[Federal Register Volume 88, Number 19 (Monday, January 30, 2023)]
[Notices]
[Pages 5938-5941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01737]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Advisers Act Release No. 6224/File No. 803-00248]


AEW Capital Management, L.P.

January 24, 2023.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of application for an exemptive order under Section 206A of 
the Investment Advisers Act of 1940 (the ``Act'') and rule 206(4)-5(e) 
under the Act.
    Applicant: AEW Capital Management, L.P. (``Applicant'' or 
``Adviser'')
    Summary of Application: Applicant requests that the Commission 
issue an order under section 206A of the Act and rule 206(4)-5(e) under 
the Act exempting them from rule 206(4)-5(a)(1) under the Act to permit 
Applicant to receive compensation from a government entity for 
investment advisory services provided to the government entity within 
the two-year period following a contribution by a covered associate of 
Applicant to an official of the government entity.
    Filing Dates: The application was filed on July 28, 2022, and an 
amended and restated application was filed on September 28, 2022.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving Applicant with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on February 21, 2023 and should be accompanied by proof of 
service on Applicant, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the Commission's Secretary.

ADDRESSES: The Commission: Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549-1090. Applicant: AEW 
Capital Management, L.P., Two Seaport Lane, Boston, MA 02210-2021.

FOR FURTHER INFORMATION CONTACT: Juliet Han, Attorney-Adviser, at (202) 
551-5213 or Kyle R. Ahlgren, Branch Chief, at (202) 551-6857 (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 at http://www.sec.gov/rules/iareleases.shtml or by 
calling (202) 551-8090.

Applicant's Representations

    1. Applicant is a Delaware limited partnership registered with the 
Commission as an investment adviser under the Act. Applicant provides 
discretionary investment advisory services relating to direct and 
indirect investments in real estate and real estate related services 
including providing

[[Page 5939]]

