[Federal Register Volume 79, Number 208 (Tuesday, October 28, 2014)]
[Notices]
[Pages 64237-64240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25550]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IA-3957/803-00221]


Ares Real Estate Management Holdings, LLC; Notice of Application

October 22, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an exemptive order under Section 206A 
of the Investment Advisers Act of 1940 (the ``Advisers Act'') and Rule 
206(4)-5(e).

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Applicant: Ares Real Estate Management Holdings, LLC (formerly known as 
AREA Management Holdings, LLC) (``Applicant'').
Relevant Advisers Act Sections: Exemption requested under section 206A 
of the Advisers Act and rule 206(4)-5(e) from rule 206(4)-5(a)(1) under 
the Advisers Act.

Summary of Application:  Applicant requests that the Commission issue 
an order under section 206A of the Advisers Act and rule 206(4)-5(e) 
exempting it from rule 206(4)-5(a)(1) under the Advisers Act to permit 
Applicant to receive compensation for investment advisory services 
provided to a government entity within the two-year period following a 
contribution by a covered associate of Applicant to an official of the 
government entity.

Filing Dates:  The application was filed on December 23, 2013, and 
amended and restated applications were filed on April 28, 2014, and 
July 15, 2014.
Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on November 17, 2014, and should be accompanied by proof of 
service on Applicant, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Advisers 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 may request 
notification of a hearing by writing to the Commission's Secretary.

ADDRESSES:  Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090. Applicant, Ares Real Estate Management 
Holdings, LLC, c/o Michael Weiner, 2000 Avenue of the Stars, Los 
Angeles, CA 90067.

FOR FURTHER INFORMATION CONTACT: Brian McLaughlin Johnson, Senior 
Counsel, or Melissa R. Harke, Branch Chief, at (202) 551-6825 (Division 
of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site either at http://www.sec.gov/rules/iareleases.shtml or by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicant's Representations

    1. Applicant is a limited liability company organized in Delaware 
and registered with the Commission as an investment adviser under the 
Advisers

[[Page 64238]]

Act.\1\ Applicant serves as investment adviser to several real estate-
focused private investment funds (the ``Funds'') in which one of the 
investors is a Colorado public pension plan (the ``Client''). The 
investment decisions for the Client are overseen by a board of trustees 
composed of eleven members, three of whom are appointed by the Governor 
of Colorado.
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    \1\ In May of 2013, Applicant entered into an agreement with 
Ares Management LLC (``Ares'') pursuant to which Ares agreed to 
acquire 100% ownership of the Applicant (the ``Acquisition''). The 
Acquisition closed in July 2013. After the Acquisition closed, 
Applicant became an indirect wholly-owned subsidiary of Ares and 
Applicant's name was changed from ``AREA Management Holdings, LLC'' 
to ``Ares Real Estate Management Holdings, LLC.''
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    2. On or about February 11, 2013, Lee Neibart, a senior management 
executive and senior partner of the Applicant (the ``Contributor''), 
made a contribution of $1,100 (the ``Contribution'') to the campaign of 
John Hickenlooper, the Governor of Colorado (the ``Official''). 
Applicant represents that the amount of the Contribution, profile of 
the candidate, and characteristics of the campaign fall generally 
within the pattern of the Contributor's other political donations.
    3. Applicant represents that the Contributor has confirmed that he 
has not, at any time, had any contact with the Official regarding the 
Client's investment activities with the Applicant, or otherwise met or 
spoken with or otherwise communicated with the Official.
    4. Applicant represents that the Client's relationship with the 
applicant pre-dates the Contribution and that no investments were made 
by the Client in the Funds after the Contribution. The Client made its 
first investment in the Funds in 1996, and made its most recent 
investment in the Funds in 2007, almost six years before the 
Contribution was made and three years before the Official was first 
elected as Governor. Applicant represents that all of the Funds in 
which the Client is an investor are commingled closed-end funds (i.e., 
funds with multiple institutional investors) and, accordingly, the 
Funds' investors, including the Client, do not have the ability to 
withdraw or redeem capital. Applicant represents that the investors' 
