[Federal Register Volume 85, Number 77 (Tuesday, April 21, 2020)]
[Notices]
[Pages 22217-22222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08350]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33839; File No. 812-15019]
Great Elm Capital Corp., et al.
April 15, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of application for an order under sections 17(d) and 57(i)
of the Investment Company Act of 1940 (the ``Act'') and rule 17d-1
under the Act to permit certain joint transactions otherwise prohibited
by sections 17(d) and 57(a)(4) of the Act and rule 17d-1 under the Act.
Summary of Application: Applicants request an order to permit certain
business development companies (``BDCs'') and closed-end management
investment companies to co-invest in portfolio companies with each
other and with affiliated investment funds.
Applicants: Great Elm Capital Corp. (``GECC''), Great Elm Capital
Management, Inc. (``Great Elm Adviser''), each on behalf of itself and
its successors,\1\ and Great Elm Opportunities Fund I, LP (``Existing
Affiliated Fund'').
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\1\ For the purposes of the requested order, a ``successor''
includes an entity or entities that result from a reorganization
into another jurisdiction or a change in the type of business
organization.
Filing Dates: The application was filed on April 11, 2019, and amended
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on October 2, 2019 and January 16, 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 emailing the Commission's
Secretary at [email protected] and serving applicants with a
copy of the request by email. Hearing requests should be received by
the Commission by 5:30 p.m. on May 11, 2020 and should be accompanied
by proof of service on the 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 emailing the
Commission's Secretary at [email protected].
ADDRESSES: ADDRESSES: The Commission: [email protected].
Applicants: Great Elm Capital Corp. [email protected].
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. GECC is a Maryland corporation organized as a closed-end
management investment company that has elected to be regulated as a BDC
under section 54(a) of the Act.\2\ GECC's Objectives and Strategies \3\
are to seek to generate both current income and capital appreciation,
while seeking to protect against risk of capital loss, by investing
predominantly in the debt securities of middle market companies, which
GECC defines as companies with enterprise values between $100.0 million
and $2.0 billion. The business and affairs of GECC are managed under
the direction of a Board,\4\ a majority of whose
[[Page 22218]]
members are persons who are Non-Interested Directors.\5\
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\2\ Section 2(a)(48) defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
\3\ ``Objectives and Strategies'' means the investment
objectives and strategies of a Regulated Fund (as defined below), as
described in the Regulated Fund's registration statement, other
filings the Regulated Fund has made with the Commission under the
Securities Act of 1933 (the ``Securities Act''), or under the
Securities Exchange Act of 1934, and the Regulated Fund's reports to
shareholders.
\4\ The term ``Board'' means, with respect to any Regulated
Fund, the board of directors of that Regulated Fund.
\5\ The term ``Non-Interested Directors'' means, with respect to
any Board, the directors who are not ``interested persons'' within
the meaning of section 2(a)(19) of the Act.
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2. The Existing Affiliated Fund was formed as a Delaware limited
partnership and would be an investment company but for section 3(c)(7)
of the Act. The Existing Affiliated Fund's investment objective is to
seek total returns by investing throughout the capital structures of
leveraged issuers. From time to time, certain positions that are
suitable for the Existing Affiliated Fund may also fit the investment
objectives of GECC.
3. Great Elm Adviser, a Delaware corporation, is registered with
the Commission as an investment adviser under the Investment Advisers
Act of 1940 (``Advisers Act''). Great Elm Adviser serves as the
investment adviser to GECC and the Existing Affiliated Fund.
4. Applicants seek an order (``Order'') to permit a Regulated Fund
\6\ and one or more other Regulated Funds and/or one or more Affiliated
Funds \7\ to (a) co-invest with each other in investment opportunities
in which an Adviser (as defined below) negotiates terms in addition to
price and (b) make additional investments in such issuers, including
through the exercise of warrants, conversion privileges, and other
rights to purchase securities of the issuers (``Follow-On
Investments'') through a proposed co-investment program (the ``Co-
Investment Program'') where such participation would otherwise be
prohibited under section 17(d) or section 57(a)(4) and the rules under
the Act. ``Co-Investment Transaction'' means any transaction in which a
Regulated Fund (or its ``Wholly-Owned Investment Sub,'' as defined
below) participates together with one or more other Regulated Funds
and/or one or more Affiliated Funds in reliance on the requested Order.
