[Federal Register Volume 85, Number 48 (Wednesday, March 11, 2020)]
[Notices]
[Pages 14257-14264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04912]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33811; 813-00389]


Two Sigma Investments, LP and Two Sigma Luna, LLC

March 5, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of application for an order under sections 6(b) and 6(e) of 
the Investment Company Act of 1940 (the ``Act'') granting an exemption 
from all provisions of the Act and the rules and regulations 
thereunder, except sections 9, 17, 30, and 36 through 53 of the Act, 
and the rules and regulations thereunder (the ``Rules and 
Regulations''). With respect to sections 17(a), (d), (e), (f), (g) and 
(j) and 30(a), (b), (e), and (h) of the Act, and the Rules and 
Regulations, and rule 38a-1 under the Act, the exemption is limited as 
set forth in the application.
    Summary of Application: Applicants request an order to exempt 
certain limited liability companies, limited partnerships, 
corporations, business trusts or other entities (``Funds'') organized 
by Two Sigma Investments, LP (``Two Sigma Investments'') and its 
affiliates from certain provisions of the Act. Each series of a Fund 
will be an ``employees' securities company'' within the meaning of 
section 2(a)(13) of the Act.
    Applicants: Two Sigma Investments, LP and Two Sigma Luna, LLC.
    Filing Dates: The application was filed on June 30, 2017, and was 
amended on December 22, 2017, June 4, 2018, November 27, 2018, May 24, 
2019, and December 6, 2019.
    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

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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 March 30, 
2020, and should be accompanied by proof of service on applicants, in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, 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 
Street NE, Washington, DC 20549-1090; Applicants: 100 Avenue of the 
Americas, New York, New York 10013.

FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202) 
551-6819, or Andrea Ottomanelli Magovern, Branch Chief, at (202) 551-
6821 (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 website 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.

Applicants' Representations

    1. Two Sigma Investments (together with its ``affiliates,'' as 
defined in rule 12b-2 under the Securities Exchange Act of 1934 (the 
``Exchange Act''), ``Two Sigma,'' and each, a ``Two Sigma Entity'') is 
a Delaware limited partnership. Two Sigma Investments has organized Two 
Sigma Luna, LLC, a Delaware limited liability company (the ``Initial 
LLC'') and will in the future organize limited liability companies, 
limited partnerships, corporations, business trusts or other entities 
(each a ``Future Fund'' and, collectively with the Initial LLC, the 
``Funds'') as ``employees' securities companies,'' as defined in 
section 2(a)(13) of the Act. The Funds are intended to provide 
investment opportunities that are competitive with those at other 
investment management and financial services firms and to facilitate 
the recruitment and retention of high caliber professionals.
    2. The Initial LLC was formed on May 3, 2013 as a Delaware limited 
liability company. Two Sigma Principals, LLC, a Delaware limited 
liability company, acts as managing member to the Initial LLC. Two 
Sigma Investments serves as investment adviser to the Initial LLC. The 
Initial LLC seeks to achieve absolute U.S. dollar-denominated returns 
by investing all or substantially all of its assets in various private 
investment vehicles that are managed by Two Sigma (the ``Initial LLC's 
Underlying Funds''). The investment objective and strategies of the 
Initial LLC's Underlying Funds are set forth in the offering and/or 
governing documents of the applicable Initial LLC's Underlying Fund.
    3. A Future Fund may be structured as a domestic or offshore 
limited or general partnership, limited liability company, corporation, 
business trust or other entity. Two Sigma may also form parallel funds 
organized under the laws of various jurisdictions in order to create 
similar investment opportunities for Eligible Employees (defined below) 
in other jurisdictions. Interests in a Fund may be issued in one or 
more series, each of which corresponds to particular Fund investments 
(each, a ``Series''). Each Series will be an ``employees' securities 
company'' within the meaning of section 2(a)(13) of the Act. Each Fund 
will operate as a closed-end management investment company, and a 
particular Fund may operate as a ``diversified'' or ``non-diversified'' 
vehicle within the meaning of the Act.
    4. Two Sigma will control each Fund within the meaning of section 
2(a)(9) of the Act. Each Fund has, or will have, a general partner, 
managing member or other such similar entity that manages, operates and 
controls such Fund (a ``Managing Member''). The Managing Member will be 
responsible for the overall management of each Fund, and will appoint a 
Two Sigma Entity to serve as investment adviser (``Investment 
Adviser'') to a Fund and delegate to the Investment Adviser the 
authority to make all decisions regarding the acquisition, management 
and disposition of Fund investments.
    5. Each Managing Member and Investment Adviser is an investment 
adviser within the meaning of section 9 and 36 of the Act and is 
subject to those sections. The Managing Member or Investment Adviser 
may receive a performance-based fee or allocation (an ``Incentive 
Allocation'') based on the net gains of the Fund's investments, in 
addition to any amount allocable to the Managing Member's or Investment 
Adviser's capital contribution.\1\
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    \1\ If a Managing Member or an Investment Adviser is registered 
under the Investment Advisers Act of 1940 (``Advisers Act''), the 
Incentive Allocation payable to it by a Fund will be pursuant to an 
arrangement that complies with rule 205-3 under the Advisers Act. 
All or a portion of the Incentive Allocation may be paid to 
individuals who are officers, employees or stockholders of the 
Managing Member or Investment Adviser or its affiliates. If the 
Managing Member or Investment Adviser is not required to register 
under the Advisers Act, the Incentive Allocation payable to it will 
comply with section 205(b)(3) of the Advisers Act (with such Fund 
treated as though it were a business development company solely for 
the purpose of that section).
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    6. If the Managing Member elects to recommend that a Fund enter 
into any side-by-side investment with an unaffiliated entity, the 
Managing Member will be permitted to engage as a sub-investment adviser 
the unaffiliated entity (an ``Unaffiliated Subadviser''), which will be 
responsible for the management of such side-by-side investment.
    7. Interests in the Funds will be offered in a transaction exempt 
from registration under section 4(a)(2) of the Securities Act of 1933, 
as amended (the ``1933 Act''), or Regulation D or Regulation S 
promulgated thereunder, and will be sold only to ``Qualified 
Participants,'' which term refers to: (i) Eligible Employees (as 
defined below); (ii) Eligible Family Members (as defined below); (iii) 
Eligible Investment Vehicles (as defined below); and (iv) Two Sigma. 
Prior to offering interests in a Fund to a Qualified Participant, Two 
Sigma must reasonably believe that the Eligible Employee or Eligible 
Family Member will be capable of understanding and evaluating the 
merits and risks of participation in a Fund and that each such 
individual is able to bear the economic risk of such participation and 
afford a complete loss of his or her investments in the Fund.
    8. The term ``Eligible Employees'' is defined as current and former 
employees, officers and directors of Two Sigma (including people in 
administration, marketing, and operations) and current consultants 
engaged on retainer to provide services and professional expertise on 
an ongoing basis to Two Sigma.\2\ The term

