule 57b–1 thereunder) in
respect of any Regulated Fund (treating any
registered investment company or series thereof as
a BDC for this purpose) except for limited partners
included solely by reason of the reference in section
57(b) to section 2(a)(3)(D) of the Act.
13 The term ‘‘Remote Affiliate’’ means any person
described in section 57(e) of the Act in respect of
any Regulated Fund (treating any registered
investment company or series thereof as a BDC for
this purpose) and any limited partner holding 5%
or more of the relevant limited partner interests that
would be a Close Affiliate but for the exclusion in
that definition.
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opportunities will be brought to the
attention of each Regulated Fund
managed by the respective Adviser.
Applicants submit that the BAAM
Advisers will receive all information
regarding all investment opportunities
that fall within the then-current
Objectives and Strategies and BoardEstablished Criteria of each Regulated
Fund managed by the respective
Adviser.
11. Applicants submit that, in the
event that a Potential Co-Investment
Transaction would be within the
investment objectives and strategies of
the Sub-Advised Affiliated Investor, the
respective Adviser shall have the
primary responsibility for the
investment, including making the initial
investment recommendation, and dayto-day monitoring of the investment.
Applicants further note that the Adviser
will be responsible for complying with
the conditions of the requested Order.
Applicants state that if the Adviser and
Primary Adviser agree that the SubAdvised Affiliated Investor should
invest in the Potential Co-Investment
Transaction and at what size of
investment, then the Adviser would,
consistent with the conditions of the
requested Order, determine an
allocation for the Regulated Funds and
Affiliated Investors, including such SubAdvised Affiliated Investor.
12. Applicants acknowledge that
some of the Affiliated Investors may not
be funds advised by an Adviser because
they are Affiliated Proprietary Accounts.
Applicants do not believe the
participation of these Affiliated
Proprietary Accounts in Co-Investment
Transactions should raise issues under
the conditions of the requested Order
because allocation policies and
procedures of the account owners
provide that investment opportunities
are offered to client accounts before they
are offered to Affiliated Proprietary
Accounts.
13. Under condition 16, if an Adviser
or its principals, or any person
controlling, controlled by, or under
common control with the Adviser or its
principals, and any Affiliated Investor
(collectively, the ‘‘Holders’’) own in the
aggregate more than 25 percent of the
outstanding voting shares of a Regulated
Fund (‘‘Shares’’), then the Holders will
vote such Shares as directed by an
independent third party when voting on
(1) the election of directors; (2) the
removal of one or more directors; or (3)
all other matters under either the Act or
applicable state law affecting the
Board’s composition, size or manner of
election.
14. Applicants state that from time to
time the Regulated Funds and Affiliated
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Investors may have opportunities to
make Follow-On Investments 14 in an
issuer in which a Regulated Fund and
one or more other Regulated Funds and/
or Affiliated Investors previously have
invested.
15. Applicants propose that FollowOn Investments would be divided into
two categories depending on whether
the prior investment was a CoInvestment Transaction or a PreBoarding Investment.15 If the Regulated
Funds and Affiliated Investors had
previously participated in a CoInvestment Transaction with respect to
the issuer, then the terms and approval
of the Follow-On Investment would be
subject to the Standard Review FollowOns described in Condition 9. If the
Regulated Funds and Affiliated
Investors have not previously
participated in a Co-Investment
Transaction with respect to the issuer
but hold a Pre-Boarding Investment,
then the terms and approval of the
Follow-On Investment would be subject
to the Enhanced-Review Follow-Ons
described in Condition 10. All
Enhanced Review Follow-Ons require
the approval of the Required Majority.
For a given issuer, the participating
Regulated Funds and Affiliated
Investors would need to comply with
the requirements of Enhanced-Review
Follow-Ons only for the first CoInvestment Transaction. Subsequent CoInvestment Transactions with respect to
the issuer would be governed by the
requirements of Standard Review
Follow-Ons.
16. A Regulated Fund would be
permitted to invest in Standard Review
Follow-Ons either with the approval of
the Required Majority under Condition
9(c) or without Board approval under
Condition 9(b) if it is (i) a Pro Rata
Follow-On Investment 16 or (ii) a Non14 ‘‘Follow-On Investment’’ means an additional
investment in the same issuer, including, but not
limited to, through the exercise of warrants,
conversion privileges or other rights to purchase
securities of the issuer.
15 ‘‘Pre-Boarding Investments’’ are investments in
an issuer held by a Regulated Fund as well as one
or more Affiliated Investors and/or one or more
other Regulated Funds that were acquired prior to
participating in any Co-Investment Transaction: (i)
In transactions in which the only term negotiated
by or on behalf of such funds was price in reliance
on one of the JT No-Action Letters (defined below);
or (ii) in transactions occurring at least 90 days
apart and without coordination between the
Regulated Fund and any Affiliated Investor or other
Regulated Fund.
16 A ‘‘Pro Rata Follow-On Investment’’ is a
Follow-On Investment (i) in which the participation
of each Affiliated Investor and each Regulated Fund
is proportionate to its outstanding investments in
the issuer or security, as appropriate, immediately
preceding the Follow-On Investment, and (ii) in the
case of a Regulated Fund, a majority of the Board
has approved the Regulated Fund’s participation in
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Negotiated Follow-On Investment.17
Applicants believe that these Pro Rata
and Non-Negotiated Follow-On
Investments do not present a significant
opportunity for overreaching on the part
of any Adviser and thus do not warrant
the time or the attention of the Board.
Pro Rata Follow-On Investments and
Non-Negotiated Follow-On Investments
remain subject to the Board’s periodic
review in accordance with Condition
11.
17. Applicants propose that
Dispositions 18 would be divided into
two categories. If the Regulated Funds
and Affiliated Investors holding
investments in the issuer had previously
participated in a Co-Investment
Transaction with respect to the issuer,
then the terms and approval of the
Disposition would be subject to the
Standard Review Dispositions described
in Condition 7. If the Regulated Funds
and Affiliated Investors have not
previously participated in a CoInvestment Transaction with respect to
the issuer but hold a Pre-Boarding
Investment, then the terms and approval
of the Disposition would be subject to
the Enhanced Review Dispositions
described in Condition 8. Subsequent
Dispositions with respect to the same
issuer would be governed by Condition
7 under the Standard Review
Dispositions.19
the pro rata Follow-On Investments as being in the
best interests of the Regulated Fund. The Regulated
Fund’s Board may refuse to approve, or at any time
rescind, suspend or qualify, its approval of Pro Rata
Follow-On Investments, in which case all
subsequent Follow-On Investments will be
submitted to the Regulated Fund’s Eligible Trustees
in accordance with Condition 9(c).
‘‘Proportionality,’’ as used in this context, is
discussed in greater detail in footnote 29 below.
17 A ‘‘Non-Negotiated Follow-On Investment’’ is a
Follow-On Investment in which a Regulated Fund
participates together with one or more Affiliated
Investors and/or one or more other Regulated Funds
(i) in which the only term negotiated by or on behalf
of the funds is price and (ii) with respect to which,
if the transaction were considered on its own, the
funds would be entitled to rely on one of the Joint
Transaction No-Action Letters.
‘‘Joint Transaction No-Action Letters’’ means
SMC Capital, Inc., SEC No-Action Letter (pub. avail.
Sept. 5, 1995) and Massachusetts Mutual Life
Insurance Company, SEC No-Action Letter (pub.
avail. June 7, 2000).
18 ‘‘Disposition’’ means the sale, exchange or
other disposition of an interest in a security of an
issuer.
19 However, with respect to an issuer, if a
Regulated Fund’s first Co-Investment Transaction is
an Enhanced Review Disposition, and the Regulated
Fund does not dispose of its entire position in the
Enhanced Review Disposition, then before such
Regulated Fund may complete its first Standard
Review Follow-On in such issuer, the Eligible
Trustees must review the proposed Follow-On
Investment not only on a stand-alone basis but also
in relation to the total economic exposure in such
issuer (i.e., in combination with the portion of the
Pre-Boarding Investment not disposed of in the
Enhanced Review Disposition), and the other terms
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18. A Regulated Fund may participate
in a Standard Review Disposition either
with the approval of the Required
Majority under Condition 7(d) or
without Board approval under
Condition 7(c) if (i) the Disposition is a
Pro Rata Disposition 20 or (ii) the
securities are Tradable Securities 21 and
the Disposition meets the other
requirements of Condition 7(c)(ii). Pro
Rata Dispositions and Dispositions of a
Tradable Security remain subject to the
Board’s periodic review in accordance
with Condition 11.
19. No Eligible Trustee will have a
financial interest in any Co-Investment
Transaction, other than indirectly
through share ownership in one of the
Regulated Funds.
Applicants’ Legal Analysis
1. Section 57(a)(4) of the Act prohibits
certain affiliated persons of a BDC from
participating in joint transactions with
the BDC or a company controlled by a
BDC in contravention of rules as
prescribed by the Commission. Under
section 57(b)(2) of the Act, any person
who is directly or indirectly controlling,
controlled by, or under common control
with a BDC is subject to section 57(a)(4)
of the Act. Section 57(i) of the Act
provides that, until the Commission
prescribes rules under section 57(a)(4)
of the Act, the Commission’s rules
under section 17(d) of the Act
of the investments. This additional review would be
required because such findings would not have
been required in connection with the prior
Enhanced Review Disposition, but they would have
been required had the first Co-Investment
Transaction been an Enhanced Review Follow-On.
20 A ‘‘Pro Rata Disposition’’ is a Disposition (i) in
which the participation of each Affiliated Investor
and each Regulated Fund is proportionate to its
outstanding investment in the security subject to
Disposition immediately preceding the Disposition;
and (ii) in the case of a Regulated Fund, a majority
of the Board has approved the Regulated Fund’s
participation in pro rata Dispositions as being in the
best interests of the Regulated Fund. The Regulated
Fund’s Board may refuse to approve, or at any time
rescind, suspend or qualify, its approval of Pro Rata
Dispositions, in which case all subsequent
Dispositions will be submitted to the Regulated
Fund’s Eligible Trustees. ‘‘Proportionality,’’ as used
in this context, is discussed in greater detail in
footnote 27 below.
21 ‘‘Tradable Security’’ means a security that
meets the following criteria at the time of
Disposition: (i) It trades on a national securities
exchange or designated offshore securities market
as defined in rule 902(b) under the 1933 Act; (ii)
it is not subject to restrictive agreements with the
issuer or other security holders; and (iii) it trades
with sufficient volume and liquidity (findings as to
which are documented by the Advisers to any
Regulated Funds holding investments in the issuer
and retained for the life of the Regulated Fund) to
allow each Regulated Fund to dispose of its entire
position remaining after the proposed Disposition
within a short period of time not exceeding 30 days
at approximately the value (as defined by section
2(a)(41) of the Act) at which the Regulated Fund has
valued the investment.
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applicable to registered investment
companies will be deemed to apply to
transactions subject to section 57(a)(4)
of the Act. Because the Commission has
not adopted any rules under section
57(a)(4) of the Act, rule 17d–1
thereunder applies.
2. Section 17(d) of the Act and rule
17d–1 under the Act prohibit affiliated
persons of a registered investment
company from participating in joint
transactions with the company unless
the Commission has granted an order
permitting such transactions. In passing
upon applications under rule 17d–1, the
Commission considers whether the
company’s participation in the joint
transaction is consistent with the
provisions, policies, and purposes of the
Act and the extent to which such
participation is on a basis different from
or less advantageous than that of other
participants.
