[Federal Register Volume 85, Number 53 (Wednesday, March 18, 2020)]
[Notices]
[Pages 15530-15533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05562]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33815; 812-15074]


Conversus StepStone Private Markets and StepStone Conversus LLC; 
Notice of Application

March 12, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from sections 
18(a)(2), 18(c), and 18(i) of the Act, pursuant to sections 6(c) and 
23(c) of the Act, granting an exemption from rule 23c-3 under the Act, 
and for an order pursuant to section 17(d) of the Act and rule 17d-1 
under the Act.

SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered closed-end management investment companies to issue multiple 
classes of shares of beneficial interest (``Shares'') and to impose 
asset-based service and/or distribution fees and early withdrawal 
charges.

APPLICANTS: Conversus StepStone Private Markets (the ``Initial Fund'') 
and StepStone Conversus LLC (the ``Adviser'').

FILING DATES: The application was filed on October 16, 2019, and 
amended on January 14, 2020, and March 4, 2020.

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 April 6, 2020, 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 
Street NE, Washington, DC 20549-1090; Applicants, 1422 S Tryon St., 
Suite 300, Charlotte, NC 28203.

FOR FURTHER INFORMATION CONTACT: Kieran G. Brown, Senior Counsel, at

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(202) 551-6773 or Kaitlin C. Bottock, 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 website by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Initial Fund is a Delaware statutory trust that is 
registered under the Act as a non-diversified, closed-end management 
investment company. The Initial Fund's investment objectives are to 
invest in a broad cross section of private markets assets that will 
enable the Initial Fund to, over time, achieve long-term capital 
appreciation and provide regular, current income through quarterly 
distributions.
    2. The Adviser, a Delaware limited liability company, is registered 
as an investment adviser under the Investment Advisers Act of 1940. The 
Adviser serves as investment adviser to the Initial Fund.
    3. The applicants seek an order to permit the Initial Fund to issue 
multiple classes of Shares, each having its own fee and expense 
structure, and to impose asset-based service and/or distribution fees 
and early withdrawal charges.
    4. Applicants request that the order also apply to any other 
registered closed-end management investment company that conducts a 
continuous offering of its shares, existing now or in the future, for 
which the Adviser, its successors,\1\ or any entity controlling, 
controlled by, or under common control with the Adviser, or its 
successors, acts as investment adviser, and which provides periodic 
liquidity with respect to its Shares through tender offers conducted in 
compliance with either rule 23c-3 under the Act or rule 13e-4 under the 
Securities Exchange Act of 1934 (the ``1934 Act'') (each such closed-
end investment company, a ``Future Fund'' and, together with the 
Initial Fund, each, a ``Fund'' and collectively, the ``Funds'').\2\
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    \1\ A successor in interest is limited to an entity that results 
from a reorganization into another jurisdiction or a change in the 
type of business organization.
    \2\ The Initial Fund and any Future Fund relying on the 
requested relief will do so in a manner consistent with the terms 
and conditions of the application. Applicants represent that any 
person presently intending to rely on the requested relief is listed 
as an applicant.
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    5. The Initial Fund intends to issue a single class of Shares (the 
``Initial Class Shares''). The Shares will be offered on a continuous 
basis at net asset value per share plus the applicable sales load. The 
Initial Fund, as a closed-end investment company, will not continuously 
redeem Shares as does an open-end management investment company. Shares 
of the Initial Fund will not be listed on any securities exchange and 
do not trade on an over-the-counter system. Applicants do not expect 
that any secondary market will ever develop for the Shares.
    6. If the requested relief is granted, the Initial Fund intends to 
offer multiple classes of Shares, such as the Initial Class Shares, or 
any other classes. Because of the different distribution fees, 
shareholder services fees, and any other class expenses that may be 
attributable to the different classes, the net income attributable to, 
and any dividends payable on, each class of Shares may differ from each 
other from time to time.
    7. Applicants state that, from time to time, the Board of a Fund 
may create additional classes of Shares, or may vary the 
characteristics of the Initial Class described in the application, 
including without limitation, in the following respects: (1) The amount 
of fees permitted by different distribution plans or different service 
fee arrangements; (2) voting rights with respect to a distribution plan 
of a class; (3) different class designations; (4) the impact of any 
class expenses directly attributable to a particular class of Shares 
allocated on a class basis as described in the application; (5) 
differences in any dividends and net asset values per Share resulting 
from differences in fees under a distribution plan or in class 
expenses; (6) any early withdrawal charge or other sales load 
structure; and (7) any exchange or conversion features, as permitted 
under the Act.
    8. Applicants state that, in order to provide some liquidity to 
shareholders, the Initial Fund may from time to time offer to 
repurchase Shares at net asset value pursuant to written tenders by 
shareholders in accordance with rule 13e-4 under the 1934 Act 
(``Repurchases''). Repurchases of the Fund's Shares will be made at 
such times, in such amounts and on such terms as may be determined by 
the Fund's Board in its sole discretion. Any other investment company 
that intends to rely on the requested relief will provide periodic 
liquidity to shareholders in accordance with either rule 23c-3 under 
the Act or rule 13e-4 under the 1934 Act.
    9. Applicants represent that any asset-based service and/or 
distribution fees of a Fund will comply with the provisions of Rule 
2341 of the Rules of the Financial Industry Regulatory Authority 
(``FINRA Rule 2341'') as if that rule applied to the Fund.\3\ 
Applicants also represent that each Fund will disclose in its 
prospectus the fees, expenses and other characteristics of each class 
of Shares offered for sale by the prospectus, as is required for open-
end, multiple class funds under Form N-1A. As is required for open-end 
funds, each Fund will disclose its expenses in shareholder reports, and 
describe any arrangements that result in breakpoints in, or elimination 
of, sales loads in its prospectus.\4\ In addition, applicants will 
comply with applicable enhanced fee disclosure requirements for fund of 
funds, including registered funds of hedge funds.\5\
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    \3\ Any references to FINRA Rule 2341 include any successor or 
replacement rule that may be adopted by the Financial Industry 
Regulatory Authority (``FINRA'').
    \4\ See Shareholder Reports and Quarterly Portfolio Disclosure 
of Registered Management Investment Companies, Investment Company 
Act Release No. 26372 (Feb. 27, 2004) (adopting release) (requiring 
open-end investment companies to disclose fund expenses in 
shareholder reports); and Disclosure of Breakpoint Discounts by 
Mutual Funds, Investment Company Act Release No. 26464 (June 7, 
2004) (adopting release) (requiring open-end investment companies to 
provide prospectus disclosure of certain sales load information).
    \5\ Fund of Funds Investments, Investment Company Act Rel. Nos. 
26198 (Oct. 1, 2003) (proposing release) and 27399 (Jun. 20, 2006) 
(adopting release). See also rules 12d1-1, et seq. of the Act.
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    10. Each Fund and its distributor (the ``Distributor'') will also 
comply with any requirements that may be adopted by the Commission or 
FINRA regarding disclosure at the point of sale and in transaction 
confirmations about the costs and conflicts of interest arising out of 
the distribution of open-end investment company shares, and regarding 
prospectus disclosure of sales loads and revenue sharing arrangements 
as if those requirements applied to the Fund and the Distributor. Each 
Fund or the Distributor will contractually require that any other 
distributor of the Fund's Shares comply with such requirements in 
connection with the distribution of Shares of the Fund.
    11. Each Fund will allocate all expenses incurred by it among its 
various classes of Shares based on the net assets of the Fund 
attributable to each class, except that the net asset value and 
expenses of each class will reflect distribution fees, service fees, 
and any other incremental expenses of that class. Expenses of a Fund 
allocated to a particular class of the Fund's Shares