``Potential Co-Investment Transaction'' means any investment
opportunity in which a Regulated Fund (or its Wholly-Owned Investment
Sub) could not participate together with one or more other Regulated
Funds and/or one or more Affiliated Funds without obtaining and relying
on the Order.\8\
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\6\ ``Regulated Fund'' refers to GECC and any Future Regulated
Fund. ``Future Regulated Fund'' means any closed-end management
investment company (a) that is registered under the Act or has
elected to be regulated as a BDC under the Act, (b) whose investment
adviser is an Adviser, and (c) that intends to participate in the
Co-Investment Program. The term ``Adviser'' means (a) Great Elm
Adviser and (b) any future investment adviser that (i) controls, is
controlled by or is under common control with Great Elm Adviser,
(ii) (A) is registered as an investment adviser under the Advisers
Act or (B) is a relying adviser of an investment adviser that is
registered under the Advisers Act and that controls, is controlled
by, or is under common control with, Great Elm Adviser, and (iii) is
not a Regulated Fund or a subsidiary of a Regulated Fund.
\7\ An ``Affiliated Fund'' means (a) the Existing Affiliated
Fund and (b) any Future Affiliated Fund. ``Future Affiliated Fund''
means any entity (a) whose investment adviser is an Adviser, (b)
that would be an investment company but for section 3(c)(1),
3(c)(5)(C) or 3(c)(7) of the Act, and (c) that intends to
participate in the Co-Investment Program.
\8\ All existing entities that currently intend to rely upon the
requested Order have been named as applicants. Any other existing or
future entity that subsequently relies on the Order will comply with
the terms and conditions of the application.
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5. Applicants state that any of the Regulated Funds may, from time
to time, form one or more Wholly-Owned Investment Subs.\9\ Such a
subsidiary would be prohibited from investing in a Co-Investment
Transaction with any other Regulated Fund or Affiliated Fund because it
would be a company controlled by its parent Regulated Fund for purposes
of section 57(a)(4) and rule 17d-1. Applicants request that each
Wholly-Owned Investment Sub be permitted to participate in Co-
Investment Transactions in lieu of its parent Regulated Fund and that
the Wholly-Owned Investment Sub's participation in any such transaction
be treated, for purposes of the Order, as though the parent Regulated
Fund were participating directly. Applicants represent that this
treatment is justified because a Wholly-Owned Investment Sub would have
no purpose other than serving as a holding vehicle for the Regulated
Fund's investments and, therefore, no conflicts of interest could arise
between the Regulated Fund and the Wholly-Owned Investment Sub. The
Regulated Fund's Board would make all relevant determinations under the
conditions with regard to a Wholly-Owned Investment Sub's participation
in a Co-Investment Transaction, and the Regulated Fund's Board would be
informed of, and take into consideration, any proposed use of a Wholly-
Owned Investment Sub in the Regulated Fund's place. If the Regulated
Fund proposes to participate in the same Co-Investment Transaction with
any of its Wholly-Owned Investment Subs, the Board will also be
informed of, and take into consideration, the relative participation of
the Regulated Fund and the Wholly-Owned Investment Sub.
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\9\ The term ``Wholly-Owned Investment Sub'' means an entity (a)
whose sole business purpose is to hold one or more investments on
behalf of a Regulated Fund (and, in the case of an SBIC Subsidiary
(as defined below), maintain a license under the Small Business
Investment Act of 1958, as amended (the ``SBA Act'') and issue
debentures guaranteed by the Small Business Administration (the
``SBA''); (b) that is wholly-owned by the Regulated Fund (with the
Regulated Fund at all times holding, beneficially and of record,
100% of the voting and economic interests); (c) with respect to
which the Regulated Fund's Board has the sole authority to make all
determinations with respect to the entity's participation under the
conditions of the application; and (d) that would be an investment
company but for section 3(c)(1) or 3(c)(7) of the Act. All
subsidiaries of the Regulated Fund participating in the Co-
Investment Transactions will be Wholly-Owned Investment Subs. The
term ``SBIC Subsidiary'' means a Wholly-Owned Investment Sub that is
licensed by the SBA to operate under the SBA Act as a small business
investment company (an ``SBIC'').