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``Eligible Family Members'' is defined as spouses, parents, children, 
spouses of children, brothers, sisters and grandchildren of Eligible 
Employees, including step and adoptive relationships.\3\ The term 
``Eligible Investment Vehicles'' is defined as: (i) A trust of which a 
trustee, grantor and/or beneficiary is an Eligible Employee; (ii) a 
partnership, corporation or other entity created or controlled \4\ by 
an Eligible Employee; \5\ and (iii) a trust or other entity established 
solely for the benefit of Eligible Employees and/or Eligible Family 
Members. Each Eligible Employee and Eligible Family Member will be an 
Accredited Investor under rule 501(a)(5) or rule 501(a)(6) of 
Regulation D under the 1933 Act, except that a maximum of 35 Eligible 
Employees who are sophisticated investors but who are not Accredited 
Investors may become investors in a Fund, if each of them falls into 
one of the following categories: (i) An Eligible Employee who (a) has a 
graduate degree in business, law or accounting, (b) has a minimum of 
five years of consulting, investment management, investment banking, 
legal or similar business experience, and (c) had reportable income 
from all sources (including any profit shares or bonus) of $100,000 in 
each of the two most recent years immediately preceding the Eligible 
Employee's admission as an investor of the Fund and has a reasonable 
expectation of income from all sources of at least $140,000 in each 
year in which the Eligible Employee will be committed to make 
investments in the Fund; \6\ or (ii) Eligible Employees who are 
``knowledgeable employees'' (as defined in rule 3c-5 under the Act) of 
the Fund (with the Fund treated as though it were a ``covered company'' 
for purposes of the rule).
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    \2\ Applicants represent that persons or entities whom Two Sigma 
has engaged on retainer to provide services and professional 
expertise on an ongoing basis as regular consultants or business or 
legal advisers to Two Sigma (``Consultants'') share a community of 
interest with Two Sigma and Two Sigma's employees. In order to 
participate in the Funds, Consultants must be currently engaged by 
Two Sigma and will be required to be sophisticated investors who 
qualify as accredited investors (``Accredited Investors'') under 
rule 501(a) of Regulation D. If a Consultant is an entity (such as, 
for example, a law firm or consulting firm), and the Consultant 
proposes to invest in the Fund through a partnership, corporation or 
other entity that is controlled by the Consultant, the individual 
participants in such partnership, corporation or other entity will 
be limited to senior level employees, members or partners of the 
Consultant who are responsible for the activities of the Consultant 
or the activities of the Consultant in relation to Two Sigma and 
will be required to qualify as Accredited Investors. In addition, 
such entities will be limited to businesses controlled by 
individuals who have levels of expertise and sophistication in the 
area of investments in securities that are comparable to other 
Eligible Employees who are employees, officers or directors of Two 
Sigma and who have an interest in maintaining an ongoing 
relationship with Two Sigma. The individuals participating through 
such entities will belong to that class of persons who will have 
access to the directors and officers of the Managing Member and its 
affiliates and/or the officers of Two Sigma responsible for making 
investments for the Funds similar to the access afforded other 
Eligible Employees who are employees, officers or directors of Two 
Sigma.
    \3\ In order to ensure that a close nexus between the Qualified 
Participants and Two Sigma is maintained, the terms of each 
governing document for a Fund will provide that any Eligible Family 
Member participating in such Fund (either through direct beneficial 
ownership of an interest or as an indirect beneficial owner through 
an Eligible Investment Vehicle) will not, in any event, be more than 
two generations removed from an Eligible Employee.
    \4\ Any reference to an Eligible Investment Vehicle which is an 
entity created by, rather than controlled by, an Eligible Employee 
refers only to a corporate blocker entity created, and continuing to 
operate, for the purpose of facilitating (a) the tax efficient 
investment of Eligible Employees or other Eligible Investment 
Vehicles in a Fund and (b) the charitable giving of Eligible 
Employees. The mandate of an Eligible Investment Vehicle created by 
an Eligible Employee is determined by the relevant Eligible Employee 
and will be limited to permitted investments in vehicles managed by 
Two Sigma (such as a Fund).
    \5\ The inclusion of partnerships, corporations, or other 
entities that are ``created'' by Eligible Employees in the 
definition of Eligible Investment Vehicle is intended to enable an 
Eligible Employee to make tax-efficient investments in the Funds 
through a corporate blocker entity created by an Eligible Employee 
for the purpose of his/her charitable giving. Investments in a 
corporate blocker entity may be made through Eligible Investment 
Vehicles controlled by an Eligible Employee. No persons or entities 