3. Applicants state that certain
transactions effected as part of the CoInvestment Program may be prohibited
by sections 17(d) and 57(a)(4) of the Act
and rule 17d–1 thereunder without a
prior exemptive order of the
Commission to the extent that the
Affiliated Investors fall within the
category of persons described by section
17(d) or section 57(b) of the Act, as
modified by rule 57b–1 thereunder with
respect to a Regulated Fund. Applicants
believe that the proposed terms and
conditions will ensure would ensure
that the conflicts of interest that section
17(d) and section 57(a)(4) of the Act
were designed to prevent would be
addressed and the standards for an
order under rule 17d–1 under the Act
are met.
Applicants’ Conditions
Applicants agree that any Order
granting the requested relief shall be
subject to the following conditions:
1. (a) Each Adviser will establish,
maintain and implement policies and
procedures reasonably designed to
ensure that each Adviser is promptly
notified, for each Regulated Fund the
Adviser manages, of all Potential CoInvestment Transactions 22 that (i) an
Adviser considers for any other
Regulated Fund or Affiliated Investor
and (ii) fall within the Regulated Fund’s
then-current Objectives and Strategies
and Board-Established Criteria.
(b) When an Adviser to a Regulated
Fund is notified of a Potential CoInvestment Transaction under condition
1(a), such Adviser will make an
independent determination of the
22 No Primary Adviser will be the source of any
Potential Co-Investment Transactions under the
requested Order.
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appropriateness of the investment for
the Regulated Fund in light of the
Regulated Fund’s then-current
circumstances.
2. (a) If the Adviser deems a Regulated
Fund’s participation in any Potential
Co-Investment Transaction to be
appropriate for the Regulated Fund, it
will then determine an appropriate level
of investment for the Regulated Fund.
(b) If the aggregate amount
recommended by the applicable Adviser
to be invested by the applicable
Regulated Fund in the Potential CoInvestment Transaction, together with
the amount proposed to be invested by
the other participating Regulated Funds
and Affiliated Investors, collectively, in
the same transaction, exceeds the
amount of the investment opportunity,
then the investment opportunity will be
allocated among them pro rata based on
each participant’s Available Capital 23
up to the amount proposed to be
invested by each. The applicable
Adviser will provide the Eligible
Trustees of each participating Regulated
Fund with information concerning each
participating party’s Available Capital to
assist the Eligible Trustees with their
review of the Regulated Fund’s
investments for compliance with these
allocation procedures.
(c) After making the determinations
required in conditions 1 and 2(a), the
applicable Adviser will distribute
written information concerning the
Potential Co-Investment Transaction
(including the amount proposed to be
invested by each participating Regulated
Fund and Affiliated Investor) to the
Eligible Trustees of each participating
Regulated Fund for their consideration.
A Regulated Fund will co-invest with
one or more other Regulated Funds and/
or one or more Affiliated Investors only
if, prior to the Regulated Fund’s
participation in the Potential Co23 ‘‘Available Capital’’ means (a) for each
Regulated Entity, the amount of capital available for
investment determined based on the amount of cash
on hand, liquidity considerations, existing
commitments and reserves, if any, the targeted
leverage level, targeted asset mix, risk return and
target-return profile, tax implications, regulatory or
contractual restrictions or consequences and other
investment policies and restrictions set from time
to time by the Board of the applicable Regulated
Entity or imposed by applicable laws, rules,
regulations or interpretations, and (b) for each
Affiliated Investor, the amount of capital available
for investment determined based on the amount of
cash on hand, liquidity considerations, existing
commitments and reserves, if any, the targeted
leverage level, targeted asset mix, risk return and
target-return profile, tax implications, regulatory or
contractual restrictions or consequences and other
investment policies and restrictions set from time
to time by the Affiliated Investors’ directors, general
partners, or adviser or imposed by applicable laws,
rules, regulations or interpretations.
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66947
Investment Transaction, a Required
Majority concludes that:
(i) The terms of the Potential CoInvestment Transaction, including the
consideration to be paid, are reasonable
and fair to the Regulated Fund and its
shareholders and do not involve
overreaching in respect of the Regulated
Fund or its shareholders on the part of
any person concerned;
(ii) the Potential Co-Investment
Transaction is consistent with:
(A) The interests of the shareholders
of the Regulated Fund; and
(B) the Regulated Fund’s then-current
Objectives and Strategies;
(iii) the investment by any other
Regulated Funds or Affiliated Investors
would not disadvantage the Regulated
Fund, and participation by the
Regulated Fund would not be on a basis
different from or less advantageous than
that of other Regulated Funds or
Affiliated Investors; provided that, if
any other Regulated Fund or Affiliated
Investor, but not the Regulated Fund
itself, gains the right to nominate a
director for election to a portfolio
company’s board of directors or the
right to have a board observer or any
similar right to participate in the
governance or management of the
portfolio company, such event shall not
be interpreted to prohibit the Required
Majority from reaching the conclusions
required by this condition (2)(c)(iii), if:
(A) The Eligible Trustees will have
the right to ratify the selection of such
director or board observer, if any;
(B) the applicable Adviser agrees to,
and does, provide periodic reports to
the Regulated Fund’s Board with respect
to the actions of such director or the
information received by such board
observer or obtained through the
exercise of any similar right to
participate in the governance or
management of the portfolio company;
and
(C) any fees or other compensation
that any Affiliated Investor or any
Regulated Fund or any affiliated person
of any Affiliated Investor or any
Regulated Fund receives in connection
with the right of an Affiliated Investor
or a Regulated Fund to nominate a
director or appoint a board observer or
otherwise to participate in the
governance or management of the
portfolio company will be shared
proportionately among the participating
Affiliated Investors (who each may, in
turn, share its portion with its affiliated
persons), and the participating
Regulated Funds in accordance with the
amount of each party’s investment; and
(iv) the proposed investment by the
Regulated Fund will not benefit the
Advisers, the Affiliated Investors, the
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other Regulated Funds or any Primary
Adviser or any affiliated person of any
of them (other than the parties to the CoInvestment Transaction), except
(A) to the extent permitted by
condition 15;
(B) to the extent permitted by section
17(e) or 57(k) of the Act, as applicable;
(C) indirectly, as a result of an interest
in the securities issued by one of the
parties to the Co-Investment
Transaction; or
(D) in the case of fees or other
compensation described in condition
2(c)(iii)(C).
3. Each Regulated Fund has the right
to decline to participate in any Potential
Co-Investment Transaction or to invest
less than the amount proposed.
4. The applicable Adviser will present
to the Board of each Regulated Fund, on
a quarterly basis, a record of all
investments in Potential Co-Investment
Transactions made by any of the other
Regulated Funds or Affiliated Investors
during the preceding quarter that fell
within the Regulated Fund’s thencurrent Objectives and Strategies and
Board Established Criteria that were not
made available to the Regulated Fund,
and an explanation of why the
investment opportunities were not
offered to the Regulated Fund. All
information presented to the Board
pursuant to this condition will be kept
for the life of the Regulated Fund and
at least two years thereafter, and will be
subject to examination by the
Commission and its staff.
5. Except for Follow-On Investments
made in accordance with Condition 9
and 10,24 a Regulated Fund will not
invest in reliance on the Order in any
issuer in which a Related Party 25 has an
investment. The Adviser will maintain
books and records that demonstrate
compliance with this condition for each
Regulated Fund.
6. A Regulated Fund will not
participate in any Potential CoInvestment Transaction unless the
terms, conditions, price, class of
securities to be purchased, settlement
date, and registration rights will be the
same for each participating Regulated
Fund and Affiliated Investor. The grant
to an Affiliated Investor or another
Regulated Fund, but not the Regulated
Fund, of the right to nominate a director
for election to a portfolio company’s
board of directors, the right to have an
observer on the board of directors or
24 This exception applies only to Follow-On
Investments by a Regulated Fund in issuers in
which that Regulated Fund already holds
investments.
25 The term ‘‘Related Party’’ means (i) any Close
Affiliate and (ii) in respect of matters as to which
any Adviser has knowledge, any Remote Affiliate.
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similar rights to participate in the
governance or management of the
portfolio company will not be
interpreted so as to violate this
condition 6, if conditions 2(c)(iii)(A), (B)
and (C) are met.
7. Standard Review Dispositions
(a) If any Regulated Fund or any
Affiliated Investor elects to sell,
exchange or otherwise dispose of an
interest in a security and one or more
Regulated Funds and Affiliated
Investors have previously participated
in a Co-Investment Transaction with
respect to the issuer, then:
(i) The Adviser to such Regulated
Fund or Affiliated Investor 26 will notify
each Regulated Fund that holds an
investment in the issuer of the proposed
Disposition at the earliest practical time;
and
(ii) the Adviser to each Regulated
Fund that holds an investment in the
issuer will formulate a recommendation
as to participation by such Regulated
Fund in the Disposition.
(b) Each Regulated Fund will have the
right to participate in such Disposition
on a proportionate basis, at the same
price and on the same terms and
conditions as those applicable to the
Affiliated Investors and any other
Regulated Fund.
(c) A Regulated Fund may participate
in such a Disposition without obtaining
prior approval of the Required Majority
if:
(i) (A) The participation of each
Regulated Fund and Affiliated Investor
in such Disposition is proportionate to
its then-current holding of the security
(or securities) of the issuer that is (or
are) the subject of the Disposition; 27 (B)
the Board of the Regulated Fund has
approved as being in the best interests
of the Regulated Fund the ability to
participate in such Dispositions on a pro
rata basis (as described in greater detail
in the application); and (C) the Board of
the Regulated Fund is provided on a
quarterly basis with a list of all
Dispositions made in accordance with
this Condition; or
(ii) each security is a Tradable
Security and (A) the Disposition is not
to the issuer or any affiliated person of
the issuer; and (B) the security is sold
for cash in a transaction in which the
only term negotiated by or on behalf of
the participating Regulated Funds and
Affiliated Investors is price.
26 Any Affiliated Proprietary Account that is not
advised by an Adviser is itself deemed to be an
Adviser for purposes of Conditions 7(a)(i), 8(a)(i),
9(a)(i) and 10(a)(i).
27 In the case of any Disposition, proportionality
will be measured by each participating Regulated
Fund’s and Affiliated Investor’s outstanding
investment in the security in question immediately
preceding the Disposition.
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(d) In all other cases, the Adviser will
provide its written recommendation as
to the Regulated Fund’s participation to
the Eligible Trustees and the Regulated
Fund will participate in such
Disposition solely to the extent that a
Required Majority determines that it is
in the Regulated Fund’s best interests.
Each Affiliated Investor and each
Regulated Fund will bear its own
expenses in connection with any such
disposition.
8. Enhanced Review Dispositions.
(a) If any Regulated Fund or Affiliated
Investor elects to sell, exchange or
otherwise dispose of a Pre-Boarding
Investment in a Potential Co-Investment
Transaction and the Regulated Funds
and Affiliated Investors have not
previously participated in a CoInvestment Transaction with respect to
the issuer:
(i) The Adviser to such Regulated
Fund or Affiliated Investor will notify
each Regulated Fund that holds an
investment in the issuer of the proposed
Disposition at the earliest practical time;
(ii) the Adviser to each Regulated
Fund that holds an investment in the
issuer will formulate a recommendation
as to participation by such Regulated
Fund in the Disposition; and
(iii) the Advisers will provide to the
Board of each Regulated Fund that
holds an investment in the issuer all
information relating to the existing
investments in the issuer of the
Regulated Funds and Affiliated
Investors, including the terms of such
investments and how they were made,
that is necessary for the Required
Majority to make the findings required
by this condition.
(b) The Adviser will provide its
written recommendation as to the
Regulated Fund’s participation to the
Eligible Trustees, and the Regulated
Fund will participate in such
Disposition solely to the extent that a
Required Majority determines that:
(i) The Disposition complies with
Condition 2(c)(i), (ii), (iii)(A), and (iv).