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will be borne on a pro rata basis by each outstanding Share of that 
class. Applicants state that each Fund will comply with the provisions 
of rule 18f-3 under the Act as if it were an open-end investment 
company.
    12. Applicants state that the Initial Fund does not intend to offer 
any exchange privilege or conversion feature, but any such privilege or 
feature introduced in the future by a Fund will comply with rule 11a-1, 
rule 11a-3, and rule 18f-3 as if the Fund were an open-end investment 
company.
    13. Applicants state that the Initial Fund does not currently 
intend to impose an early withdrawal charge. However, in the future a 
Fund may impose an early withdrawal charge on shares submitted for 
repurchase that have been held less than a specified period. The Fund 
may waive the early withdrawal charge for certain categories of 
shareholders or transactions to be established from time to time. 
Applicants state that each Fund will apply the early withdrawal charge 
(and any waivers or scheduled variations of the early withdrawal 
charge) uniformly to all shareholders in a given class and consistently 
with the requirements of rule 22d-1 under the Act as if the Fund was an 
open-end investment company.
    14. Each Fund operating as an interval fund pursuant to rule 23c-3 
under the Act may offer its shareholders an exchange feature under 
which the shareholders of the Fund may, in connection with such Fund's 
periodic repurchase offers, exchange their Shares of the Fund for 
shares of the same class of (i) registered open-end investment 
companies or (ii) other registered closed-end investment companies that 
comply with rule 23c-3 under the Act and continuously offer their 
shares at net asset value, that are in the Fund's group of investment 
companies (collectively, the ``Other Funds''). Shares of a Fund 
operating pursuant to rule 23c-3 that are exchanged for shares of Other 
Funds will be included as part of the repurchase offer amount for such 
Fund as specified in rule 23c-3 under the Act. Any exchange option will 
comply with rule 11a-3 under the Act, as if the Fund were an open-end 
investment company subject to rule 11a-3. In complying with rule 11a-3 
under the Act, each Fund will treat an early withdrawal charge as if it 
were a contingent deferred sales load.
    15. Applicants state that the Initial Fund does not currently 
intend to impose a repurchase fee, but may do so in the future.\6\ If a 
Fund charges a repurchase fee, Shares of the Fund will be subject to a 
repurchase fee at a rate of no greater than 2% of the shareholder's 
repurchase proceeds if the interval between the date of purchase of the 
Shares and the valuation date with respect to the repurchase of those 
Shares is less than one year. Repurchase fees, if charged, will equally 
apply to all classes of Shares of the Fund, consistent with section 18 
of the Act and rule 18f-3 thereunder. To the extent a Fund determines 
to waive, impose scheduled variations of, or eliminate a repurchase 
fee, it will do so consistently with the requirements of rule 22d-1 
under the Act as if the repurchase fee were a contingent deferred sales 
load and as if the Fund were a registered open-end investment company 
and the Fund's waiver of, scheduled variation in, or elimination of, 
the repurchase fee will apply uniformly to all shareholders of the Fund 
regardless of class.
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    \6\ Unlike a distribution-related charge, the repurchase fee is 
payable to the Fund to compensate long-term shareholders for the 
expenses related to shorter-term investors, in light of the Fund's 
generally longer-term investment horizons and investment operations.
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Applicants' Legal Analysis