other than Eligible Employees or the Eligible Investment Vehicles 
they control will contribute funds to a corporate blocker entity for 
investment. The inclusion of partnerships, corporations, or other 
entities that are ``controlled'' by Eligible Employees in the 
definition of Eligible Investment Vehicle is intended to enable 
Eligible Employees to make investments in the Funds through personal 
investment vehicles for the purpose of personal and family 
investment and estate planning objectives.
    \6\ An Eligible Employee that is not an Accredited Investor will 
only be permitted to invest in a Fund if such individual represents 
and warrants that he or she will not commit in any year more than 
10% of his or her income from all sources for the immediately 
preceding year, in the aggregate, in a Fund and in all other Funds 
in which that investor has previously invested.
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    9. A Qualified Participant may purchase an interest through an 
Eligible Investment Vehicle only if either (i) the investment vehicle 
is an Accredited Investor, as defined in rule 501(a) of Regulation D 
under the 1933 Act or (ii) the Eligible Employee is a settlor \7\ and 
principal investment decision-maker with respect to the investment 
vehicle. Eligible Investment Vehicles that are not Accredited Investors 
will be counted in accordance with Regulation D toward the 35 non-
Accredited Investor limit discussed above.
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    \7\ If such investment vehicle is an entity other than a trust, 
the term ``settlor'' will be read to mean a person who created such 
vehicle, alone or together with other eligible individuals, and 
contributed funds to such vehicle.
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    10. The terms of each Fund will be fully disclosed to each 
Qualified Participant (or person making the investment on behalf of the 
Qualified Participant) at the time the Qualified Participant is invited 
to participate in the Fund. A Fund will send its investors an annual 
financial statement with respect to those investments in which the 
investor had an interest within 120 days after the end of each fiscal 
year of the Fund, or as soon as practicable after the end of the Fund's 
fiscal year. The financial statement will be audited \8\ by independent 
certified public accountants. In addition, as soon as practicable after 
the end of each calendar year, a report will be sent to each investor 
setting forth the information with respect such investor's share of 
income, gains, losses, credits, and other items for U.S. federal and 
state income tax purposes resulting from the operation of the Fund 
during that year.
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    \8\ ``Audit'' has the meaning defined in rule 1-02(d) of 
Regulation S-X.
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    11. Interests in a Fund will not be transferable except with the 
express consent of the Managing Member, and then only to a Qualified 
Participant. No sales load or similar fee of any kind will be charged 
in connection with the sale of interests in a Future Fund.
    12. A Managing Member may have the right, but not the obligation, 
to repurchase, cancel, or transfer to another Qualified Participant the 
interest of (i) an Eligible Employee who ceases to be an employee, 
officer, director or current consultant of any Two Sigma Entity for any 
reason or (ii) any Eligible Family Member of any person described in 
clause (i). The governing documents for each Fund will describe, if 
applicable, the amount that an investor would receive upon repurchase, 
cancellation or transfer of its interest. The investor will, at a 
minimum, be paid the lesser of (i) the amount actually paid by or on 
behalf of the investor to acquire the interest (plus interest, as 
reasonably determined by the Managing Member) less any amounts paid to 
the investor as distributions, and (ii) the fair value, determined at 
the time of repurchase in good faith by the Managing Member, of such 
interest.
    13. A Future Fund may invest in one or more pooled investment 
vehicles (including private funds relying on sections 3(c)(1) and 
3(c)(7) under the Act and funds relying on section 3(c)(5) under the 
Act) and/or registered investment companies sponsored by Two Sigma or 
by third parties (each, an ``Underlying Fund'').\9\ One Fund may also 
invest in another Fund in a ``master-feeder'' or similar structure. A 
Fund may also be operated as a parallel fund making investments on a 
side-by-side basis with Two Sigma Entities.
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    \9\ Applicants are not requesting any exemption from any 
provision of the Act or any rule thereunder that may govern a Fund's 
eligibility to invest in an Underlying Fund relying on section 
3(c)(1) or 3(c)(7) of the Act or an Underlying Fund's status under 
the Act.
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    14. A Fund may co-invest in a portfolio company (or a pooled 
investment vehicle) with a Two Sigma Entity or with an investment fund 
or separate account organized primarily for the benefit of investors 
who are not affiliated with Two Sigma (``Third Party