(ii) the making and holding of the PreBoarding Investments were not
prohibited by section 57 or rule 17d–1,
as applicable, and records the basis for
the finding in the Board minutes.
(c) The Disposition may only be
completed in reliance on the Order if:
(i) Each Regulated Fund has the right
to participate in such Disposition on a
proportionate basis, at the same price
and on the same terms and Conditions
as those applicable to the Affiliated
Investors and any other Regulated Fund;
(ii) All of the Affiliated Investors’ and
Regulated Funds’ investments in the
issuer are Pre-Boarding Investments;
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(iii) Independent counsel to the Board
advises that the making and holding of
the investments in the Pre-Boarding
Investments were not prohibited by
section 57 (as modified by rule 57b–1)
or rule 17d–1, as applicable;
(iv) All Regulated Funds and
Affiliated Investors that hold PreBoarding Investments in the issuer
immediately before the time of
completion of the Co-Investment
Transaction hold the same security or
securities of the issuer. For the purpose
of determining whether the Regulated
Funds and Affiliated Investors hold the
same security or securities, they may
disregard any security held by some but
not all of them if, prior to relying on the
Order, the Required Majority is
presented with all information
necessary to make a finding, and finds,
that: (A) Any Regulated Fund’s or
Affiliated Investor’s holding of a
different class of securities (including
for this purpose a security with a
different maturity date) is immaterial 28
in amount, including immaterial
relative to the size of the issuer; and (B)
the Board records the basis for any such
finding in its minutes. In addition,
securities that differ only in respect of
issuance date, currency, or
denominations may be treated as the
same security; and
(d) The Affiliated Investors, the other
Regulated Funds and their affiliated
persons (within the meaning of section
2(a)(3)(C) of the Act), individually or in
the aggregate, do not control the issuer
of the securities (within the meaning of
section 2(a)(9) of the Act).
9. Standard Review Follow-Ons.
(a) If any Regulated Fund or Affiliated
Investor desires to make a Follow-On
Investment in an issuer and the
Regulated Funds and Affiliated
Investors holding investments in the
issuer previously participated in a CoInvestment Transaction with respect to
the issuer:
(i) The Adviser to each such
Regulated Fund or Affiliated Investor
will notify each Regulated Fund that
holds securities of the portfolio
company of the proposed transaction at
the earliest practical time; and
(ii) the Adviser to each Regulated
Fund that holds an investment in the
issuer will formulate a recommendation
as to the proposed participation,
28 In determining whether a holding is
‘‘immaterial’’ for purposes of the Order, the
Required Majority will consider whether the nature
and extent of the interest in the transaction or
arrangement is sufficiently small that a reasonable
person would not believe that the interest affected
the determination of whether to enter into the
transaction or arrangement or the terms of the
transaction or arrangement.
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including the amount of the proposed
investment, by such Regulated Fund.
(b) A Regulated Fund may participate
in the Follow-On Investment without
obtaining prior approval of the Required
Majority if:
(i) (A) The proposed participation of
each Regulated Fund and each
Affiliated Investor in such investment is
proportionate to its outstanding
investments in the issuer or the security
at issue, as appropriate,29 immediately
preceding the Follow-On Investment;
and (B) the Board of the Regulated Fund
has approved as being in the best
interests of the Regulated Fund the
ability to participate in Follow-On
Investments on a pro rata basis (as
described in greater detail in the
application); or
(ii) it is a Non-Negotiated Follow-On
Investment.
(c) In all other cases, the Adviser will
provide its written recommendation as
to the Regulated Fund’s participation to
the Eligible Trustees and the Regulated
Fund will participate in such Follow-On
Investment solely to the extent that a
Required Majority makes the
determinations set forth in Condition
2(c). If the only previous Co-Investment
Transaction with respect to the issuer
was an Enhanced Review Disposition
the Eligible Trustees must complete this
review of the proposed Follow-On
Investment both on a stand-alone basis
and together with the Pre-Boarding
Investments in relation to the total
economic exposure and other terms of
the investment.
(d) If, with respect to any such
Follow-On Investment:
(i) The amount of the opportunity
proposed to be made available to any
Regulated Fund is not based on the
Regulated Funds’ and the Affiliated
Investors’ outstanding investments in
the issuer or the security at issue, as
appropriate, immediately preceding the
Follow-On Investment; and
(ii) if the aggregate amount
recommended by the applicable Adviser
to be invested by the applicable
29 To the extent that a Follow-On Investment
opportunity is in a security or arises in respect of
a security held by the participating Regulated
Funds and Affiliated Investors, proportionality will
be measured by each participating Regulated Fund’s
and Affiliated Investor’s outstanding investment in
the security in question immediately preceding the
Follow-On Investment using the most recent
available valuation thereof. To the extent that a
Follow-On Investment opportunity relates to an
opportunity to invest in a security that is not in
respect of any security held by any of the
participating Regulated Funds or Affiliated
Investors, proportionality will be measured by each
participating Regulated Fund’s and Affiliated
Investor’s outstanding investment in the issuer
immediately preceding the Follow-On Investment
using the most recent available valuation thereof.
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66949
Regulated Fund in the Potential CoInvestment Transaction, together with
the amount proposed to be invested by
the other participating Regulated Funds
and Affiliated Investors, collectively, in
the same transaction, exceeds the
amount of the investment opportunity;
then the Follow-On Investment
opportunity will be allocated among
them pro rata based on Available
Capital (as described in greater detail in
this Application) up to the amount
proposed to be invested by each.
(e) The acquisition of Follow-On
Investments as permitted by this
Condition will be considered a CoInvestment Transaction for all purposes
and subject to the other Conditions set
forth in this application.
10. Enhanced Review Follow-Ons.
(a) If any Regulated Fund or Affiliated
Investor desires to make a Follow-On
Investment in an issuer that is a
Potential Co-Investment Transaction
and the Regulated Funds and Affiliated
Investors holding investments in the
issuer have not previously participated
in a Co-Investment Transaction with
respect to the issuer:
(i) The Adviser to each such
Regulated Fund or Affiliated Investor
will notify each Regulated Fund that
holds securities of the portfolio
company of the proposed transaction at
the earliest practical time;
(ii) the Adviser to each Regulated
Fund that holds an investment in the
issuer will formulate a recommendation
as to the proposed participation,
including the amount of the proposed
investment, by such Regulated Fund;
and
(iii) the Advisers will provide to the
Board of each Regulated Fund that
holds an investment in the issuer all
information relating to the existing
investments in the issuer of the
Regulated Funds and Affiliated
Investors, including the terms of such
investments and how they were made,
that is necessary for the Required
Majority to make the findings required
by this Condition.
(b) The applicable Adviser will
provide its written recommendation as
to the Regulated Fund’s participation to
the Eligible Trustees, and the Regulated
Fund will participate in such Follow-On
Investment solely to the extent that a
Required Majority reviews the proposed
Follow-On Investment both on a standalone basis and together with the PreBoarding Investments in relation to the
total economic exposure and other
terms and makes the determinations set
forth in Condition 2(c). In addition, the
Follow-On Investment may only be
completed in reliance on the Order if
the Required Majority of each
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participating Regulated Fund
determines that the making and holding
of the Pre-Boarding Investments were
not prohibited by section 57 (as
modified by rule 57b–1) or rule 17d–1,
as applicable. The basis for the Board’s
findings will be recorded in its minutes.
(c) The Follow-On Investment may
only be completed in reliance on the
Order if:
(i) All of the Affiliated Investors’ and
Regulated Funds’ investments in the
issuer are Pre-Boarding Investments;
(ii) Independent counsel to the Board
of each Regulated Fund that holds an
investment in the issuer advises that the
making and holding of the investments
in the Pre-Boarding Investments were
not prohibited by section 57 (as
modified by rule 57b–1) or rule 17d–1,
as applicable;
(iii) All Regulated Funds and
Affiliated Investors that hold PreBoarding Investments in the issuer
immediately before the time of
completion of the Co-Investment
Transaction hold the same security or
securities of the issuer. For the purpose
of determining whether the Regulated
Funds and Affiliated Investors hold the
same security or securities, they may
disregard any security held by some but
not all of them if, prior to relying on the
Order, the Required Majority is
presented with all information
necessary to make a finding, and finds,
that: (A) Any Regulated Fund’s or
Affiliated Investor’s holding of a
different class of securities (including
for this purpose a security with a
different maturity date) is immaterial in
amount, including immaterial relative to
the size of the issuer; and (B) the Board
records the basis for any such finding in
its minutes. In addition, securities that
differ only in respect of issuance date,
currency, or denominations may be
treated as the same security; and
(iv) The Affiliated Investors, the other
Regulated Funds and their affiliated
persons (within the meaning of section
2(a)(3)(C) of the Act), individually or in
the aggregate, do not control the issuer
of the securities (within the meaning of
section 2(a)(9) of the Act).
(d) If, with respect to any such
Follow-On Investment:
(i) The amount of the opportunity
proposed to be made available to any
Regulated Fund is not based on the
Regulated Funds’ and the Affiliated
Investors’ outstanding investments in
the issuer or the security at issue, as
appropriate, immediately preceding the
Follow-On Investment; and
(ii) the aggregate amount
recommended by the Advisers to be
invested in the Follow-On Investment
by the participating Regulated Funds
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16:11 Dec 05, 2019
Jkt 250001
and any participating Affiliated
Investors, collectively, exceeds the
amount of the investment opportunity,
then the Follow-On Investment
opportunity will be allocated among
them pro rata based on Available
Capital (as described in greater detail in
this application).
(e) The acquisition of Follow-On
Investments as permitted by this
Condition will be considered a CoInvestment Transaction for all purposes
and subject to the other Conditions set
forth in the application.
11. The Non-Interested Trustees of
each Regulated Fund will be provided
quarterly for review all information
concerning Potential Co-Investment
Transactions that fell within the
Regulated Fund’s then-current
Objectives and Strategies and BoardEstablished Criteria, including
investments in Potential Co-Investment
Transactions made by other Regulated
Funds or Affiliated Investors that the
Regulated Fund considered but declined
to participate in, and concerning CoInvestment Transactions in which the
Regulated Fund participated, so that the
Non-Interested Trustees may determine
whether all Potential Co-Investment
Transactions and Co-Investment
Transactions during the preceding
quarter, including those Potential CoInvestment Transactions which the
Regulated Fund considered but declined
to participate in, comply with the
conditions of the Order. In addition, the
Non-Interested Trustees will consider at
least annually: (a) The continued
appropriateness for the Regulated Fund
of participating in new and existing CoInvestment Transactions, and (b) the
continued appropriateness of any
Board-Established Criteria.
12. Each Regulated Fund will
maintain the records required by section
57(f)(3) of the Act as if each of the
Regulated Funds were a BDC and each
of the investments permitted under
these conditions were approved by the
Required Majority under section 57(f) of
the Act.
13. No Non-Interested Trustee of a
Regulated Fund will also be a director,
general partner, managing member or
principal, or otherwise an ‘‘affiliated
person’’ (as defined in the Act) of any
of the Affiliated Investors.
14. The expenses, if any, associated
with acquiring, holding or disposing of
any securities acquired in a CoInvestment Transaction (including,
without limitation, the expenses of the
distribution of any such securities
registered for sale under the 1933 Act)
will, to the extent not payable by the
Advisers under their respective
investment advisory agreements with
PO 00000
Frm 00081
Fmt 4703
Sfmt 4703
Affiliated Investors and the Regulated
Funds, be shared by the Regulated
Funds and the Affiliated Investors in
proportion to the relative amounts of the
securities held or to be acquired or
disposed of, as the case may be.