Multiple Classes of Shares

    1. Section 18(a)(2)(A) and (B) makes it unlawful for a registered 
closed-end investment company to issue a senior security that is a 
stock unless (a) immediately after such issuance it will have an asset 
coverage of at least 200% and (b) provision is made to prohibit the 
declaration of any distribution, upon its common stock, or the purchase 
of any such common stock, unless in every such case such senior 
security has at the time of the declaration of any such distribution, 
or at the time of any such purchase, an asset coverage of at least 200% 
after deducting the amount of such distribution or purchase price, as 
the case may be. Applicants state that the creation of multiple classes 
of shares of the Funds may violate section 18(a)(2) because the Funds 
may not meet such requirements with respect to a class of shares that 
may be a senior security.
    2. Section 18(c) of the Act provides, in relevant part, that a 
registered closed-end investment company may not issue or sell any 
senior security if, immediately thereafter, the company has outstanding 
more than one class of senior security. Applicants state that the 
creation of multiple classes of Shares of a Fund may be prohibited by 
section 18(c), as a class may have priority over another class as to 
payment of dividends because shareholders of different classes would 
pay different fees and expenses.
    3. Section 18(i) of the Act provides that each share of stock 
issued by a registered management investment company will be a voting 
stock and have equal voting rights with every other outstanding voting 
stock. Applicants state that permitting multiple classes of Shares of a 
Fund may violate section 18(i) of the Act because each class would be 
entitled to exclusive voting rights with respect to matters solely 
related to that class.
    4. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or any class or classes of persons, 
securities or transactions from any provision of the Act, or from any 
rule or regulation under the Act, if and to the extent 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 Act. Applicants request an exemption under 
section 6(c) from sections 18(a)(2), 18(c) and 18(i) to permit the 
Funds to issue multiple classes of Shares.
    5. Applicants submit that the proposed allocation of expenses 
relating to distribution and voting rights among multiple classes is 
equitable and will not discriminate against any group or class of 
shareholders. Applicants submit that the proposed arrangements would 
permit each Fund to facilitate the distribution of its Shares and 
provide investors with a broader choice of shareholder options. 
Applicants assert that the proposed closed-end investment company 
multiple class structure does not raise the concerns underlying section 
18 of the Act to any greater degree than open-end investment companies' 
multiple class structures that are permitted by rule 18f-3 under the 
Act. Applicants state that each Fund will comply with the provisions of 
rule 18f-3 as if it were an open-end investment company.