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Investors'') over which a Two Sigma Entity exercises investment 
discretion or which is sponsored by a Two Sigma Entity (an ``Two Sigma 
Third Party Fund''). Co-investments with a Two Sigma Entity or with a 
Two Sigma Third Party Fund in a transaction in which Two Sigma's 
investment was made pursuant to a contractual obligation to a Two Sigma 
Third Party Fund will not be subject to Condition 3 below. All other 
side-by-side investments held by Two Sigma Entities involving a joint 
enterprise or other joint arrangement will be subject to Condition 3.
    15. If Two Sigma makes loans to a Fund, the lender will be entitled 
to receive interest, provided that the interest rate will be no less 
favorable to the borrower than the rate obtainable on an arm's length 
basis. The possibility of any such borrowings, as well as the terms 
thereof, would be disclosed to Qualified Participants prior to their 
investment in a Fund. Any indebtedness of the Fund will be the debt of 
the Fund and without recourse to the investors. A Fund will not borrow 
from any person if the borrowing would cause any person not named in 
section 2(a)(13) of the Act to own securities of the Fund (other than 
short-term paper). A Fund will not lend any funds to a Two Sigma 
Entity.
    16. A Fund will not acquire any security issued by a registered 
investment company if immediately after such acquisition such Fund will 
own more than 3% of the outstanding voting stock of the registered 
investment company.