investment capital is committed at the time of subscription and 
effectively locked-in for the duration of a Fund's term to maturity. 
Applicant represents that each of the Funds in which the Client is an 
investor is ``fully drawn'' and in varying stages of liquidation. 
Applicant represents, based on these considerations, that the Client 
has not had any investment decisions to consider with respect to the 
Funds since the Client's last investment commitment in 2007.
    5. Applicant represents that, based on Applicant's general 
knowledge and representations from the Client subsequent to 2007, 
Applicant generally understood that the Client did not have investment 
capital available for additional investments in either the Funds or any 
new real estate-focused investments managed by Applicant. Applicant 
represents that, as a result, neither the Applicant nor the Contributor 
has engaged in any investment solicitation of the Client since the 
Client's last investment commitment in 2007. Applicant further 
represents that, at the time of the Contribution, the Contributor did 
not plan to solicit the Client (or any other government entity for 
which the Official is an ``official'' as defined in rule 206(4)-5) for 
any other investments, and the Applicant did not have any intention to 
solicit the Client (or any other government entity for which the 
Official is an ``official'' as defined in rule 206(4)-5) for any other 
investments.
    6. Applicant represents that the Contributor's role with the Client 
was limited to making substantive presentations to the Client's 
representatives regarding the investment strategies of the Funds and 
that the Contributor had no contact with any representative of the 
Client outside of those presentations, and no contact with any member 
of the Client's board.
    7. Applicant represents that at no time did the Applicant or any 
employees of the Applicant other than the Contributor have any 
knowledge of the Contribution prior to its discovery by Ares's 
Compliance Department in July 2013. Applicant represents that the 
Contribution was discovered by Ares' Compliance Department through the 
Contributor's voluntary disclosure in response to a political 
contribution questionnaire, and that the Contributor obtained a full 
refund of the Contribution within one week after the Contribution was 
discovered. Applicant represents that it established an escrow account 
for the benefit of the Client and deposited an amount equal to the sum 
of all fees paid to the Applicant with respect to the Client's 
investments in the Funds since the date of the Contribution. Applicant 
represents that additional fees with respect to the Client's 
investments in the Funds accruing in favor of the Applicant will 
continue to be deposited in the escrow account until it is determined 
whether exemptive relief will be granted to the Applicant, which 
amounts will be immediately returned to the Client should an exemptive 
order not be granted.
    8. Applicant represents that at all relevant times it had 
compliance procedures requiring pre-clearance and reporting of all of 
its employees' proposed political contributions and that these 
procedures have been more restrictive than is required under rule 
206(4)-5. Applicant represents that all contributions to state and 
local office incumbents and candidates are subject to pre-clearance and 
that there are no exceptions for de minimis contributions. Applicant 
represents that its employees are reminded periodically during the year 
of these procedures and that all employees are required to certify 
their compliance on a periodic basis; a request for a contribution like 
the Contribution would have been rejected under the procedures. 
Applicant represents that the Contributor was aware of (and otherwise 
in compliance with) the procedures but, because neither the Applicant 
nor the Contributor had solicited any investments in the Funds from the 
Client or the State of Colorado since 2007, the Contributor failed to 
appreciate that the Contribution was subject to the procedures.
    9. After learning of the contribution, Applicant represents that it 
has taken steps designed to limit the Contributor's contact with 
representatives of the Client. Applicant represents that the 
Contributor was informed that he could not solicit new investment 
commitments from the Client and that his communications with the Client 
with respect to the Funds should be limited to responding to inquiries 
from the Client's representatives and consultants with respect to the 
status of the Funds' investment portfolios. Applicant represents that 
the Contributor has been directed to maintain a log of such 
interactions in accordance with the retention requirements set forth in 
rule 204-2(e).