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6. Great Elm Adviser expects that any portfolio company that is an
appropriate investment for a Regulated Fund should also be an
appropriate investment for one or more other Regulated Funds and/or one
or more Affiliated Funds, with certain exceptions based on available
capital or diversification.\10\ When considering Potential Co-
Investment Transactions for any Regulated Fund, the applicable Adviser
will consider only the Objectives and Strategies, Board-Established
Criteria,\11\ investment policies, investment positions, capital
available for investment, and other pertinent factors applicable to
that Regulated Fund. Applicants believe that the use of Board-
Established Criteria for each of the Regulated Funds is appropriate
based on the potential size and scope of Great Elm Adviser's advisory
business. Applicants argue that in addition to the other protections
offered by the conditions, using Board-Established Criteria in the
allocation of Potential Co-Investment Transactions
[[Page 22219]]
will further reduce the risk of subjectivity in the Adviser's
determination of whether an investment opportunity is appropriate for a
Regulated Fund. In connection with the Board's annual review of the
continued appropriateness of any Board-Established Criteria under
condition 9, the Regulated Fund's Adviser will provide information
regarding any Co-Investment Transaction (including, but not limited to,
Follow-On Investments) effected by the Regulated Fund that did not fit
within the then-current Board-Established Criteria.
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\10\ The Regulated Funds, however, will not be obligated to
invest, or co-invest, when investment opportunities are referred to
them.
\11\ The term ``Board-Established Criteria'' means criteria that
the Board of the applicable Regulated Fund may establish from time
to time to describe the characteristics of Potential Co-Investment
Transactions which would be within the Regulated Fund's then-current
Objectives and Strategies that the applicable Adviser should
consider as appropriate for the Regulated Fund. If no Board-
Established Criteria are in effect for a Regulated Fund, then such
Adviser will consider all Potential Co-Investment Transactions that
fall within the then-current Objectives and Strategies for that
Regulated Fund. Board-Established Criteria will be objective and
testable, meaning that they will be based on observable information,
such as industry/sector of the issuer, minimum EBITDA of the issuer,
asset class of the investment opportunity or required commitment
size, and not on characteristics that involve discretionary
assessment. The Adviser to a Regulated Fund may from time to time
recommend criteria for the applicable Board's consideration, but
Board-Established Criteria will only become effective if approved by
a majority of the Non-Interested Directors. The Non-Interested
Directors of a Regulated Fund may at any time rescind, suspend or
qualify its approval of any Board-Established Criteria, though
applicants anticipate that, under normal circumstances, the Board
would not modify these criteria more often than quarterly.
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7. Other than pro rata dispositions and Follow-On Investments as
provided in conditions 7 and 8, and after making the determinations
required in conditions 1 and 2(a), for each Regulated Fund, the
applicable Adviser will present each Potential Co-Investment
Transaction and the proposed allocation to the directors of the Board
eligible to vote under section 57(o) of the Act (``Eligible
Directors''), and the ``required majority,'' as defined in section
57(o) of the Act (``Required Majority'') \12\ will approve each Co-
Investment Transaction prior to any investment by the participating
Regulated Fund.
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\12\ In the case of a Regulated Fund that is a registered fund,
the Board members that make up the Required Majority will be
determined as if the Regulated Fund were a BDC subject to section
57(o).
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8. With respect to the pro rata dispositions and Follow-On
Investments provided in conditions 7 and 8, a Regulated Fund may
participate in a pro rata disposition or Follow-On Investment without
obtaining prior approval of the Required Majority if, among other
things: (i) The proposed participation of each Regulated Fund and each
Affiliated Fund in such disposition is proportionate to its outstanding
investments in the issuer immediately preceding the disposition or
Follow-On Investment, as the case may be; and (ii) the Board of the
Regulated Fund has approved that Regulated Fund's participation in pro
rata dispositions and Follow-On Investments as being in the best
interests of the Regulated Fund. If the Board does not so approve, any
such disposition or Follow-On Investment will be submitted to the
Regulated Fund's Eligible Directors. The Board of any Regulated Fund
may at any time rescind, suspend or qualify its approval of pro rata
dispositions and Follow-On Investments with the result that all
dispositions and/or Follow-On Investments must be submitted to the
Eligible Directors.