Applicants' Legal Analysis

    1. Section 6(b) of the Act provides that the Commission shall 
exempt employees' securities companies from the provisions of the Act 
if and to the extent that such exemption is consistent with the 
protection of investors. Section 6(b) provides that the Commission will 
consider, in determining the provisions of the Act from which the 
company should be exempt, the company's form of organization and 
capital structure, the persons owning and controlling its securities, 
the price of the company's securities and the amount of any sales load, 
how the company's funds are invested, and the relationship between the 
company and the issuers of the securities in which it invests. Section 
2(a)(13) defines an employees' securities company, in relevant part, as 
any investment company all of whose securities (other than short-term 
paper) are beneficially owned (a) by current or former employees, or 
persons on retainer, of one or more affiliated employers, (b) by 
immediate family members of such persons, or (c) by such employer or 
employers together with any of the persons in (a) or (b).
    2. Section 7 of the Act generally prohibits investment companies 
that are not registered under section 8 of the Act from selling or 
redeeming their securities. Section 6(e) of the Act provides that in 
connection with any order exempting an investment company from any 
provision of section 7, certain specified provisions of the Act shall 
be applicable to such company, and to other persons in their 
transactions and relations with such company, as though such company 
were registered under the Act, if the Commission deems it necessary and 
appropriate in the public interest or for the protection of investors. 
Applicants submit that it would be appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policies and provisions of the Act for the Commission 
to issue an order under sections 6(b) and 6(e) of the Act exempting the 
Funds from all provisions of the Act and the rules and regulations 
thereunder, except sections 9, 17, 30, and 36 through 53 of the Act, 
and the Rules and Regulations. With respect to sections 17(a), (d), 
(e), (f), (g) and (j) and 30(a), (b), (e), and (h) of the Act, and the 
Rules and Regulations, and rule 38a-1 under the Act, Applicants request 
a limited exemption as set forth in the application.
    3. Section 17(a) of the Act generally prohibits any affiliated 
person of a registered investment company, or any affiliated person of 
such a person, acting as principal, from knowingly selling or 
purchasing any security or other property to or from the investment 
company. Applicants request an exemption from section 17(a) to the 
extent necessary to (a) permit a Two Sigma Entity or a Two Sigma Third 
Party Fund (or any affiliated person of such Two Sigma Entity or Two 
Sigma Third Party Fund), or any affiliated person of a Fund (or 
affiliated persons of such persons), acting as principal, to engage in 
any transaction directly or indirectly with any Fund or any company 
controlled by such Fund; and (b) permit a Fund to invest in or engage 
in any transaction with any Two Sigma Entity, acting as principal, (i) 
in which such Fund, any company controlled by such Fund or any Two 
Sigma Entity or any Two Sigma Third Party Fund has invested or will 
invest, or (ii) with which such Fund, any company controlled by such 
Fund or any Two Sigma Entity or Two Sigma Third Party Fund is or will 
become otherwise affiliated; and (c) permit a Third Party Investor, 
acting as a principal, to engage in any transaction directly or 
indirectly with a Fund or any company controlled by such Fund. The 
transactions to which any Fund is a party will be effected only after a 
determination by the Managing Member that the requirements of 
Conditions 1, 2 and 6 (set forth below) have been satisfied. 
Applicants, on behalf of the Funds, represent that any transactions 
otherwise subject to section 17(a) of the Act, for which exemptive 
relief has not been requested, would require approval of the 
Commission.
    4. Applicants submit that an exemption from section 17(a) is 
consistent with the policy of each Fund and the protection of 
investors. Applicants state that the investors in each Fund will have 
been fully informed of the possible extent of such Fund's dealings with 
Two Sigma and of the potential conflicts of interest that may exist. 
Applicants also state that, as professionals employed in the investment 
management and securities businesses, or in administrative, financial, 
accounting, legal, sales, marketing, risk management or operational 
activities related thereto, the investors will be able to understand 
and evaluate the attendant risks. Applicants assert that the community 
of interest among the investors in each Fund, on the one hand, and Two 
Sigma, on the other hand, is the best insurance against any risk of 
abuse. Applicants acknowledge that the requested relief will not extend 
to any transactions between a Fund and an Unaffiliated Subadviser or 
any affiliated person of the Unaffiliated Subadviser, or between a Fund 
and any person who is not an employee, officer or director of Two Sigma 
or is an entity outside of Two Sigma and, in each case, is an 
affiliated person of the Fund as defined in section 2(a)(3)(E) of the 
Act (``Advisory Person'') or any affiliated person of such person.
    5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person or principal underwriter of a registered 
investment company, or any affiliated person of such a person or 
principal underwriter, acting as principal, from participating in any 
joint arrangement with the company unless authorized by the Commission. 
Applicants request an exemption from section 17(d) and rule 17d-1 to 
the extent necessary to permit affiliated persons of each Fund, or 
affiliated persons of any of such persons to participate in, or effect 
any transaction in connection with, any joint enterprise or other joint 
arrangement or profit-sharing plan in which such Fund or a company 
controlled by such Fund is a