15. Any transaction fee 30 (including
break-up, structuring, monitoring or
commitment fees but excluding broker’s
fees contemplated by section 17(e) or
57(k) of the Act, as applicable), received
in connection with a Co-Investment
Transaction will be distributed to the
participating Regulated Funds and
Affiliated Investors on a pro rata basis
based on the amounts they invested or
committed, as the case may be, in such
Co-Investment Transaction. If any
transaction fee is to be held by an
Adviser pending consummation of the
transaction, the fee will be deposited
into an account maintained by the
Adviser at a bank or banks having the
qualifications prescribed in section
26(a)(1) of the Act, and the account will
earn a competitive rate of interest that
will also be divided pro rata among the
participating Regulated Funds and
Affiliated Investors based on the amount
they invest in such Co-Investment
Transaction. None of the Advisers, the
Primary Advisers, the Affiliated
Investors, the other Regulated Funds nor
any affiliated person of the Regulated
Funds or Affiliated Investors will
receive additional compensation or
remuneration of any kind as a result of
or in connection with a Co-Investment
Transaction (other than (a) in the case
of the Regulated Funds and the
Affiliated Investors, the pro rata
transaction fees described above and
fees or other compensation described in
condition 2(c)(iii)(C), and (b) in the case
of an Adviser or Primary Adviser,
investment advisory fees paid in
accordance with their respective
agreements between the Advisers and
the Regulated Fund or Affiliated
Investor).
16. If the Holders own in the aggregate
more than 25% of the Shares, then the
Holders will vote such Shares as
directed by an independent third party
when voting on (1) the election of
trustees; (2) the removal of one or more
trustees; or (3) all other matters under
either the Act or applicable state law
affecting the Board’s composition, size
or manner of election.
17. Each Regulated Fund’s chief
compliance officer, as defined in rule
38a–1(a)(4) under the Act, will prepare
an annual report for its Board each year
30 Applicants are not requesting and the staff is
not providing any relief for transaction fees
received in connection with any Co-Investment
Transaction.
E:\FR\FM\06DEN1.SGM
06DEN1
Federal Register / Vol. 84, No. 235 / Friday, December 6, 2019 / Notices
that evaluates (and documents the basis
of that evaluation) the Regulated Fund’s
compliance with the terms and
conditions of the application and the
procedures established to achieve such
compliance.
18. The Affiliated Proprietary
Accounts will not be permitted to invest
in a Potential Co-Investment
Transaction except to the extent the
aggregate demand from the Regulated
Funds and the other Affiliated Investors
is less than the total investment
opportunity.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Jill M. Peterson,
Assistant Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2019–26309 Filed 12–5–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87643; File No. SR–Phlx–
2019–50]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Phlx Rule 507
December 2, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
18, 2019, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
lotter on DSKBCFDHB2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Phlx Rule 507, titled ‘‘Application for
Approval as an SQT, RSQT, or RSQTO
and Assignment in Options.’’
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqphlx.cchwallstreet.com/,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
16:11 Dec 05, 2019
Jkt 250001
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1. Purpose
The Exchange proposes to amend
Phlx Rule 507, titled ‘‘Application for
Approval as an SQT, RSQT, or RSQTO
and Assignment in Options.’’
Specifically, the Exchange proposes to
delete Commentaries .02 (Maximum
Number of Quoters (‘‘MNQ’’) in Equity
Options), .03 (Increasing the MNQ in
Exceptional Circumstances), and .04
(Announcing Regarding, or Changes to
MNQs) to Rule 507. The term ‘‘MNQ’’
refers to the maximum number of
participants that may be assigned in a
particular equity option at any one time.
The MNQ level for options trading on
the Exchange is 30 for all equity options
listed for trading on the Exchange.’’ The
Exchange believes that its proposal will
promote liquidity on Phlx.
Background
In 2006, the Exchange filed an
amendment to Phlx Rule 507 to enable
the Exchange to manage its quotation
traffic and bandwidth capacity by
limiting the number of streaming quote
market participants that may be
assigned to a particular option at a given
point in time.3 Specifically, the rule
change established: (i) A maximum
number of quoters (‘‘MNQ’’) equity
options based on each option’s monthly
trading volume; (ii) a process for
recalculating the MNQ based upon
changes in an option’s monthly trading
volume; (iii) an increase to the MNQ
due to exceptional circumstances; (iv)
the process by which the Exchange will
notify market participants of changes to
3 See Securities Exchange Act Release No. 55114
(January 17, 2007), 72 FR 3185 (January 24, 2007)
(SR–Phlx–2006–81) (Order Granting Approval to
Proposed Rule Change Relating to the
Establishment of a Maximum Number of Quoting
Participants Permitted in a Particular Option on the
Exchange).
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
66951
the MNQ; and (v) additional criteria
relating to the process by which the
Exchange will assign Streaming Quote
Traders (‘‘SQTs’’) 4 and/or Remote
Streaming Quote Trader (‘‘RSQT’’) 5
applicants in options in the event that
there are more applicants for assignment
in a particular option than there are
positions.6 The Exchange’s filing also
noted the manner in which the MNQ
would be recalculated within the first
five days of each month based on the
previous month’s trading volume (‘‘new
MNQ’’) as well as the process by which
the Exchange will administer a decrease
in the previous month’s MNQ.7 The rule
change also permitted the Exchange to
increase the MNQ in exceptional
circumstances.8
Since the adoption of this provision
the Exchange has amended Phlx Rule
507 9 to provide additional liquidity in
equity options on the Exchange by
increasing the MNQ in all equity
options. Currently, the MNQ level is set
to 30 for all equity options listed for
trading on the Exchange.
The Chicago Board Options Exchange,
Incorporated (‘‘Cboe’’) also had a similar
limit that it imposed on its market
making participants within its former
Rule 8.3A, which limited the number of
market participants that could quote
4 A ‘‘Streaming Quote Trader’’ or ‘‘SQT’’ is an
Registered Options Trader who has received
permission from the Exchange to generate and
submit option quotations electronically in options
to which such SQT is assigned. An SQT may only
submit such quotations while such SQT is
physically present on the trading floor of the
Exchange. An SQT may only submit quotes in
classes of options in which the SQT is assigned. See
Phlx Rule 1000(b)(59).
5 A ‘‘Remote Streaming Quote Trader’’ or ‘‘RSQT’’
is an Registered Options Trader that is a member
affiliated with an Remote Streaming Quote Trader
Organization with no physical trading floor
presence who has received permission from the
Exchange to generate and submit option quotations
electronically in options to which such RSQT has
been assigned. A qualified RSQT may function as
a Remote Specialist upon Exchange approval. An
RSQT is also known as a Remote Market Maker
(‘‘RMM’’) pursuant to Rule 501. A Remote
Streaming Quote Organization (‘‘RSQTO’’) or
Remote Market Maker Organization (‘‘RMO’’) are
Exchange member organizations that have qualified
pursuant to Rule 507. See Phlx Rule 1000(b)(60).
6 See note 3 above.
7 See note 3 above.
8 See note 3 above.
9 See Securities Exchange Act Release Nos. 56261
(August 15, 2007), 72 FR 47112 (August 22, 2007)
(SR–Phlx–2007–51); 58906 (November 6, 2008), 73
FR 67239 (November 13, 2008) (SR–Phlx–2008–76);
60688 (September 18, 2009), 74 FR 49058
(September 25, 2009) (SR–Phlx–2009–82); 65373
(September 21, 2011), 76 FR 59764 (September 27,
2011) (SR–Phlx–2011–127) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
Relating to the Maximum Number of Quoters
(‘‘MNQ’’) Permitted To Be Assigned in Equity
Options).
E:\FR\FM\06DEN1.SGM
06DEN1
]]>Agencies
[Federal Register Volume 84, Number 235 (Friday, December 6, 2019)]
[Notices]
[Pages 66943-66951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26309]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33707; 812-14967]
Blackstone Alternative Alpha Fund, et al.
December 2, 2019.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of application for an order under sections 17(d) and 57(i)
of the Investment Company Act of 1940 (the ``Act'') and rule 17d-1
under the Act to permit certain joint transactions otherwise prohibited
by sections 17(d) and 57(a)(4) of the Act and rule 17d-1 under the Act.
Summary of Application: Applicants request an order to permit business
development companies (``BDCs'') and closed-end management investment
companies to co-invest in portfolio companies with each other and with
certain affiliated investment funds and accounts.
Applicants: Blackstone Alternative Alpha Fund (``BAAF''); Blackstone
Alternative Alpha Fund II (``BAAF II''); Blackstone Alternative Alpha
Master Fund (``BAAF Master Fund''); Blackstone Alternative Multi-
Strategy Fund (``BAMSF'', and together with BAAF, BAAF II and the BAAF
Master Fund, the ``BAAM Regulated Funds''); Blackstone Alternative
Asset Management, L.P. (``BAAM''), the investment adviser to BAAF, BAAF
II and BAAF Master Fund; Blackstone Alternative Investment Advisors LLC
(``BAIA''), the investment adviser to BAMSF; the investment advisers
set forth in Schedule A to the application (together with BAAM and
BAIA, the ``BAAM Advisers''); the Existing Affiliated Investors set
forth on Schedule A to the application.\1\
---------------------------------------------------------------------------
\1\ The Existing Affiliated Investors, together with their
direct and indirect wholly-owned subsidiaries, are entities (i)
whose primary investment adviser is a BAAM Adviser and (ii) that
either (A) would be an investment company but for section 3(c)(1),
3(c)(5)(C) or 3(c)(7) of the Act or (B) rely on the rule 3a-7
exemption thereunder from investment company status.
Filing Dates: The application was filed on October 24, 2018, and
---------------------------------------------------------------------------
amended on June 3, 2019 and September 10, 2019.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on December 27, 2019, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
St. NE, Washington, DC 20549-1090.
[[Page 66944]]
Applicants: 345 Park Avenue, New York, New York 10154.
FOR FURTHER INFORMATION CONTACT: Asen Parachkevov, Senior Counsel, or
Kaitlin Bottock, Branch Chief, at (202) 551-6821 (Chief Counsel's
Office, Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicants' Representations
1. BAAF, BAAF II and BAAF Master Fund, each a Massachusetts
business trust, are externally managed, non-diversified, closed-end
management investment companies. Each of BAAF's, BAAF II's and BAAF
Master Fund's investment objective is to seek to earn attractive long-
term risk-adjusted returns by primarily investing in non-traditional or
``alternative'' strategies. BAAF and BAAF II are ``feeder'' funds that
invest substantially all of their assets in BAAF Master Fund. Each of
BAAF, BAAF II and BAAF Master Fund have a six-member Board, of which
four members are Non-Interested Trustees.\2\
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\2\ ``Board'' means the board of trustees (or equivalent) of the
BAAM Regulated Funds and any other Regulated Fund (as defined
below).
``Non-Interested Trustees'' means the Non-Interested Trustees of
the BAAM Regulated Funds and any other Regulated Fund who are not
``interested persons'' within the meaning of section 2(a)(19) of the
Act.
---------------------------------------------------------------------------
2. BAMSF, a Massachusetts business trust, is currently the sole
series of Blackstone Alternative Investment Funds, and operates as a
diversified, open-end management investment company. BAMSF's investment
objective is to seek capital appreciation primarily through investing
in non-traditional or ``alternative'' strategies. BASMF has a six-
member Board, of which four members are Non-Interested Trustees.