9. No Non-Interested Director of a Regulated Fund will have a
direct or indirect financial interest in any Co-Investment Transaction
(other than indirectly through share ownership in one of the Regulated
Funds), including any interest in any company whose securities would be
acquired in a Co-Investment Transaction.
10. Applicants also represent that if the Advisers, the principal
owners of any of the Advisers (the ``Principals''), or any person
controlling, controlled by, or under common control with the Advisers
or the Principals, and the Affiliated Funds (collectively, the
``Holders'') own in the aggregate more than 25% of the outstanding
voting shares of a Regulated Fund (the ``Shares''), then the Holders
will vote such Shares as required under condition 14. Applicants
believe this condition will ensure that the Non-Interested Directors
will act independently in evaluating the Co-Investment Program, because
the ability of the Advisers or the Principals to influence the Non-
Interested Directors by a suggestion, explicit or implied, that the
Non-Interested Directors can be removed will be limited significantly.
Applicants represent that the Non-Interested Directors will evaluate
and approve any such independent third party, taking into account its
qualifications, reputation for independence, cost to the shareholders,
and other factors that they deem relevant.
Applicants' Legal Analysis
1. Section 57(a)(4) of the Act prohibits certain affiliated persons
of a BDC from participating in joint transactions with the BDC or a
company controlled by a BDC in contravention of rules as prescribed by
the Commission. Under section 57(b)(2) of the Act, any person who is
directly or indirectly controlling, controlled by, or under common
control with a BDC is subject to section 57(a)(4). Applicants submit
that each of the Regulated Funds and Affiliated Funds could be deemed
to be a person related to each Regulated Fund in a manner described by
section 57(b) by virtue of being under common control. Section 57(i) of
the Act provides that, until the Commission prescribes rules under
section 57(a)(4), the Commission's rules under section 17(d) of the Act
applicable to registered closed-end investment companies will be deemed
to apply to transactions subject to section 57(a)(4). Because the
Commission has not adopted any rules under section 57(a)(4), rule 17d-1
also applies to joint transactions with Regulated Funds that are BDCs.
Section 17(d) of the Act and rule 17d-1 under the Act are applicable to
Regulated Funds that are registered closed-end investment companies.
2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
affiliated persons of a registered investment company from
participating in joint transactions with the company unless the
Commission has granted an order permitting such transactions. In
passing upon applications under rule 17d-1, the Commission considers
whether the company's participation in the joint transaction is
consistent with the provisions, policies, and purposes of the Act and
the extent to which such participation is on a basis different from or
less advantageous than that of other participants.
3. Applicants state that in the absence of the requested relief,
the Regulated Funds would be, in many circumstances, limited in their
ability to participate in attractive and appropriate investment
opportunities. Applicants believe that the proposed terms and
conditions will ensure that the Co-Investment Transactions are
consistent with the protection of each Regulated Fund's shareholders
and with the purposes intended by the policies and provisions of the
Act. Applicants state that the Regulated Funds' participation in the
Co-Investment Transactions will be consistent with the provisions,
policies, and purposes of the Act and on a basis that is not different
from, or less advantageous than, that of other participants.
Applicants' Conditions
Applicants agree that the Order will be subject to the following
conditions:
1. (a) Each Adviser will establish, maintain and implement policies
and procedures reasonably designed to ensure that it identifies for
each Regulated Fund all Potential Co-Investment Transactions that (i)
the Adviser considers for any other Regulated Fund or Affiliated Fund
and (ii) fall within the Regulated Fund's then-current Objectives and
Strategies and Board-Established Criteria.
(b) When an Adviser identifies a Potential Co-Investment
Transaction for a Regulated Fund under condition 1(a), the Adviser will
make an independent determination of the appropriateness of the
investment for the Regulated Fund in light of the Regulated Fund's
then-current circumstances.
2. (a) If an Adviser deems a Regulated Fund's participation in any
Potential Co-Investment Transaction to be appropriate for the Regulated
Fund, the Adviser will then determine an appropriate level of
investment for the Regulated Fund.