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participant. The exemption would permit, among other things, co-
investments by each Fund, Two Sigma Third Party Fund and individual 
members or employees, officers, directors or consultants of Two Sigma 
making their own individual investment decisions apart from Two Sigma. 
Applicants acknowledge that the requested relief will not extend to any 
transaction in which an Unaffiliated Subadviser or Advisory Person or 
an affiliated person of either has an interest.
    6. Applicants assert that compliance with section 17(d) would 
prevent each Fund from achieving a principal purpose, which is to 
provide a vehicle for Eligible Employees (and other permitted 
investors) to co-invest with Two Sigma or, to the extent permitted by 
the terms of the Fund, with other employees, officers, directors or 
consultants of Two Sigma or Two Sigma Entities or with a Two Sigma 
Third Party Fund. Applicants further contend that compliance with 
section 17(d) would cause a Fund to forego investment opportunities 
simply because an investor in such Fund or other affiliated person of 
such Fund (or any affiliated person of such a person) also had, or 
contemplated making, a similar investment. Applicants submit that it is 
likely that suitable investments will be brought to the attention of a 
Fund because of its affiliation with Two Sigma's large capital 
resources and investment management experience, and that attractive 
investment opportunities of the types considered by a Fund often 
require each participant in the transaction to make funds available in 
an amount that may be substantially greater than those the Fund would 
independently be able to provide. Applicants contend that, as a result, 
a Fund's access to such opportunities may have to be through co-
investment with other persons, including its affiliates. Applicants 
assert that the flexibility to structure co-investments and joint 
investments will not involve abuses of the type section 17(d) and rule 
17d-1 were designed to prevent. In addition, Applicants represent that 
any transactions otherwise subject to section 17(d) of the Act and rule 
17d-1 thereunder, for which exemptive relief has not been requested, 
would require approval by the Commission.
    7. Co-investments with a Two Sigma Entity or with a Two Sigma Third 
Party Fund in a transaction in which Two Sigma's investment was made 
pursuant to a contractual obligation to a Two Sigma Third Party Fund 
will not be subject to Condition 3 below. Applicants believe that the 
interests of the Eligible Employees participating in a Fund will be 
adequately protected in such situations because Two Sigma is likely to 
invest a portion of its own capital in Two Sigma Third Party Fund 
investments, either through such Two Sigma Third Party Fund or on a 
side-by-side basis (which Two Sigma investments will be subject to 
substantially the same terms as those applicable to such Two Sigma 
Third Party Fund, except as otherwise disclosed in the governing 
documents of the relevant Fund). Applicants assert that if Condition 3 
were to apply to Two Sigma's investment in these situations, the Two 
Sigma Third Party Fund would be indirectly burdened. Applicants further 
assert that the relationship of a Fund to a Two Sigma Third Party Fund 
is fundamentally different from such Fund's relationship to Two Sigma. 
Applicants contend that the focus of, and the rationale for, the 
protections contained in the requested relief are to protect the Funds 
from any overreaching by Two Sigma in the employer/employee context, 
whereas the same concerns are not present with respect to the Funds 
vis-[agrave]-vis the investors in a Two Sigma Third Party Fund.
    8. Section 17(e) of the Act and rule 17e-1 thereunder limit the 
compensation an affiliated person may receive when acting as agent or 
broker for a registered investment company. Applicants request an 
exemption from section 17(e) to permit a Two Sigma Entity (including 
the Managing Member and the Investment Adviser) that acts as an agent 
or broker to receive placement fees, advisory fees, or other 
compensation from a Fund in connection with the purchase or sale by the 
Fund of securities, provided that the fees or other compensation are 
deemed ``usual and customary.'' Applicants state that for purposes of 
the application, fees or other compensation that are charged or 
received by a Two Sigma Entity will be deemed to be ``usual and 
customary'' only if (i) the Fund is purchasing or selling securities 
alongside other unaffiliated third parties, Two Sigma Third Party Funds 
or Third Party Investors who are also similarly purchasing or selling 
securities, (ii) the fees or other compensation being charged to the 
Fund are also being charged to the unaffiliated third parties, Two 
Sigma Third Party Funds or Third Party Investors and (iii) the amount 
of securities being purchased or sold by the Fund does not exceed 50% 
of the total amount of securities being purchased or sold by the Fund 
and the unaffiliated third parties, Two Sigma Third Party Funds or 
Third Party Investors. Applicants state that compliance with section 
17(e) would prevent a Fund from participating in a transaction in which 
Two Sigma, for other business reasons, does not wish to appear as if 
the Fund is being treated in a more favorable manner (by being charged 
lower fees) than other third parties also participating in the 
transaction. Applicants assert that the concerns of overreaching and 
abuse that section 17(e) and rule 17e-1 were designed to prevent are 
alleviated by the conditions that ensure that (i) the fees or other 
compensation paid by a Fund to a Two Sigma Entity are those negotiated 
at arm's length with unaffiliated third parties and (ii) the 
unaffiliated third parties have as great or greater interest as the 
Fund in the transaction as a whole.
    9. Rule 17e-1(b) under the Act requires that a majority of 
directors who are not ``interested persons'' (as defined in section 
2(a)(19) of the Act) take actions and make approvals regarding 
commissions, fees, or other remuneration. Rule 17e-1(c) under the Act 
requires each Fund to comply with the fund governance standards defined 
in rule 0-1(a)(7) under the Act. Applicants request an exemption from 
rule 17e-1(b) to the extent necessary to permit each Fund to comply 
with rule 17e-1(b) without the necessity of having a majority of the 
directors (or members of a comparable body) of the Fund who are not 
``interested persons'' take such actions and make such approvals as are 
set forth in rule 17e-1(b). Applicants note that in the event that all 
the directors of the Managing Member or other governing body of the 
Managing Member will be affiliated persons, a Fund could not comply 
with rule 17e-1(b) without the relief requested. Applicants represent 
that in such event, the Fund will comply with rule 17e-1(b) by having a 
majority of the directors (or members of a comparable body) of the Fund 
or its Managing Member take such actions and make such approvals as are 
set forth in rule 17e-1(b), and that each Fund will otherwise comply 
with all other requirements of rule 17e-1(b). Applicants further 
request an exemption from rule 17(e)-1(c) to the extent necessary to 
permit each Fund to comply with rule 17e-1 without the necessity of 
having a majority of the directors (or members of a comparable body) of 
the Fund or its Managing Member be ``disinterested persons'' as is set 
forth in rule 17e-1(c). Applicants note that in the event that all the 
directors (or members of a comparable governing body) of the Fund or 
its