3. Each Adviser \3\ is a subsidiary of The Blackstone Group, L.P.
(``Blackstone''). Blackstone is a leading global alternative asset
manager, whose alternative asset management businesses include
investment vehicles focused on private equity, real estate, hedge fund
solutions, non-investment grade credit, secondary private equity funds
of funds and multi-asset class strategies. Blackstone's four business
segments are (1) private equity, (2) real estate, (3) hedge fund
solutions and (4) credit.
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\3\ The term ``Adviser'' means (i) the BAAM Advisers and (ii)
any future investment adviser that controls, is controlled by or is
under common control with a BAAM Adviser and is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
``Advisers Act'') that intends to participate in the Co-Investment
Program (as defined below).
The term ``Primary Adviser'' means any future investment adviser
that (i) controls, is controlled by or is under common control with
an Adviser, (ii) is registered as an investment adviser under the
Advisers Act, and (iii) is not an Adviser. For the avoidance of
doubt, a Primary Adviser will not be treated as an Adviser under the
requested Order, but will be subject to conditions 2(c)(iv) and 15
of the requested Order. A Primary Adviser will not rely on the
requested Order with respect to any investment vehicles it manages
other than to the extent those vehicles are sub-advised by an
Adviser.
---------------------------------------------------------------------------
4. The BAAM Advisers operate as a self-contained advisory business
within Blackstone's hedge fund solutions group. Each BAAM Adviser is
under common control with BAAM and BAIA, the Adviser to each of the
BAAM Regulated Funds, and collectively the BAAM Advisers conduct a
single advisory business for purposes of the requested Order. The BAAM
Advisers are each either separately registered as investment advisers
with the Commission, or are relying advisers that rely on the
registration of another BAAM Adviser. No BAAM Adviser is a relying
adviser of any Blackstone-affiliated investment adviser from outside of
the self-contained group.
5. Applicants seek an order to permit one or more Regulated Funds
\4\ to be able to participate with one or more other Regulated Funds
and/or one or more Affiliated Investors \5\ in the same investment
opportunities through a proposed co-investment program where such
participation would otherwise be prohibited under sections 17(d) and
57(a)(4) of the Act and rule 17d-1 thereunder (the ``Co-Investment
Program'').
---------------------------------------------------------------------------
\4\ ``Regulated Fund'' means any of the BAAM Regulated Funds and
any future closed-end management or future open-end management
investment company or future series of an open-end investment
company (i) that has elected to be regulated as a business
development company (``BDC'') or is registered under the Act, (ii)
whose investment adviser is an Adviser and (iii) who intends to
participate in the Co-Investment Program.
Section 2(a)(48) of the Act defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
\5\ ``Affiliated Investor'' means (i) the Existing Affiliated
Investors, (ii) any Affiliated Proprietary Account and (iii) any
Future Affiliated Investor.
``Future Affiliated Investor'' means an entity (i)(A) whose
investment adviser is an Adviser or (B) whose investment adviser is
a Primary Adviser and whose sub-adviser is an Adviser (a ``Sub-
Advised Affiliated Investor''), and (ii) that either (A) would be an
investment company but for an exemption in section 3(c)(1),
3(c)(5)(C) or 3(c)(7) of the Act or (B) relies on the rule 3a-7
exemption thereunder from investment company status, and (iii) that
intends to participate in the Co-Investment Program.
``Affiliated Proprietary Account'' means any account of an
Adviser or its affiliates or any company that is an indirect,
wholly- or majority-owned subsidiary of an Adviser or its
affiliates, which, from time to time, may hold various financial
assets in a principal capacity. For the avoidance of doubt, none of
the Regulated Funds, the Existing Affiliated Investors or any Future
Affiliated Investors shall be deemed to be Affiliated Proprietary
Accounts for purposes of the requested Order.
---------------------------------------------------------------------------
6. For purposes of the requested Order, ``Co-Investment
Transaction'' means any transaction in which one or more Regulated
Funds (or one or more Wholly-Owned Investment Subsidiaries, as defined
below) participates together with one or more other Regulated Funds (or
one or more Wholly-Owned Investment Subsidiaries, as defined below)
and/or one or more Affiliated Investors in reliance on the requested
Order. ``Potential Co-Investment Transaction'' \6\ means any investment
opportunity in which a Regulated Fund (or its Wholly-Owned Investment
Subsidiary, as defined below) could not participate together with one
or more Affiliated Investors and/or one or more other Regulated Funds
without obtaining and relying on the requested Order.\7\ Funds that are
advised or sub-advised by affiliates of Blackstone other than an
Adviser or Primary Adviser will not participate in the Co-Investment
Program. No Primary Adviser will be the source of any Potential Co-
Investment Transactions under the requested Order. Potential Co-
Investment Transactions will not be shared outside of the Co-Investment
Program.
---------------------------------------------------------------------------
\6\ Investment opportunities that are sourced by sub-advisers
that are not BAAM Advisers are excluded from the definition of
Potential Co-Investment Transactions. Only investments that are
sourced by BAAM Advisers will be considered Potential Co-Investment
Transactions that are subject to condition 1 of the requested Order.
\7\ All existing entities that currently intend to rely upon the
requested Order have been named as applicants. Any other existing or
future entity that subsequently relies on the Order will comply with
the terms and conditions of the application.
---------------------------------------------------------------------------
7. Applicants state that a Regulated Fund may, from time to time,
form a special purpose subsidiary (a ``Wholly-Owned Investment
Subsidiary'').\8\ A
[[Page 66945]]
Wholly-Owned Investment Subsidiary would be prohibited from investing
in a Co-Investment Transaction with another Regulated Fund or any
Affiliated Investor because it would be a company controlled by its
parent Regulated Fund for purposes of sections 17(d) and 57(a)(4) of
the Act and rule 17d-1 thereunder. Applicants request that a Wholly-
Owned Investment Subsidiary be permitted to participate in Co-
Investment Transactions in lieu of the applicable Regulated Fund and
that the Wholly-Owned Investment Subsidiary's participation in any such
transaction be treated, for purposes of the requested Order, as though
the parent Regulated Fund were participating directly.
---------------------------------------------------------------------------
\8\ ``Wholly-Owned Investment Subsidiary'' means an (i) whose
sole business purpose is to hold one or more investments on behalf
of a Regulated Fund (and, in the case of an SBIC Subsidiary (as
defined below), maintain a license under the SBA Act (as defined
below) and issue debentures guaranteed by the SBA (as defined
below)); (ii) that is wholly-owned by a Regulated Fund (with such
Regulated Fund at all times holding, beneficially and of record,
100% of the voting and economic interests); (iii) with respect to
which the Board of the Regulated Fund has the sole authority to make
all determinations with respect to the Wholly-Owned Investment
Subsidiary's participation under the conditions of the requested
Order; and (iv) that is an entity that would be an investment
company but for an exemption in section 3(c)(1) or 3(c)(7) of the
Act.
The term ``SBIC Subsidiary'' means a Wholly-Owned Investment
Subsidiary that is licensed by the Small Business Administration
(the ``SBA'') to operate under the Small Business Investment Act of
1958, as amended, (the ``SBA Act'') as a small business investment
company (a ``SBIC'').
---------------------------------------------------------------------------
8. When considering Potential Co-Investment Transactions for any
Regulated Fund, an Adviser will consider only the Objectives and
Strategies,\9\ Board-Established Criteria,\10\ investment policies,
investment positions, capital available for investment, and other
pertinent factors applicable to that Regulated Fund. The participation
of a Regulated Fund in a Potential Co-Investment Transaction may only
be approved by a Required Majority, as defined in section 57(o) of the
Act (a ``Required Majority''), of the trustees of the Board eligible to
vote on that Co-Investment Transaction under section 57(o) of the Act
(the ``Eligible Trustees'').\11\ When selecting investments for the
Affiliated Investors, an Adviser will select investments separately for
each Affiliated Investor, considering, in each case, only the
investment objective, investment policies, investment position, capital
available for investment, and other pertinent factors applicable to
that particular Affiliated Investor.
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\9\ The term ``Objectives and Strategies'' means a Regulated
Fund's investment objectives and strategies, as described in the
filings made with the Commission by the Regulated Fund under the
Securities Exchange Act of 1934, as amended, the Securities Act of
1933, as amended (the ``1933 Act'') and the Act, and the Regulated
Fund's reports to shareholders.
\10\ The term ``Board-Established Criteria'' means criteria that
the Board of the applicable Regulated Fund may establish from time
to time to describe the characteristics of Potential Co-Investment
Transactions regarding which an Adviser to the Regulated Fund should
be notified under condition 1 of the requested Order. The Board-
Established Criteria will be consistent with the Regulated Fund's
then-current Objectives and Strategies. If no Board-Established
Criteria are in effect, then the Regulated Fund's Adviser will be
notified of all Potential Co-Investment Transactions that fall
within the Regulated Fund's then current Objectives and Strategies.
Board-Established Criteria will be objective and testable, meaning
that they will be based on observable information, such as industry/
sector of the issuer, minimum earnings before interest, taxes,
depreciation, and amortization of the issuer, asset class of the
investment opportunity or required commitment size, and not on
characteristics that involve discretionary assessment. The Adviser
to the Regulated Fund may from time to time recommend criteria for
the applicable Board's consideration, but Board-Established Criteria
will only become effective if approved by a majority of the Non-
Interested Trustees. The Non-Interested Trustees of a Regulated Fund
may at any time rescind, suspend or qualify its approval of any
Board-Established Criteria, though Applicants anticipate that, under
normal circumstances, the Board would not modify these criteria more
often than quarterly.
\11\ The defined terms Eligible Trustees and Required Majority
apply as if each Regulated Fund were a BDC subject to section 57(o)
of the Act.
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9. With respect to participation in a Potential Co-Investment
Transaction by a Regulated Fund, the applicable Adviser will present
each Potential Co-Investment Transaction and the proposed allocation of
each investment opportunity to the Eligible Trustees. The Required
Majority of a Regulated Fund will approve each Co-Investment
Transaction prior to any investment by the Regulated Fund.
10. Applicants state that the majority of the BAAM Advisers'
employees work on matters for Close Affiliates \12\ and information
about potential investment opportunities is routinely disseminated
among such Adviser's employees. Other than to satisfy compliance
obligations, information regarding Potential Co-Investment Transactions
will not be shared with Remote Affiliates,\13\ which would include
other investment advisers that operate in other Blackstone business
groups, except in unusual circumstances, as the Blackstone business
groups each generally target different investment strategies or asset
classes and there are information barrier policies in place between the
Blackstone business groups. Applicants further note within the BAAM
Advisers, the personnel overlap and coordination among portfolio
management teams ensures that all relevant investment opportunities
will be brought to the attention of each Regulated Fund managed by the
respective Adviser. Applicants submit that the BAAM Advisers will
receive all information regarding all investment opportunities that
fall within the then-current Objectives and Strategies and Board-
Established Criteria of each Regulated Fund managed by the respective
Adviser.
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\12\ The term ``Close Affiliate'' means the Advisers, the
Regulated Funds, the Affiliated Investors and any other person
described in section 57(b) of the Act (after giving effect to rule
57b-1 thereunder) in respect of any Regulated Fund (treating any
registered investment company or series thereof as a BDC for this
purpose) except for limited partners included solely by reason of
the reference in section 57(b) to section 2(a)(3)(D) of the Act.
\13\ The term ``Remote Affiliate'' means any person described in
section 57(e) of the Act in respect of any Regulated Fund (treating
any registered investment company or series thereof as a BDC for
this purpose) and any limited partner holding 5% or more of the
relevant limited partner interests that would be a Close Affiliate
but for the exclusion in that definition.