[[Page 22220]]
(b) If the aggregate amount recommended by an Adviser to be
invested by the applicable Regulated Fund in the Potential Co-
Investment Transaction, together with the amount proposed to be
invested by the other participating Regulated Funds and Affiliated
Funds, collectively, in the same transaction, exceeds the amount of the
investment opportunity, the investment opportunity will be allocated
among them pro rata based on each participant's capital available for
investment in the asset class being allocated, up to the amount
proposed to be invested by each. Each Adviser will provide the Eligible
Directors of each participating Regulated Fund with information
concerning each participating party's available capital to assist the
Eligible Directors with their review of the applicable Regulated Fund's
investments for compliance with these allocation procedures.
(c) After making the determinations required in conditions 1(b) and
2(a), the applicable Adviser will distribute written information
concerning the Potential Co-Investment Transaction (including the
amount proposed to be invested by each participating Regulated Fund and
each participating Affiliated Fund) to the Eligible Directors of its
participating Regulated Fund(s) for their consideration. A Regulated
Fund will enter into a Co-Investment Transaction with one or more other
Regulated Funds or Affiliated Funds only if, prior to the Regulated
Fund's participation in the Potential Co-Investment Transaction, a
Required Majority concludes that:
(i) The terms of the Potential Co-Investment Transaction, including
the consideration to be paid, are reasonable and fair to the Regulated
Fund and its equity holders and do not involve overreaching in respect
of the Regulated Fund or its equity holders on the part of any person
concerned;
(ii) the Potential Co-Investment Transaction is consistent with:
(A) The interests of the Regulated Fund's equity holders; and
(B) the Regulated Fund's then-current Objectives and Strategies;
(iii) the investment by any other Regulated Fund(s) or any
Affiliated Fund(s) would not disadvantage the Regulated Fund, and
participation by the Regulated Fund would not be on a basis different
from or less advantageous than that of any other Regulated Funds or any
Affiliated Funds; provided that, if any other Regulated Fund or any
Affiliated Fund, but not the Regulated Fund itself, gains the right to
nominate a director for election to a portfolio company's board of
directors or the right to have a board observer or any similar right to
participate in the governance or management of the portfolio company,
such event shall not be interpreted to prohibit the Required Majority
from reaching the conclusions required by this condition 2(c)(iii), if:
(A) The Eligible Directors will have the right to ratify the
selection of such director or board observer, if any; and
(B) the Adviser agrees to, and does, provide periodic reports to
the Board of the Regulated Fund with respect to the actions of such
director or the information received by such board observer or obtained
through the exercise of any similar right to participate in the
governance or management of the portfolio company; and
(C) any fees or other compensation that any Regulated Fund or any
Affiliated Fund or any affiliated person of any Regulated Fund or any
Affiliated Fund receives in connection with the right of a Regulated
Fund or an Affiliated Fund to nominate a director or appoint a board
observer or otherwise to participate in the governance or management of
the portfolio company will be shared proportionately among the
participating Affiliated Funds (who may each, in turn, share its
portion with its affiliated persons) and the participating Regulated
Funds in accordance with the amount of each party's investment; and
(iv) the proposed investment by the Regulated Fund will not benefit
any Adviser, the other Regulated Funds, the Affiliated Funds, or any
affiliated person of any of them (other than the parties to the Co-
Investment Transaction), except (A) to the extent permitted by
condition 13, (B) to the extent permitted by sections 17(e) or 57(k) of
the Act, as applicable, (C) indirectly, as a result of an interest in
the securities issued by one of the parties to the Co-Investment
Transaction, or (D) in the case of fees or other compensation described
in condition 2(c)(iii)(C).
3. Each Regulated Fund has the right to decline to participate in
any Potential Co-Investment Transaction or to invest less than the
amount proposed.
4. The applicable Adviser will present to the Board of each
Regulated Fund, on a quarterly basis, a record of all investments in
Potential Co-Investment Transactions made by any other Regulated Fund
or Affiliated Fund during the preceding quarter that fell within the
Regulated Fund's then-current Objectives and Strategies and Board-
Established Criteria that were not made available to the Regulated
Fund, and an explanation of why the investment opportunities were not
offered to the Regulated Fund. All information presented to the Board
pursuant to this condition will be kept for the life of the Regulated
Fund and at least two years thereafter, and will be subject to
examination by the Commission and its staff.