Early Withdrawal Charges

    1. Section 23(c) of the Act provides, in relevant part, that no 
registered closed-end investment company shall purchase securities of 
which it is the issuer, except: (a) On a securities exchange or other 
open market; (b) pursuant to tenders, after reasonable opportunity to 
submit tenders given to all holders of securities of the class to be 
purchased; or (c) under other circumstances as the Commission may 
permit by rules and regulations or orders for the protection of 
investors.
    2. Rule 23c-3 under the Act permits a registered closed-end 
investment company (an ``interval fund'') to make repurchase offers of 
between five and

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twenty-five percent of its outstanding shares at net asset value at 
periodic intervals pursuant to a fundamental policy of the interval 
fund. Rule 23c-3(b)(1) under the Act permits an interval fund to deduct 
from repurchase proceeds only a repurchase fee, not to exceed two 
percent of the proceeds, that is paid to the interval fund and is 
reasonably intended to compensate the fund for expenses directly 
related to the repurchase.
    3. Section 23(c)(3) provides that the Commission may issue an order 
that would permit a closed-end investment company to repurchase its 
shares in circumstances in which the repurchase is made in a manner or 
on a basis that does not unfairly discriminate against any holders of 
the class or classes of securities to be purchased.
    4. Applicants request relief under section 6(c), discussed above, 
and section 23(c)(3) from rule 23c-3 to the extent necessary for each 
Fund to impose early withdrawal charges on shares of the Fund submitted 
for repurchase that have been held for less than a specified period.
    5. Applicants state that the early withdrawal charges they intend 
to impose are functionally similar to contingent deferred sales loads 
imposed by open-end investment companies under rule 6c-10 under the 
Act. Rule 6c-10 permits open-end investment companies to impose 
contingent deferred sales loads, subject to certain conditions. 
Applicants note that rule 6c-10 is grounded in policy considerations 
supporting the employment of contingent deferred sales loads where 
there are adequate safeguards for the investor and state that the same 
policy considerations support imposition of early withdrawal charges in 
the interval fund context. In addition, applicants state that early 
withdrawal charges may be necessary for the Fund's Distributor to 
recover distribution costs. Applicants represent that any early 
withdrawal charge imposed by a Fund will comply with rule 6c-10 under 
the Act as if the rule were applicable to closed-end investment 
companies. Each Fund will disclose early withdrawal charges in 
accordance with the requirements of Form N-1A concerning contingent 
deferred sales loads.

Asset-Based Service and/or Distribution Fees

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company or an 
affiliated person of such person, acting as principal, from 
participating in or effecting any transaction in connection with any 
joint enterprise or joint arrangement in which the investment company 
participates unless the Commission issues an order permitting the 
transaction. In reviewing applications submitted under section 17(d) 
and rule 17d-1, the Commission considers whether the participation of 
the investment company in a joint enterprise or joint arrangement is 
consistent with the provisions, policies and purposes of the Act, and 
the extent to which the participation is on a basis different from or 
less advantageous than that of other participants.
    2. Rule 17d-3 under the Act provides an exemption from section 
17(d) and rule 17d-1 to permit open-end investment companies to enter 
into distribution arrangements pursuant to rule 12b-1 under the Act. 
Applicants request an order under section 17(d) and rule 17d-1 under 
the Act to permit the Fund to impose asset-based service and/or 
distribution fees. Applicants have agreed to comply with rules 12b-1 
and 17d-3 as if those rules applied to closed-end investment companies, 
which they believe will resolve any concerns that might arise in 
connection with a Fund financing the distribution of its shares through 
asset-based service and/or distribution fees.
    For the reasons stated above, applicants submit that the exemptions 
requested under section 6(c) are necessary and appropriate in the 
public interest and are consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the Act. 
Applicants further submit that the relief requested pursuant to section 
23(c)(3) will be consistent with the protection of investors and will 
insure that applicants do not unfairly discriminate against any holders 
of the class of securities to be purchased. Finally, applicants state 
that the Funds' imposition of asset-based service and/or distribution 
fees is consistent with the provisions, policies and purposes of the 
Act and does not involve participation on a basis different from or 
less advantageous than that of other participants.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    Each Fund relying on the requested order will comply with the 
provisions of rules 6c-10, 12b-1, 17d-3, 18f-3, 22d-1 and, where 
applicable, 11a-3 under the Act, as amended from time to time or 
replaced, as if those rules applied to closed-end management investment 
companies, and will comply with FINRA Rule 2341, as amended from time 
to time, as if that rule applied to all closed-end management 
investment companies.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05562 Filed 3-17-20; 8:45 am]
 BILLING CODE 8011-01-P