[[Page 14262]]

Managing Member will be affiliated persons, a Fund could not comply 
with rule 17e-1 without the relief requested. Applicants represent that 
each Fund will otherwise comply with all other requirements of rule 
17e-1(c).
    10. Section 17(f) of the Act provides that the securities and 
similar investments of a registered management investment company must 
be placed in the custody of a bank, a member of a national securities 
exchange or the company itself in accordance with Commission rules. 
Rule 17f-2 under the Act specifies the requirements that must be 
satisfied for a registered management investment company to act as a 
custodian of its own investments. Applicants request relief from 
section 17(f) and rule 17f-2 to permit the following exceptions from 
the requirements of rule 17f-2: (a) A Fund's investments may be kept in 
the locked files of the Managing Member or the Investment Adviser for 
purposes of paragraph (b) of the rule; (b) for purposes of paragraph 
(d) of the rule, (i) employees of Two Sigma or its affiliates 
(including the Managing Member) will be deemed to be employees of the 
Funds, (ii) officers or managers of the Managing Member of a Fund will 
be deemed to be officers of the Fund and (iii) the Managing Member of a 
Fund or its board of directors will be deemed to be the board of 
directors of the Fund; and (c) in place of the verification procedure 
under rule 17f-2(f), verification will be effected quarterly by two 
employees of the Investment Adviser who are also employees of Two Sigma 
responsible for the administrative, legal and/or compliance functions 
for funds managed or sponsored by Two Sigma and who have specific 
knowledge of custody requirements, policies and procedures of the 
Funds. Applicants expect that, with respect to certain Funds, many of 
their investments will be evidenced only by partnership agreements, 
participation agreements or similar documents, rather than by 
negotiable certificates that could be misappropriated. Applicants 
assert that, for such a Fund, these instruments are most suitably kept 
in the files of the Managing Member or its Investment Adviser, where 
they can be referred to as necessary. Applicants represent that they 
will comply with all other provisions of rule 17f-2, including the 
recordkeeping requirements of paragraph (e).
    11. Section 17(g) of the Act and rule 17g-1 thereunder generally 
require the bonding of officers and employees of a registered 
investment company who have access to its securities or funds. Rule 
17g-1 requires that a majority of directors who are not ``interested 
persons'' of a registered investment company take certain actions and 
give certain approvals relating to fidelity bonding. Among other 
things, the rule also requires that the board of directors of an 
investment company relying on the rule satisfy the fund governance 
standards defined in rule 0-1(a)(7). Applicants request an exemption 
from rule 17g-1 to the extent necessary to permit a Fund to comply with 
rule 17g-1 by having the Managing Member of the Fund take such actions 
and make such approvals as are set forth in rule 17g-1. Applicants 
state that in the event all the directors of the Managing Member or 
other governing body of the Managing Member will be affiliated persons, 
a Fund could not comply with rule 17g-1 without the requested relief. 
Applicants also request an exemption from the requirements of rule 17g-
1(g) and (h) relating to the filing of copies of fidelity bonds and 
related information with the Commission and the provision of notices to 
the board of directors and from the requirements of rule 17g-1(j)(3). 
Applicants contend that the filing requirements are burdensome and 
unnecessary as applied to the Funds and represent that the Managing 
Member of each Fund will designate a person to maintain the records 
otherwise required to be filed with the Commission under rule 17g-1(g). 
Applicants further contend that the notices otherwise required to be 
given to the board of directors will be unnecessary as the Funds will 
not have boards of directors. Applicants represent that each Fund will 
comply with all other requirements of rule 17g-1.
    12. Section 17(j) of the Act and paragraph (b) of rule 17j-1 under 
the Act make it unlawful for certain enumerated persons to engage in 
fraudulent or deceptive practices in connection with the purchase or 
sale of a security held or to be acquired by a registered investment 
company. Rule 17j-1 also requires that every registered investment 
company adopt a written code of ethics and that every access person of 
a registered investment company report personal securities 
transactions. Applicants request an exemption from section 17(j) and 
the provisions of rule 17j-1 (except for the anti-fraud provisions of 
rule 17j-1(b)) because they assert that these requirements are 
burdensome and unnecessary as applied to the Funds. The relief 
requested will extend only to entities within Two Sigma and is not 
requested with respect to any Unaffiliated Subadviser or Advisory 
Person.
    13. Sections 30(a), (b) and (e) of the Act and the rules thereunder 
generally require that registered investment companies prepare and file 
with the Commission and mail to their shareholders certain periodic 
reports and financial statements. Applicants contend that the forms 
prescribed by the Commission for periodic reports have little relevance 
to a Fund and would entail administrative and legal costs that outweigh 
any benefit to the investors in such Fund. Applicants request relief 
under sections 30(a), (b) and (e) to the extent necessary to permit 
each Fund to report annually to its investors in the manner described 
in the application. Section 30(h) of the Act requires that every 
officer, director, member of an advisory board, investment adviser or 
affiliated person of an investment adviser of a closed-end investment 
company be subject to the same duties and liabilities as those imposed 
upon similar classes of persons under section 16(a) of the Exchange 
Act. Applicants request an exemption from section 30(h) of the Act to 
the extent necessary to exempt the Managing Member of each Fund, 
directors, and officers of the Managing Member and any other persons 
who may be deemed members of an advisory board or investment adviser 
(and affiliated persons thereof) of such Fund from filing Forms 3, 4, 
and 5 under section 16(a) of the Exchange Act with respect to their 
ownership of interests in such Fund under section 16 of the Exchange 
Act. Applicants assert that, because there will be no trading market 
and the transfers of interests are severely restricted, these filings 
are unnecessary for the protection of investors and burdensome to those 
required to make them.
    14. Rule 38a-1 requires registered investment companies to adopt, 
implement and periodically review written policies reasonably designed 
to prevent violation of the federal securities laws and to appoint a 
chief compliance officer. Each Fund will comply will rule 38a-1(a), (c) 
and (d), except that: (i) To the extent the Fund does not have a board 
of directors, the board of directors of the Managing Member or other 
governing body of the Managing Member will fulfill the responsibilities 
assigned to the Fund's board of directors under the rule; (ii) to the 
extent the board of directors or other governing body of the Managing 
Member does not have any disinterested members, approval by a majority 
of the disinterested board members required by rule 38a-1 will not be 
obtained; and (iii) to the extent the board of directors

[[Page 14263]]

or other governing body of the Managing Member does not have any 
independent members, the Funds will comply with the requirement in rule 
38a-1(a)(4)(iv) that the chief compliance officer meet with the 
independent directors by having the chief compliance officer meet with 
the board of directors or other governing body of the Managing Member 
as constituted. Applicants represent that each Fund has adopted written 
policies and procedures reasonably designed to prevent violations of 
the terms and conditions of the application, has appointed a chief 
compliance officer and is otherwise in compliance with the terms and 
conditions of the application.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each proposed transaction otherwise prohibited by section 17(a) 
or section 17(d) of the Act and rule 17d-1 thereunder to which a Fund 
is a party (the ``Section 17 Transactions'') will be effected only if 
the Managing Member determines that: (a) The terms of the Section 17 
Transaction, including the consideration to be paid or received, are 
fair and reasonable to the Fund and the investors and do not involve 
overreaching of such Fund or its investors on the part of any person 
concerned; and (b) the Section 17 Transaction is consistent with the 
interests of the Fund and the investors, such Fund's organizational 
documents and such Fund's reports to its investors.
    In addition, the Managing Member will record and preserve a 
description of all Section 17 Transactions, the Managing Member's 
findings, the information or materials upon which the Managing Member's 
findings are based and the basis for such findings. All such records 
will be maintained for the life of the Fund and at least six years 
thereafter, and will be subject to examination by the Commission and 
its staff.\10\
---------------------------------------------------------------------------