5. Except for Follow-On Investments made in accordance with
condition 8,\13\ a Regulated Fund will not invest in reliance on the
Order in any issuer in which another Regulated Fund, Affiliated Fund,
or any affiliated person of another Regulated Fund or Affiliated Fund
is an existing investor. The applicable Adviser will maintain books and
records that demonstrate compliance with this condition for such
Regulated Fund.
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\13\ This exception applies only to Follow-On Investments by a
Regulated Fund in issuers in which that Regulated Fund already holds
investments.
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6. A Regulated Fund will not participate in any Potential Co-
Investment Transaction unless the terms, conditions, price, class of
securities to be purchased, settlement date, and registration rights
will be the same for each participating Regulated Fund and Affiliated
Fund. The grant to another Regulated Fund or an Affiliated Fund, but
not the Regulated Fund, of the right to nominate a director for
election to a portfolio company's board of directors, the right to have
an observer on the board of directors or similar rights to participate
in the governance or management of the portfolio company will not be
interpreted so as to violate this condition 6, if conditions
2(c)(iii)(A), (B), and (C) are met.
7. (a) If any Regulated Fund or Affiliated Fund elects to sell,
exchange or otherwise dispose of an interest in a security that was
acquired in a Co-Investment Transaction, the applicable Advisers will:
(i) Notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed disposition at the earliest
practical time; and
(ii) formulate a recommendation as to participation by each
Regulated Fund in the disposition.
(b) Each Regulated Fund will have the right to participate in such
disposition on a proportionate basis, at the same price and on the same
terms and conditions as those applicable to the participating Regulated
Funds and Affiliated Funds.
(c) A Regulated Fund may participate in such disposition without
obtaining prior approval of the Required Majority if: (i) The proposed
participation of each Regulated Fund and each Affiliated
[[Page 22221]]
Fund in such disposition is proportionate to its outstanding
investments in the issuer immediately preceding the disposition; (ii)
the Board of the Regulated Fund has approved as being in the best
interests of the Regulated Fund the ability to participate in such
dispositions on a pro rata basis (as described in greater detail in the
application); and (iii) the Board of the Regulated Fund is provided on
a quarterly basis with a list of all dispositions made in accordance
with this condition. In all other cases, the Adviser will provide its
written recommendation as to such Regulated Fund's participation to
such Regulated Fund's Eligible Directors, and such Regulated Fund will
participate in such disposition solely to the extent that a Required
Majority determines that it is in such Regulated Fund's best interests.
(d) Each Regulated Fund and each Affiliated Fund will bear its own
expenses in connection with any such disposition.
8. (a) If a Regulated Fund or an Affiliated Fund desires to make a
Follow-On Investment in a portfolio company whose securities were
acquired in a Co-Investment Transaction, the applicable Advisers will:
(i) Notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed transaction at the earliest
practical time; and
(ii) formulate a recommendation as to the proposed participation,
including the amount of the proposed Follow-On Investment, by each
Regulated Fund.
(b) A Regulated Fund may participate in such Follow-On Investment
without obtaining prior approval of the Required Majority if: (i) The
proposed participation of each Regulated Fund and each Affiliated Fund
in such investment is proportionate to its outstanding investments in
the issuer immediately preceding the Follow-On Investment; and (ii) the
Board of the Regulated Fund has approved as being in the best interests
of the Regulated Fund the ability to participate in Follow-On
Investments on a pro rata basis (as described in greater detail in the
application). In all other cases, the Adviser will provide its written
recommendation as to the Regulated Fund's participation to the Eligible
Directors, and the Regulated Fund will participate in such Follow-On
Investment solely to the extent that a Required Majority determines
that it is in the Regulated Fund's best interests.
(c) If, with respect to any Follow-On Investment:
(i) The amount of a Follow-On Investment is not based on the
Regulated Funds' and the Affiliated Funds' outstanding investments
immediately preceding the Follow-On Investment; and
(ii) the aggregate amount recommended by the applicable Advisers to
be invested by each Regulated Fund in the Follow-On Investment,
together with the amount proposed to be invested by the participating
Affiliated Funds in the same transaction, exceeds the amount of the
opportunity; then the amount invested by each such party will be
allocated among them pro rata based on each party's capital available
for investment in the asset class being allocated, up to the amount
proposed to be invested by each.