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11. Applicants submit that, in the event that a Potential Co-
Investment Transaction would be within the investment objectives and
strategies of the Sub-Advised Affiliated Investor, the respective
Adviser shall have the primary responsibility for the investment,
including making the initial investment recommendation, and day-to-day
monitoring of the investment. Applicants further note that the Adviser
will be responsible for complying with the conditions of the requested
Order. Applicants state that if the Adviser and Primary Adviser agree
that the Sub-Advised Affiliated Investor should invest in the Potential
Co-Investment Transaction and at what size of investment, then the
Adviser would, consistent with the conditions of the requested Order,
determine an allocation for the Regulated Funds and Affiliated
Investors, including such Sub-Advised Affiliated Investor.
12. Applicants acknowledge that some of the Affiliated Investors
may not be funds advised by an Adviser because they are Affiliated
Proprietary Accounts. Applicants do not believe the participation of
these Affiliated Proprietary Accounts in Co-Investment Transactions
should raise issues under the conditions of the requested Order because
allocation policies and procedures of the account owners provide that
investment opportunities are offered to client accounts before they are
offered to Affiliated Proprietary Accounts.
13. Under condition 16, if an Adviser or its principals, or any
person controlling, controlled by, or under common control with the
Adviser or its principals, and any Affiliated Investor (collectively,
the ``Holders'') own in the aggregate more than 25 percent of the
outstanding voting shares of a Regulated Fund (``Shares''), then the
Holders will vote such Shares as directed by an independent third party
when voting on (1) the election of directors; (2) the removal of one or
more directors; or (3) all other matters under either the Act or
applicable state law affecting the Board's composition, size or manner
of election.
14. Applicants state that from time to time the Regulated Funds and
Affiliated
[[Page 66946]]
Investors may have opportunities to make Follow-On Investments \14\ in
an issuer in which a Regulated Fund and one or more other Regulated
Funds and/or Affiliated Investors previously have invested.
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\14\ ``Follow-On Investment'' means an additional investment in
the same issuer, including, but not limited to, through the exercise
of warrants, conversion privileges or other rights to purchase
securities of the issuer.
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15. Applicants propose that Follow-On Investments would be divided
into two categories depending on whether the prior investment was a Co-
Investment Transaction or a Pre-Boarding Investment.\15\ If the
Regulated Funds and Affiliated Investors had previously participated in
a Co-Investment Transaction with respect to the issuer, then the terms
and approval of the Follow-On Investment would be subject to the
Standard Review Follow-Ons described in Condition 9. If the Regulated
Funds and Affiliated Investors have not previously participated in a
Co-Investment Transaction with respect to the issuer but hold a Pre-
Boarding Investment, then the terms and approval of the Follow-On
Investment would be subject to the Enhanced-Review Follow-Ons described
in Condition 10. All Enhanced Review Follow-Ons require the approval of
the Required Majority. For a given issuer, the participating Regulated
Funds and Affiliated Investors would need to comply with the
requirements of Enhanced-Review Follow-Ons only for the first Co-
Investment Transaction. Subsequent Co-Investment Transactions with
respect to the issuer would be governed by the requirements of Standard
Review Follow-Ons.
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\15\ ``Pre-Boarding Investments'' are investments in an issuer
held by a Regulated Fund as well as one or more Affiliated Investors
and/or one or more other Regulated Funds that were acquired prior to
participating in any Co-Investment Transaction: (i) In transactions
in which the only term negotiated by or on behalf of such funds was
price in reliance on one of the JT No-Action Letters (defined
below); or (ii) in transactions occurring at least 90 days apart and
without coordination between the Regulated Fund and any Affiliated
Investor or other Regulated Fund.
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16. A Regulated Fund would be permitted to invest in Standard
Review Follow-Ons either with the approval of the Required Majority
under Condition 9(c) or without Board approval under Condition 9(b) if
it is (i) a Pro Rata Follow-On Investment \16\ or (ii) a Non-Negotiated
Follow-On Investment.\17\ Applicants believe that these Pro Rata and
Non-Negotiated Follow-On Investments do not present a significant
opportunity for overreaching on the part of any Adviser and thus do not
warrant the time or the attention of the Board. Pro Rata Follow-On
Investments and Non-Negotiated Follow-On Investments remain subject to
the Board's periodic review in accordance with Condition 11.
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\16\ A ``Pro Rata Follow-On Investment'' is a Follow-On
Investment (i) in which the participation of each Affiliated
Investor and each Regulated Fund is proportionate to its outstanding
investments in the issuer or security, as appropriate, immediately
preceding the Follow-On Investment, and (ii) in the case of a
Regulated Fund, a majority of the Board has approved the Regulated
Fund's participation in the pro rata Follow-On Investments as being
in the best interests of the Regulated Fund. The Regulated Fund's
Board may refuse to approve, or at any time rescind, suspend or
qualify, its approval of Pro Rata Follow-On Investments, in which
case all subsequent Follow-On Investments will be submitted to the
Regulated Fund's Eligible Trustees in accordance with Condition
9(c). ``Proportionality,'' as used in this context, is discussed in
greater detail in footnote 29 below.
\17\ A ``Non-Negotiated Follow-On Investment'' is a Follow-On
Investment in which a Regulated Fund participates together with one
or more Affiliated Investors and/or one or more other Regulated
Funds (i) in which the only term negotiated by or on behalf of the
funds is price and (ii) with respect to which, if the transaction
were considered on its own, the funds would be entitled to rely on
one of the Joint Transaction No-Action Letters.
``Joint Transaction No-Action Letters'' means SMC Capital, Inc.,
SEC No-Action Letter (pub. avail. Sept. 5, 1995) and Massachusetts
Mutual Life Insurance Company, SEC No-Action Letter (pub. avail.
June 7, 2000).
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17. Applicants propose that Dispositions \18\ would be divided into
two categories. If the Regulated Funds and Affiliated Investors holding
investments in the issuer had previously participated in a Co-
Investment Transaction with respect to the issuer, then the terms and
approval of the Disposition would be subject to the Standard Review
Dispositions described in Condition 7. If the Regulated Funds and
Affiliated Investors have not previously participated in a Co-
Investment Transaction with respect to the issuer but hold a Pre-
Boarding Investment, then the terms and approval of the Disposition
would be subject to the Enhanced Review Dispositions described in
Condition 8. Subsequent Dispositions with respect to the same issuer
would be governed by Condition 7 under the Standard Review
Dispositions.\19\
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\18\ ``Disposition'' means the sale, exchange or other
disposition of an interest in a security of an issuer.
\19\ However, with respect to an issuer, if a Regulated Fund's
first Co-Investment Transaction is an Enhanced Review Disposition,
and the Regulated Fund does not dispose of its entire position in
the Enhanced Review Disposition, then before such Regulated Fund may
complete its first Standard Review Follow-On in such issuer, the
Eligible Trustees must review the proposed Follow-On Investment not
only on a stand-alone basis but also in relation to the total
economic exposure in such issuer (i.e., in combination with the
portion of the Pre-Boarding Investment not disposed of in the
Enhanced Review Disposition), and the other terms of the
investments. This additional review would be required because such
findings would not have been required in connection with the prior
Enhanced Review Disposition, but they would have been required had
the first Co-Investment Transaction been an Enhanced Review Follow-
On.
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18. A Regulated Fund may participate in a Standard Review
Disposition either with the approval of the Required Majority under
Condition 7(d) or without Board approval under Condition 7(c) if (i)
the Disposition is a Pro Rata Disposition \20\ or (ii) the securities
are Tradable Securities \21\ and the Disposition meets the other
requirements of Condition 7(c)(ii). Pro Rata Dispositions and
Dispositions of a Tradable Security remain subject to the Board's
periodic review in accordance with Condition 11.
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\20\ A ``Pro Rata Disposition'' is a Disposition (i) in which
the participation of each Affiliated Investor and each Regulated
Fund is proportionate to its outstanding investment in the security
subject to Disposition immediately preceding the Disposition; and
(ii) in the case of a Regulated Fund, a majority of the Board has
approved the Regulated Fund's participation in pro rata Dispositions
as being in the best interests of the Regulated Fund. The Regulated
Fund's Board may refuse to approve, or at any time rescind, suspend
or qualify, its approval of Pro Rata Dispositions, in which case all
subsequent Dispositions will be submitted to the Regulated Fund's
Eligible Trustees. ``Proportionality,'' as used in this context, is
discussed in greater detail in footnote 27 below.
\21\ ``Tradable Security'' means a security that meets the
following criteria at the time of Disposition: (i) It trades on a
national securities exchange or designated offshore securities
market as defined in rule 902(b) under the 1933 Act; (ii) it is not
subject to restrictive agreements with the issuer or other security
holders; and (iii) it trades with sufficient volume and liquidity
(findings as to which are documented by the Advisers to any
Regulated Funds holding investments in the issuer and retained for
the life of the Regulated Fund) to allow each Regulated Fund to
dispose of its entire position remaining after the proposed
Disposition within a short period of time not exceeding 30 days at
approximately the value (as defined by section 2(a)(41) of the Act)
at which the Regulated Fund has valued the investment.
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19. No Eligible Trustee will have a financial interest in any Co-
Investment Transaction, other than indirectly through share ownership
in one of the Regulated Funds.
Applicants' Legal Analysis
1. Section 57(a)(4) of the Act prohibits certain affiliated persons
of a BDC from participating in joint transactions with the BDC or a
company controlled by a BDC in contravention of rules as prescribed by
the Commission. Under section 57(b)(2) of the Act, any person who is
directly or indirectly controlling, controlled by, or under common
control with a BDC is subject to section 57(a)(4) of the Act. Section
57(i) of the Act provides that, until the Commission prescribes rules
under section 57(a)(4) of the Act, the Commission's rules under section
17(d) of the Act
[[Page 66947]]
applicable to registered investment companies will be deemed to apply
to transactions subject to section 57(a)(4) of the Act. Because the
Commission has not adopted any rules under section 57(a)(4) of the Act,
rule 17d-1 thereunder applies.
2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
affiliated persons of a registered investment company from
participating in joint transactions with the company unless the
Commission has granted an order permitting such transactions. In
passing upon applications under rule 17d-1, the Commission considers
whether the company's participation in the joint transaction is
consistent with the provisions, policies, and purposes of the Act and
the extent to which such participation is on a basis different from or
less advantageous than that of other participants.
3. Applicants state that certain transactions effected as part of
the Co-Investment Program may be prohibited by sections 17(d) and
57(a)(4) of the Act and rule 17d-1 thereunder without a prior exemptive
order of the Commission to the extent that the Affiliated Investors
fall within the category of persons described by section 17(d) or
section 57(b) of the Act, as modified by rule 57b-1 thereunder with
respect to a Regulated Fund. Applicants believe that the proposed terms
and conditions will ensure would ensure that the conflicts of interest
that section 17(d) and section 57(a)(4) of the Act were designed to
prevent would be addressed and the standards for an order under rule
17d-1 under the Act are met.
Applicants' Conditions
Applicants agree that any Order granting the requested relief shall
be subject to the following conditions:
1. (a) Each Adviser will establish, maintain and implement policies
and procedures reasonably designed to ensure that each Adviser is
promptly notified, for each Regulated Fund the Adviser manages, of all
Potential Co-Investment Transactions \22\ that (i) an Adviser considers
for any other Regulated Fund or Affiliated Investor and (ii) fall
within the Regulated Fund's then-current Objectives and Strategies and
Board-Established Criteria.
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\22\ No Primary Adviser will be the source of any Potential Co-
Investment Transactions under the requested Order.
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(b) When an Adviser to a Regulated Fund is notified of a Potential
Co-Investment Transaction under condition 1(a), such Adviser will make
an independent determination of the appropriateness of the investment
for the Regulated Fund in light of the Regulated Fund's then-current
circumstances.