    \10\ Each Fund will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place 
for the first two years.
---------------------------------------------------------------------------

    2. The Managing Member will adopt, and periodically review and 
update, procedures designed to ensure that reasonable inquiry is made, 
prior to the consummation of any Section 17 Transaction, with respect 
to the possible involvement in the transaction of any affiliated person 
or promoter of or principal underwriter for such Fund, or any 
affiliated person of such a person, promoter or principal underwriter.
    3. The Managing Member will not cause the funds of any Fund to be 
invested in any investment in which a ``Co-Investor'' (as defined 
below) has acquired or proposes to acquire the same class of securities 
of the same issuer, where the investment involves a joint enterprise or 
other joint arrangement within the meaning of rule 17d-1 in which the 
Fund and a Co-Investor are participants, unless prior to such 
investment any such Co-Investor agrees, prior to disposing of all or 
part of its investment, to: (a) Give the Managing Member sufficient, 
but not less than one day's, notice of its intent to dispose of its 
investment; and (b) refrain from disposing of its investment unless the 
Fund has the opportunity to dispose of the Fund's investment prior to 
or concurrently with, on the same terms as, and on a pro rata basis 
with, the Co-Investor. The term ``Co-Investor'' with respect to any 
Fund means any person who is: (a) An ``affiliated person'' (as defined 
in section 2(a)(3) of the Act) of the Fund (other than a Two Sigma 
Third Party Fund); (b) Two Sigma (except when a Two Sigma Entity co-
invests with a Fund and a Two Sigma Third Party Fund pursuant to a 
contractual obligation to the Two Sigma Third Party Fund); (c) an 
officer or director of a Two Sigma Entity; or (d) an entity (other than 
a Two Sigma Third Party Fund) in which Two Sigma acts as a managing 
member or has a similar capacity to control the sale or other 
disposition of the entity's securities. The restrictions contained in 
this condition, however, shall not be deemed to limit or prevent the 
disposition of an investment by a Co-Investor: (a) To its direct or 
indirect wholly-owned subsidiary, to any company (a ``parent'') of 
which the Co-Investor is a direct or indirect wholly-owned subsidiary 
or to a direct or indirect wholly-owned subsidiary of its parent; (b) 
to immediate family members of the Co-Investor, including step or 
adoptive relationships, or a trust or other investment vehicle 
established for any Co-Investor or any such family member; or (c) when 
the investment is comprised of securities that are (i) listed on a 
national securities exchange registered under section 6 of the Exchange 
Act; (ii) NMS stocks, pursuant to section 11A(a)(2) of the Exchange Act 
and rule 600(b) of Regulation NMS thereunder; (iii) government 
securities as defined in section 2(a)(16) of the Act; (iv) ``Eligible 
Securities'' as defined in rule 2a-7 under the Act; or (v) listed or 
traded on any foreign securities exchange or board of trade that 
satisfies regulatory requirements under the law of the jurisdiction in 
which such foreign securities exchange or board of trade is organized 
similar to those that apply to a national securities exchange or a 
national market system for securities.
    4. Each Fund and its Managing Member will maintain and preserve, 
for the life of such Fund and at least six years thereafter, such 
accounts, books, and other documents as constitute the record forming 
the basis for the audited financial statements that are to be provided 
to the investors in such Fund, and each annual report of such Fund 
required to be sent to such investors, and agree that all such records 
will be subject to examination by the Commission and its staff.\11\
---------------------------------------------------------------------------

    \11\ Each Fund will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place 
for the first two years.
---------------------------------------------------------------------------

    5. Within 120 days after the end of the fiscal year of each Fund, 
or as soon as practicable thereafter, the Managing Member of each Fund 
will send to each investor in such Fund who had an interest in any 
capital account of the Fund, at any time during the fiscal year then 
ended, Fund financial statements audited by the Fund's independent 
accountants, except in the case of a Fund formed to make a single 
portfolio investment. In such cases, financial statements will be 
unaudited, but each investor will receive financial statements of the 
single portfolio investment audited by such entity's independent 
accountants. At the end of each fiscal year and at other times as 
necessary in accordance with customary practice, the Managing Member 
will make a valuation or cause a valuation to be made of all of the 
assets of the Fund as of the fiscal year end. In addition, as soon as 
practicable after the end of each tax year of a Fund, the Managing 
Member of such Fund will send a report to each person who was an 
investor in such Fund at any time during the fiscal year then ended, 
setting forth such tax information as shall be necessary for the 
preparation by the investor of his, her or its U.S. federal and state 
income tax returns and a report of the investment activities of the 
Fund during that fiscal year.
    6. If a Fund makes purchases or sales from or to an entity 
affiliated with the Fund by reason of an officer, director or employee 
of Two Sigma (a) serving as an officer, director, managing member or 
investment adviser of the entity, or (b) having a 5% or more investment 
in the entity, such individual will not participate in the Fund's 
determination of whether or not to effect the purchase or sale.


[[Page 14264]]


    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04912 Filed 3-10-20; 8:45 am]
 BILLING CODE 8011-01-P