(d) The acquisition of Follow-On Investments as permitted by this
condition will be considered a Co-Investment Transaction for all
purposes and subject to the other conditions set forth in the
application.
9. The Non-Interested Directors of each Regulated Fund will be
provided quarterly for review all information concerning Potential Co-
Investment Transactions that fell within the Regulated Fund's then-
current Objectives and Strategies and Board-Established Criteria,
including investments in Potential Co-Investment Transactions made by
other Regulated Funds and Affiliated Funds, that the Regulated Fund
considered but declined to participate in, and concerning Co-Investment
Transactions in which the Regulated Fund participated, so that the Non-
Interested Directors may determine whether all Potential Co-Investment
Transactions and Co-Investment Transactions during the preceding
quarter, including those Potential Co-Investment Transactions which the
Regulated Fund considered but declined to participate in, comply with
the conditions of the Order. In addition, the Non-Interested Directors
will consider at least annually (a) the continued appropriateness for
the Regulated Fund of participating in new and existing Co-Investment
Transactions and (b) the continued appropriateness of any Board-
Established Criteria.
10. Each Regulated Fund will maintain the records required by
section 57(f)(3) of the Act as if each of the Regulated Funds were a
BDC and each of the investments permitted under these conditions were
approved by the Required Majority under section 57(f).
11. No Non-Interested Director of a Regulated Fund will also be a
director, general partner, managing member or principal, or otherwise
be an ``affiliated person'' (as defined in the Act), of any Affiliated
Fund.
12. The expenses, if any, associated with acquiring, holding or
disposing of any securities acquired in a Co-Investment Transaction
(including, without limitation, the expenses of the distribution of any
such securities registered for sale under the Securities Act) will, to
the extent not payable by the Advisers under their respective
investment advisory agreements with the Regulated Funds and the
Affiliated Funds, be shared by the Affiliated Funds and the Regulated
Funds in proportion to the relative amounts of the securities held or
to be acquired or disposed of, as the case may be.
13. Any transaction fee \14\ (including break-up or commitment fees
but excluding brokerage or underwriting compensation permitted by
section 17(e) or 57(k) of the Act, as applicable) received in
connection with a Co-Investment Transaction will be distributed to the
participating Regulated Funds and Affiliated Funds on a pro rata basis
based on the amounts they invested or committed, as the case may be, in
such Co-Investment Transaction. If any transaction fee is to be held by
an Adviser pending consummation of the transaction, the fee will be
deposited into an account maintained by the Adviser at a bank or banks
having the qualifications prescribed in section 26(a)(1) of the Act,
and the account will earn a competitive rate of interest that will also
be divided pro rata among the participating Regulated Funds and
Affiliated Funds based on the amounts they invest in such Co-Investment
Transaction. None of the Advisers, the Affiliated Funds, the other
Regulated Funds or any affiliated person of the Regulated Funds or
Affiliated Funds will receive additional compensation or remuneration
of any kind as a result of or in connection with a Co-Investment
Transaction (other than (a) in the case of the Regulated Funds and
Affiliated Funds, the pro rata transaction fees described above and
fees or other compensation described in condition 2(c)(iii)(C), (b)
brokerage or underwriting compensation permitted by section 17(e) or
57(k) of the Act or (c) in the case of an Adviser, investment advisory
fees paid in accordance with the investment advisory agreement between
the Adviser and the Regulated Fund or Affiliated Fund).
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\14\ Applicants are not requesting and the staff of the
Commission is not providing any relief for transaction fees received
in connection with any Co-Investment Transaction.
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14. If the Holders own in the aggregate more than 25 percent of the
Shares of a Regulated Fund, then the Holders will
[[Page 22222]]
vote such Shares as directed by an independent third party when voting
on (1) the election of directors; (2) the removal of one or more
directors; or (3) all other matters under either the Act or applicable
State law affecting the Board's composition, size or manner of
election.
15. Each Regulated Fund's chief compliance officer, as defined in
rule 38a-1(a)(4), will prepare an annual report for its Board each year
that evaluates (and documents the basis of that evaluation) the
Regulated Fund's compliance with the terms and conditions of the
application and the procedures established to achieve such compliance.
For the Commission, by the Division of Investment Management,
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08350 Filed 4-20-20; 8:45 am]
BILLING CODE 8011-01-P