2. (a) If the Adviser deems a Regulated Fund's participation in any
Potential Co-Investment Transaction to be appropriate for the Regulated
Fund, it will then determine an appropriate level of investment for the
Regulated Fund.
(b) If the aggregate amount recommended by the applicable Adviser
to be invested by the applicable Regulated Fund in the Potential Co-
Investment Transaction, together with the amount proposed to be
invested by the other participating Regulated Funds and Affiliated
Investors, collectively, in the same transaction, exceeds the amount of
the investment opportunity, then the investment opportunity will be
allocated among them pro rata based on each participant's Available
Capital \23\ up to the amount proposed to be invested by each. The
applicable Adviser will provide the Eligible Trustees of each
participating Regulated Fund with information concerning each
participating party's Available Capital to assist the Eligible Trustees
with their review of the Regulated Fund's investments for compliance
with these allocation procedures.
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\23\ ``Available Capital'' means (a) for each Regulated Entity,
the amount of capital available for investment determined based on
the amount of cash on hand, liquidity considerations, existing
commitments and reserves, if any, the targeted leverage level,
targeted asset mix, risk return and target-return profile, tax
implications, regulatory or contractual restrictions or consequences
and other investment policies and restrictions set from time to time
by the Board of the applicable Regulated Entity or imposed by
applicable laws, rules, regulations or interpretations, and (b) for
each Affiliated Investor, the amount of capital available for
investment determined based on the amount of cash on hand, liquidity
considerations, existing commitments and reserves, if any, the
targeted leverage level, targeted asset mix, risk return and target-
return profile, tax implications, regulatory or contractual
restrictions or consequences and other investment policies and
restrictions set from time to time by the Affiliated Investors'
directors, general partners, or adviser or imposed by applicable
laws, rules, regulations or interpretations.
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(c) After making the determinations required in conditions 1 and
2(a), the applicable Adviser will distribute written information
concerning the Potential Co-Investment Transaction (including the
amount proposed to be invested by each participating Regulated Fund and
Affiliated Investor) to the Eligible Trustees of each participating
Regulated Fund for their consideration. A Regulated Fund will co-invest
with one or more other Regulated Funds and/or one or more Affiliated
Investors only if, prior to the Regulated Fund's participation in the
Potential Co-Investment Transaction, a Required Majority concludes
that:
(i) The terms of the Potential Co-Investment Transaction, including
the consideration to be paid, are reasonable and fair to the Regulated
Fund and its shareholders and do not involve overreaching in respect of
the Regulated Fund or its shareholders on the part of any person
concerned;
(ii) the Potential Co-Investment Transaction is consistent with:
(A) The interests of the shareholders of the Regulated Fund; and
(B) the Regulated Fund's then-current Objectives and Strategies;
(iii) the investment by any other Regulated Funds or Affiliated
Investors would not disadvantage the Regulated Fund, and participation
by the Regulated Fund would not be on a basis different from or less
advantageous than that of other Regulated Funds or Affiliated
Investors; provided that, if any other Regulated Fund or Affiliated
Investor, but not the Regulated Fund itself, gains the right to
nominate a director for election to a portfolio company's board of
directors or the right to have a board observer or any similar right to
participate in the governance or management of the portfolio company,
such event shall not be interpreted to prohibit the Required Majority
from reaching the conclusions required by this condition (2)(c)(iii),
if:
(A) The Eligible Trustees will have the right to ratify the
selection of such director or board observer, if any;
(B) the applicable Adviser agrees to, and does, provide periodic
reports to the Regulated Fund's Board with respect to the actions of
such director or the information received by such board observer or
obtained through the exercise of any similar right to participate in
the governance or management of the portfolio company; and
(C) any fees or other compensation that any Affiliated Investor or
any Regulated Fund or any affiliated person of any Affiliated Investor
or any Regulated Fund receives in connection with the right of an
Affiliated Investor or a Regulated Fund to nominate a director or
appoint a board observer or otherwise to participate in the governance
or management of the portfolio company will be shared proportionately
among the participating Affiliated Investors (who each may, in turn,
share its portion with its affiliated persons), and the participating
Regulated Funds in accordance with the amount of each party's
investment; and
(iv) the proposed investment by the Regulated Fund will not benefit
the Advisers, the Affiliated Investors, the
[[Page 66948]]
other Regulated Funds or any Primary Adviser or any affiliated person
of any of them (other than the parties to the Co-Investment
Transaction), except
(A) to the extent permitted by condition 15;
(B) to the extent permitted by section 17(e) or 57(k) of the Act,
as applicable;
(C) indirectly, as a result of an interest in the securities issued
by one of the parties to the Co-Investment Transaction; or
(D) in the case of fees or other compensation described in
condition 2(c)(iii)(C).
3. Each Regulated Fund has the right to decline to participate in
any Potential Co-Investment Transaction or to invest less than the
amount proposed.
4. The applicable Adviser will present to the Board of each
Regulated Fund, on a quarterly basis, a record of all investments in
Potential Co-Investment Transactions made by any of the other Regulated
Funds or Affiliated Investors during the preceding quarter that fell
within the Regulated Fund's then-current Objectives and Strategies and
Board Established Criteria that were not made available to the
Regulated Fund, and an explanation of why the investment opportunities
were not offered to the Regulated Fund. All information presented to
the Board pursuant to this condition will be kept for the life of the
Regulated Fund and at least two years thereafter, and will be subject
to examination by the Commission and its staff.
5. Except for Follow-On Investments made in accordance with
Condition 9 and 10,\24\ a Regulated Fund will not invest in reliance on
the Order in any issuer in which a Related Party \25\ has an
investment. The Adviser will maintain books and records that
demonstrate compliance with this condition for each Regulated Fund.
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\24\ This exception applies only to Follow-On Investments by a
Regulated Fund in issuers in which that Regulated Fund already holds
investments.
\25\ The term ``Related Party'' means (i) any Close Affiliate
and (ii) in respect of matters as to which any Adviser has
knowledge, any Remote Affiliate.
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6. A Regulated Fund will not participate in any Potential Co-
Investment Transaction unless the terms, conditions, price, class of
securities to be purchased, settlement date, and registration rights
will be the same for each participating Regulated Fund and Affiliated
Investor. The grant to an Affiliated Investor or another Regulated
Fund, but not the Regulated Fund, of the right to nominate a director
for election to a portfolio company's board of directors, the right to
have an observer on the board of directors or similar rights to
participate in the governance or management of the portfolio company
will not be interpreted so as to violate this condition 6, if
conditions 2(c)(iii)(A), (B) and (C) are met.
7. Standard Review Dispositions
(a) If any Regulated Fund or any Affiliated Investor elects to
sell, exchange or otherwise dispose of an interest in a security and
one or more Regulated Funds and Affiliated Investors have previously
participated in a Co-Investment Transaction with respect to the issuer,
then:
(i) The Adviser to such Regulated Fund or Affiliated Investor \26\
will notify each Regulated Fund that holds an investment in the issuer
of the proposed Disposition at the earliest practical time; and
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\26\ Any Affiliated Proprietary Account that is not advised by
an Adviser is itself deemed to be an Adviser for purposes of
Conditions 7(a)(i), 8(a)(i), 9(a)(i) and 10(a)(i).
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(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to participation by such
Regulated Fund in the Disposition.
(b) Each Regulated Fund will have the right to participate in such
Disposition on a proportionate basis, at the same price and on the same
terms and conditions as those applicable to the Affiliated Investors
and any other Regulated Fund.
(c) A Regulated Fund may participate in such a Disposition without
obtaining prior approval of the Required Majority if:
(i) (A) The participation of each Regulated Fund and Affiliated
Investor in such Disposition is proportionate to its then-current
holding of the security (or securities) of the issuer that is (or are)
the subject of the Disposition; \27\ (B) the Board of the Regulated
Fund has approved as being in the best interests of the Regulated Fund
the ability to participate in such Dispositions on a pro rata basis (as
described in greater detail in the application); and (C) the Board of
the Regulated Fund is provided on a quarterly basis with a list of all
Dispositions made in accordance with this Condition; or
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\27\ In the case of any Disposition, proportionality will be
measured by each participating Regulated Fund's and Affiliated
Investor's outstanding investment in the security in question
immediately preceding the Disposition.
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(ii) each security is a Tradable Security and (A) the Disposition
is not to the issuer or any affiliated person of the issuer; and (B)
the security is sold for cash in a transaction in which the only term
negotiated by or on behalf of the participating Regulated Funds and
Affiliated Investors is price.
(d) In all other cases, the Adviser will provide its written
recommendation as to the Regulated Fund's participation to the Eligible
Trustees and the Regulated Fund will participate in such Disposition
solely to the extent that a Required Majority determines that it is in
the Regulated Fund's best interests. Each Affiliated Investor and each
Regulated Fund will bear its own expenses in connection with any such
disposition.
8. Enhanced Review Dispositions.
(a) If any Regulated Fund or Affiliated Investor elects to sell,
exchange or otherwise dispose of a Pre-Boarding Investment in a
Potential Co-Investment Transaction and the Regulated Funds and
Affiliated Investors have not previously participated in a Co-
Investment Transaction with respect to the issuer:
(i) The Adviser to such Regulated Fund or Affiliated Investor will
notify each Regulated Fund that holds an investment in the issuer of
the proposed Disposition at the earliest practical time;
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to participation by such
Regulated Fund in the Disposition; and
(iii) the Advisers will provide to the Board of each Regulated Fund
that holds an investment in the issuer all information relating to the
existing investments in the issuer of the Regulated Funds and
Affiliated Investors, including the terms of such investments and how
they were made, that is necessary for the Required Majority to make the
findings required by this condition.
(b) The Adviser will provide its written recommendation as to the
Regulated Fund's participation to the Eligible Trustees, and the
Regulated Fund will participate in such Disposition solely to the
extent that a Required Majority determines that:
(i) The Disposition complies with Condition 2(c)(i), (ii),
(iii)(A), and (iv).
(ii) the making and holding of the Pre-Boarding Investments were
not prohibited by section 57 or rule 17d-1, as applicable, and records
the basis for the finding in the Board minutes.
(c) The Disposition may only be completed in reliance on the Order
if:
(i) Each Regulated Fund has the right to participate in such
Disposition on a proportionate basis, at the same price and on the same
terms and Conditions as those applicable to the Affiliated Investors
and any other Regulated Fund;
(ii) All of the Affiliated Investors' and Regulated Funds'
investments in the issuer are Pre-Boarding Investments;
[[Page 66949]]
(iii) Independent counsel to the Board advises that the making and
holding of the investments in the Pre-Boarding Investments were not
prohibited by section 57 (as modified by rule 57b-1) or rule 17d-1, as
applicable;
(iv) All Regulated Funds and Affiliated Investors that hold Pre-
Boarding Investments in the issuer immediately before the time of
completion of the Co-Investment Transaction hold the same security or
securities of the issuer. For the purpose of determining whether the
Regulated Funds and Affiliated Investors hold the same security or
securities, they may disregard any security held by some but not all of
them if, prior to relying on the Order, the Required Majority is
presented with all information necessary to make a finding, and finds,
that: (A) Any Regulated Fund's or Affiliated Investor's holding of a
different class of securities (including for this purpose a security
with a different maturity date) is immaterial \28\ in amount, including
immaterial relative to the size of the issuer; and (B) the Board
records the basis for any such finding in its minutes. In addition,
securities that differ only in respect of issuance date, currency, or
denominations may be treated as the same security; and
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\28\ In determining whether a holding is ``immaterial'' for
purposes of the Order, the Required Majority will consider whether
the nature and extent of the interest in the transaction or
arrangement is sufficiently small that a reasonable person would not
believe that the interest affected the determination of whether to
enter into the transaction or arrangement or the terms of the
transaction or arrangement.