Applicant's Legal Analysis

    1. Rule 206(4)-5(a)(1) under the Advisers Act prohibits a 
registered investment adviser from providing investment advisory 
services for compensation to a government entity within two years after 
a contribution to an official of the government entity is made by the 
investment adviser or any covered associate of the investment adviser. 
The Client is a ``government entity,'' as defined in rule 206(4)-
5(f)(5), the Contributor is a ``covered associate'' as defined in rule 
206(4)-5(f)(2), and the Official is an ``official'' as defined in rule 
206(4)-5(f)(6). Rule 206(4)-5(c)

[[Page 64239]]

provides that when a government entity invests in a covered investment 
pool, the investment adviser to that covered investment pool is treated 
as providing advisory services directly to the government entity. The 
Funds are ``covered investment pools,'' as defined in rule 206(4)-
5(f)(3)(ii).
    2. Section 206A of the Advisers Act grants the Commission the 
authority to ``conditionally or unconditionally exempt any person or 
transaction . . . from any provision or provisions of [the Advisers 
Act] or of any rule or regulation thereunder, if and to the extent that 
such exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of [the Advisers Act].''
    3. Rule 206(4)-5(e) provides that the Commission may exempt an 
investment adviser from the prohibition under Rule 206(4)-5(a)(1) upon 
consideration of the factors listed below, among others:
    (1) Whether the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Advisers 
Act;
    (2) Whether the investment adviser: (i) Before the contribution 
resulting in the prohibition was made, adopted and implemented policies 
and procedures reasonably designed to prevent violations of the rule; 
and (ii) prior to or at the time the contribution which resulted in 
such prohibition was made, had no actual knowledge of the contribution; 
and (iii) after learning of the contribution: (A) Has taken all 
available steps to cause the contributor involved in making the 
contribution which resulted in such prohibition to obtain a return of 
the contribution; and (B) has taken such other remedial or preventive 
measures as may be appropriate under the circumstances;
    (3) Whether, at the time of the contribution, the contributor was a 
covered associate or otherwise an employee of the investment adviser, 
or was seeking such employment;
    (4) The timing and amount of the contribution which resulted in the 
prohibition;
    (5) The nature of the election (e.g., federal, state or local); and
    (6) The contributor's apparent intent or motive in making the 
contribution which resulted in the prohibition, as evidenced by the 
facts and circumstances surrounding such contribution.
    4. Applicant requests an order pursuant to section 206A and rule 
206(4)-5(e), exempting it from the two-year prohibition on compensation 
imposed by rule 206(4)-5(a)(1) with respect to investment advisory 
services provided to the Client within the two-year period following 
the Contribution.
    5. Applicant submits that the exemption is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act. Applicant further submits that the other factors 
set forth in rule 206(4)-5(e) similarly weigh in favor of granting an 
exemption to the Applicant to avoid consequences disproportionate to 
the violation.
    6. Applicant states that the Client first determined to invest in 
the Funds advised by the Applicant over fifteen years before the 
Contribution was made, and established and maintains its relationships 
with the Applicant on an arms'-length basis free from any improper 
influence as a result of the Contribution. In support of this argument, 
Applicant states that the most recent investment commitment in the 
Funds was made by the Client in 2007; due to the locked-in nature of 
the Client's investment capital in the Funds and the fact that the 
Funds are fully funded, the Client had no current investment decision 
to consider at the time of the Contribution and no new or additional 
investment commitments, nor any withdrawals, could have been made by 
the Client after the Contribution. Applicant also states that neither 
Applicant nor the Contributor engaged in any investment solicitation of 
the Client since the Client's last investment commitment to the 
Applicant in 2007 and that, at the time of the Contribution, the 
Contributor did not plan to solicit the Client (or any other government 
entity for which the Official is an ``official'' as defined in rule 
206(4)-5) for any other investments, and the Applicant did not have any 
intent to solicit the Client (or any other government entity for which 
the Official is an ``official'' as defined in rule 206(4)-5) for any 
other investments.
    7. Applicant states that at all relevant times it had policies 
which were fully compliant with, and more rigorous than, rule 206(4)-
5's requirements at the time of the Contribution. Applicant further 
states that at no time did Applicant or any employees of Applicant, 
other than the Contributor, have any knowledge that the Contribution 
had been made prior to its discovery by Ares' Compliance Department in 
July 2013. After learning of the Contribution, Applicant and the 
Contributor took all available steps to obtain a return of the 
Contribution, which was returned within one week of discovery, and the 
Applicant set up an escrow account in which all fees charged to the 
Client's capital accounts in the Funds since the date of the 
Contribution were, and will continue to be, deposited by Applicant in 
the escrow account for immediate return to the Client should an 
exemptive order not be granted.
    8. Applicant states that the Contributor's apparent intent in 
making the Contribution was not to influence the selection or retention 
of the Applicant. Applicant states that the Contributor has a long 
history of making permissible contributions to candidates that share 
the general political views of the Official. The amount of the 
Contribution, profile of the candidate, and characteristics of the 
campaign fall generally within the pattern of the Contributor's other 
political donations. Applicant further states, as discussed above, that 
the Contributor has confirmed that he has not, at any time, had any 
contact with the Official regarding the Client's investment activities 
with the Applicant, or otherwise met or spoken with or otherwise 
communicated with the Official, and that the Contributor's role with 
the Client was limited to making substantive presentations to the 
Client's representatives regarding the investment strategies of the 
Funds and that the Contributor had no contact with any representative 
of the (or its board) outside of making those presentations. Following 
the Contribution, Applicant took steps designed to further limit and 
document any such contact during the duration of the two-year time out 
on compensation.

Applicant's Conditions

    Applicant agrees that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. The Contributor will be prohibited from discussing any business 
of the Applicant with any ``government entity'' client for which the 
Official is an ``official,'' each as defined in rule 206(4)-5(f), until 
February 11, 2015.
    2. Notwithstanding Condition 1, the Contributor is permitted to 
respond to inquiries from the Client regarding the Funds. The Applicant 
will maintain a log of such interactions, which will be maintained and 
preserved in an easily accessible place for a period of not less than 
five years, the first two years in an appropriate office of the 
Applicant, and be available for inspection by the staff of the 
Commission.
    3. The Contributor will receive a written notification of these 
conditions and will provide a quarterly

[[Page 64240]]

certification of compliance until February 11, 2015. Copies of the 
certifications will be maintained and preserved in an easily accessible 
place for a period of not less than five years, the first two years in 
an appropriate office of the Applicant, and be available for inspection 
by the staff of the Commission.
    4. The Applicant will conduct testing reasonably designed to 
prevent violations of the conditions of this Order and maintain records 
regarding such testing, which will be maintained and preserved in an 
easily accessible place for a period of not less than five years, the 
first two years in an appropriate office of the Applicant, and be 
available for inspection by the staff of the Commission.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25550 Filed 10-27-14; 8:45 am]
BILLING CODE 8011-01-P