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(d) The Affiliated Investors, the other Regulated Funds and their
affiliated persons (within the meaning of section 2(a)(3)(C) of the
Act), individually or in the aggregate, do not control the issuer of
the securities (within the meaning of section 2(a)(9) of the Act).
9. Standard Review Follow-Ons.
(a) If any Regulated Fund or Affiliated Investor desires to make a
Follow-On Investment in an issuer and the Regulated Funds and
Affiliated Investors holding investments in the issuer previously
participated in a Co-Investment Transaction with respect to the issuer:
(i) The Adviser to each such Regulated Fund or Affiliated Investor
will notify each Regulated Fund that holds securities of the portfolio
company of the proposed transaction at the earliest practical time; and
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to the proposed
participation, including the amount of the proposed investment, by such
Regulated Fund.
(b) A Regulated Fund may participate in the Follow-On Investment
without obtaining prior approval of the Required Majority if:
(i) (A) The proposed participation of each Regulated Fund and each
Affiliated Investor in such investment is proportionate to its
outstanding investments in the issuer or the security at issue, as
appropriate,\29\ immediately preceding the Follow-On Investment; and
(B) the Board of the Regulated Fund has approved as being in the best
interests of the Regulated Fund the ability to participate in Follow-On
Investments on a pro rata basis (as described in greater detail in the
application); or
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\29\ To the extent that a Follow-On Investment opportunity is in
a security or arises in respect of a security held by the
participating Regulated Funds and Affiliated Investors,
proportionality will be measured by each participating Regulated
Fund's and Affiliated Investor's outstanding investment in the
security in question immediately preceding the Follow-On Investment
using the most recent available valuation thereof. To the extent
that a Follow-On Investment opportunity relates to an opportunity to
invest in a security that is not in respect of any security held by
any of the participating Regulated Funds or Affiliated Investors,
proportionality will be measured by each participating Regulated
Fund's and Affiliated Investor's outstanding investment in the
issuer immediately preceding the Follow-On Investment using the most
recent available valuation thereof.
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(ii) it is a Non-Negotiated Follow-On Investment.
(c) In all other cases, the Adviser will provide its written
recommendation as to the Regulated Fund's participation to the Eligible
Trustees and the Regulated Fund will participate in such Follow-On
Investment solely to the extent that a Required Majority makes the
determinations set forth in Condition 2(c). If the only previous Co-
Investment Transaction with respect to the issuer was an Enhanced
Review Disposition the Eligible Trustees must complete this review of
the proposed Follow-On Investment both on a stand-alone basis and
together with the Pre-Boarding Investments in relation to the total
economic exposure and other terms of the investment.
(d) If, with respect to any such Follow-On Investment:
(i) The amount of the opportunity proposed to be made available to
any Regulated Fund is not based on the Regulated Funds' and the
Affiliated Investors' outstanding investments in the issuer or the
security at issue, as appropriate, immediately preceding the Follow-On
Investment; and
(ii) if the aggregate amount recommended by the applicable Adviser
to be invested by the applicable Regulated Fund in the Potential Co-
Investment Transaction, together with the amount proposed to be
invested by the other participating Regulated Funds and Affiliated
Investors, collectively, in the same transaction, exceeds the amount of
the investment opportunity;
then the Follow-On Investment opportunity will be allocated among
them pro rata based on Available Capital (as described in greater
detail in this Application) up to the amount proposed to be invested by
each.
(e) The acquisition of Follow-On Investments as permitted by this
Condition will be considered a Co-Investment Transaction for all
purposes and subject to the other Conditions set forth in this
application.
10. Enhanced Review Follow-Ons.
(a) If any Regulated Fund or Affiliated Investor desires to make a
Follow-On Investment in an issuer that is a Potential Co-Investment
Transaction and the Regulated Funds and Affiliated Investors holding
investments in the issuer have not previously participated in a Co-
Investment Transaction with respect to the issuer:
(i) The Adviser to each such Regulated Fund or Affiliated Investor
will notify each Regulated Fund that holds securities of the portfolio
company of the proposed transaction at the earliest practical time;
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to the proposed
participation, including the amount of the proposed investment, by such
Regulated Fund; and
(iii) the Advisers will provide to the Board of each Regulated Fund
that holds an investment in the issuer all information relating to the
existing investments in the issuer of the Regulated Funds and
Affiliated Investors, including the terms of such investments and how
they were made, that is necessary for the Required Majority to make the
findings required by this Condition.
(b) The applicable Adviser will provide its written recommendation
as to the Regulated Fund's participation to the Eligible Trustees, and
the Regulated Fund will participate in such Follow-On Investment solely
to the extent that a Required Majority reviews the proposed Follow-On
Investment both on a stand-alone basis and together with the Pre-
Boarding Investments in relation to the total economic exposure and
other terms and makes the determinations set forth in Condition 2(c).
In addition, the Follow-On Investment may only be completed in reliance
on the Order if the Required Majority of each
[[Page 66950]]
participating Regulated Fund determines that the making and holding of
the Pre-Boarding Investments were not prohibited by section 57 (as
modified by rule 57b-1) or rule 17d-1, as applicable. The basis for the
Board's findings will be recorded in its minutes.
(c) The Follow-On Investment may only be completed in reliance on
the Order if:
(i) All of the Affiliated Investors' and Regulated Funds'
investments in the issuer are Pre-Boarding Investments;
(ii) Independent counsel to the Board of each Regulated Fund that
holds an investment in the issuer advises that the making and holding
of the investments in the Pre-Boarding Investments were not prohibited
by section 57 (as modified by rule 57b-1) or rule 17d-1, as applicable;
(iii) All Regulated Funds and Affiliated Investors that hold Pre-
Boarding Investments in the issuer immediately before the time of
completion of the Co-Investment Transaction hold the same security or
securities of the issuer. For the purpose of determining whether the
Regulated Funds and Affiliated Investors hold the same security or
securities, they may disregard any security held by some but not all of
them if, prior to relying on the Order, the Required Majority is
presented with all information necessary to make a finding, and finds,
that: (A) Any Regulated Fund's or Affiliated Investor's holding of a
different class of securities (including for this purpose a security
with a different maturity date) is immaterial in amount, including
immaterial relative to the size of the issuer; and (B) the Board
records the basis for any such finding in its minutes. In addition,
securities that differ only in respect of issuance date, currency, or
denominations may be treated as the same security; and
(iv) The Affiliated Investors, the other Regulated Funds and their
affiliated persons (within the meaning of section 2(a)(3)(C) of the
Act), individually or in the aggregate, do not control the issuer of
the securities (within the meaning of section 2(a)(9) of the Act).
(d) If, with respect to any such Follow-On Investment:
(i) The amount of the opportunity proposed to be made available to
any Regulated Fund is not based on the Regulated Funds' and the
Affiliated Investors' outstanding investments in the issuer or the
security at issue, as appropriate, immediately preceding the Follow-On
Investment; and
(ii) the aggregate amount recommended by the Advisers to be
invested in the Follow-On Investment by the participating Regulated
Funds and any participating Affiliated Investors, collectively, exceeds
the amount of the investment opportunity,
then the Follow-On Investment opportunity will be allocated among
them pro rata based on Available Capital (as described in greater
detail in this application).
(e) The acquisition of Follow-On Investments as permitted by this
Condition will be considered a Co-Investment Transaction for all
purposes and subject to the other Conditions set forth in the
application.
11. The Non-Interested Trustees of each Regulated Fund will be
provided quarterly for review all information concerning Potential Co-
Investment Transactions that fell within the Regulated Fund's then-
current Objectives and Strategies and Board-Established Criteria,
including investments in Potential Co-Investment Transactions made by
other Regulated Funds or Affiliated Investors that the Regulated Fund
considered but declined to participate in, and concerning Co-Investment
Transactions in which the Regulated Fund participated, so that the Non-
Interested Trustees may determine whether all Potential Co-Investment
Transactions and Co-Investment Transactions during the preceding
quarter, including those Potential Co-Investment Transactions which the
Regulated Fund considered but declined to participate in, comply with
the conditions of the Order. In addition, the Non-Interested Trustees
will consider at least annually: (a) The continued appropriateness for
the Regulated Fund of participating in new and existing Co-Investment
Transactions, and (b) the continued appropriateness of any Board-
Established Criteria.
12. Each Regulated Fund will maintain the records required by
section 57(f)(3) of the Act as if each of the Regulated Funds were a
BDC and each of the investments permitted under these conditions were
approved by the Required Majority under section 57(f) of the Act.
13. No Non-Interested Trustee of a Regulated Fund will also be a
director, general partner, managing member or principal, or otherwise
an ``affiliated person'' (as defined in the Act) of any of the
Affiliated Investors.
14. The expenses, if any, associated with acquiring, holding or
disposing of any securities acquired in a Co-Investment Transaction
(including, without limitation, the expenses of the distribution of any
such securities registered for sale under the 1933 Act) will, to the
extent not payable by the Advisers under their respective investment
advisory agreements with Affiliated Investors and the Regulated Funds,
be shared by the Regulated Funds and the Affiliated Investors in
proportion to the relative amounts of the securities held or to be
acquired or disposed of, as the case may be.
15. Any transaction fee \30\ (including break-up, structuring,
monitoring or commitment fees but excluding broker's fees contemplated
by section 17(e) or 57(k) of the Act, as applicable), received in
connection with a Co-Investment Transaction will be distributed to the
participating Regulated Funds and Affiliated Investors on a pro rata
basis based on the amounts they invested or committed, as the case may
be, in such Co-Investment Transaction. If any transaction fee is to be
held by an Adviser pending consummation of the transaction, the fee
will be deposited into an account maintained by the Adviser at a bank
or banks having the qualifications prescribed in section 26(a)(1) of
the Act, and the account will earn a competitive rate of interest that
will also be divided pro rata among the participating Regulated Funds
and Affiliated Investors based on the amount they invest in such Co-
Investment Transaction. None of the Advisers, the Primary Advisers, the
Affiliated Investors, the other Regulated Funds nor any affiliated
person of the Regulated Funds or Affiliated Investors will receive
additional compensation or remuneration of any kind as a result of or
in connection with a Co-Investment Transaction (other than (a) in the
case of the Regulated Funds and the Affiliated Investors, the pro rata
transaction fees described above and fees or other compensation
described in condition 2(c)(iii)(C), and (b) in the case of an Adviser
or Primary Adviser, investment advisory fees paid in accordance with
their respective agreements between the Advisers and the Regulated Fund
or Affiliated Investor).
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\30\ Applicants are not requesting and the staff is not
providing any relief for transaction fees received in connection
with any Co-Investment Transaction.
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16. If the Holders own in the aggregate more than 25% of the
Shares, then the Holders will vote such Shares as directed by an
independent third party when voting on (1) the election of trustees;
(2) the removal of one or more trustees; or (3) all other matters under
either the Act or applicable state law affecting the Board's
composition, size or manner of election.
17. Each Regulated Fund's chief compliance officer, as defined in
rule 38a-1(a)(4) under the Act, will prepare an annual report for its
Board each year
[[Page 66951]]
that evaluates (and documents the basis of that evaluation) the
Regulated Fund's compliance with the terms and conditions of the
application and the procedures established to achieve such compliance.
18. The Affiliated Proprietary Accounts will not be permitted to
invest in a Potential Co-Investment Transaction except to the extent
the aggregate demand from the Regulated Funds and the other Affiliated
Investors is less than the total investment opportunity.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26309 Filed 12-5-19; 8:45 am]
BILLING CODE 8011-01-P