discretionary investment advisory services to private funds (the 
``Funds'').
    2. The individual who made the campaign contribution that triggered 
the two-year compensation ban (the ``Contribution'') is Lauren O'Neill 
Goff (the ``Contributor''). At the time of the Contribution, the 
Contributor was a senior managing director and co-head of the Boston 
office for Jones Lang LaSalle Incorporated (``JLL''), a real estate 
firm that provides leasing, property and integrated facility 
management, and capital market services. The Contributor was not a 
covered associate, and she did not provide services to the Adviser at 
the time of the Contribution. The Contributor was offered employment by 
the Adviser on October 26, 2021 to serve as chief operating officer of 
the Adviser's private equity group. The COO role for which the 
Contributor was hired includes overseeing the Adviser's asset 
management and reporting finance teams and evaluating, establishing and 
monitoring operational standards for the Adviser's private equity 
platform. Although the Contributor was not hired to be a marketer, her 
role would ordinarily require attending diligence meetings with current 
and prospective investors and participating in efforts to increase and 
maintain capital commitments to the Adviser's Funds. Since joining the 
Adviser, the Contributor has not solicited government entities. The 
Contributor is not responsible for overseeing the Adviser's business 
development function, but members of her team do participate in 
solicitation meetings from time to time. Since starting employment with 
the Adviser on January 24, 2022, the Contributor has assumed an 
executive officer position. As such, the Contributor is a covered 
associate as defined in rule 206(4)-5(f)(2)(i).
    3. An investor in the Funds is a public pension plan identified as 
a government entity, as defined in rule 206(4)-5(f)(5)(ii), with 
respect to the City of Boston (the ``Client'').
    4. The recipient of the Contribution was Kim Janey (the 
``Recipient''), a Boston city council member who, at the time of the 
Contribution, was acting mayor of Boston and a candidate for re-
election as mayor. The investment decisions for the Client, including 
the hiring of an investment adviser, are overseen by a five-member 
board, with two mayoral appointments. Due to the mayor's power of 
appointment, a candidate for mayor such as the Recipient is an 
``official'' of the Client as defined in rule 206(4)-5(f)(6)(ii). The 
Contribution that triggered rule 206(4)-5's prohibition on compensation 
under rule 206(4)-5(a)(1) was made on July 23, 2021, for the amount of 
$1,000. The Recipient called the Contributor directly to solicit the 
donation in question and to ask her to host an event. The Contributor 
declined to host an event, but made a contribution. As a resident of 
Boston, the Contributor decided to make the Contribution based on her 
having a legitimate personal interest in the outcome of the campaign. 
Applicant represents that the Contributor had no intention of 
soliciting investment advisory business from the Client or any other 
government entity of which the Recipient was an official.
    5. The Client has been an investor in the Adviser's Funds since 
2006, with additional investments having been made in 2017 and April 
2020. Applicant represents that: the Contributor has never presented 
for, or met with, any of the Client's representatives over the course 
of the relationship; the Contributor is not directly involved with the 
Client; the Contributor has had no contact with any representative of 
the Client and no contact with any member of the Client's board; and at 
no time did any employees of the Adviser other than the Contributor 
have any knowledge that the Contribution had been made prior to its 
discovery by the Adviser in October 2021.
    6. Applicant learned of the Contribution in late October 2021 in 
the course of prospective employee vetting that included review of a 
pre-hire political contribution declaration on which the Contributor 
disclosed the Contribution. The Adviser informed the Contributor that 
she would need to seek a refund, which she did in November 2021. The 
Contribution was refunded by the campaign on December 23, 2021. The 
Adviser determined that although the Contributor would be a covered 
associate under rule 206(4)-5, she is only subject to the 6-month 
lookback under rule 206(4)-5(b)(2). She did not become a covered 
associate until more than six months had elapsed since the date of her 
contribution. However, the Contributor's role would ordinarily involve 
soliciting government entities. She is refraining from such 
solicitation, but in the event she were to solicit a government entity, 
the full two-year lookback would apply and trigger a ban. Applicant 
represents that at the point of such solicitation, the portion of 
management fees and carried interest attributable to the Client's 
investments in the Funds from the date the Contributor became a covered 
associate until two years after the date of the contribution would be 
held by the Funds or placed in escrow and not distributed to the 
Adviser. Applicant further represents that the Adviser also took steps 
to limit the Contributor's contact with any representative of the 
Client for the duration of the two-year period beginning July 23, 2021, 
including informing the Contributor that she could have no contact with 
any representative of the Client.
    7. Applicant's Pay-to-Play Policies and Procedures (the ``Policy'') 
were adopted and implemented before the Contribution was made. The 
Policy requires that all contributions to federal, state and local 
office incumbents and candidates are subject to pre-clearance by 
employees. There is no de minimis exemption from the pre-clearance for 
small contributions to these state and local officials. All employees 
of the Adviser are subject to the Policy; its application is not 
limited to the Adviser's managing members, executive officers and other 
``covered associates'' under the rule. When hiring an individual, the 
Adviser makes its job offer conditional on the individual disclosing 
any political contributions within the past two years. If any 
contributions are reported, the Adviser's human resources team will 
escalate to the legal and compliance team for review and action. At 
time of hire, all new employees are provided with the Adviser's 
compliance training which includes the Policy. Annually, all employees 
must certify to their adherence to all policies in the compliance 
manual and code of ethics and specifically the Policy. As part of this 
annual certification, employees confirm that no political contributions 
were made other than those pre-cleared through the Adviser's compliance 
system. The Adviser conducts periodic forensic testing to confirm that 
the Policy is being followed.

Applicant's Legal Analysis

    1. Rule 206(4)-5(a)(1) under the Act prohibits a registered 
investment adviser from providing investment advisory services for 
compensation to a government entity within two years after a 
contribution to an official of a government entity is made by the 
investment adviser or any covered associate of the investment adviser. 
The Client is a ``government entity,'' as defined in rule 206(4)-
5(f)(5), the Contributor is a ``covered associate'' as defined in rule 
206(4)-5(f)(2), and the Official is an ``official'' as defined in rule 
206(4)-5(f)(6).
    2. Section 206A of the Act authorizes the Commission to 
``conditionally or unconditionally exempt any person or transaction . . 
. from any provision or provisions of [the Act] or of any rule or 
regulation thereunder, if and to the extent that such exemption is 
necessary

[[Page 5940]]

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].''
    3. Rule 206(4)-5(e) provides that the Commission may conditionally 
or unconditionally grant an exemption to an investment adviser from the 
prohibition under rule 206(4)-5(a)(1) upon consideration of the factors 
listed below, among others:
    (1) Whether the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act;
    (2) Whether the investment adviser: (i) before the contribution 
resulting in the prohibition was made, adopted and implemented policies 
and procedures reasonably designed to prevent violations of the rule; 
(ii) prior to or at the time the contribution which resulted in such 
prohibition was made, had no actual knowledge of the contribution; and 
(iii) after learning of the contribution: (A) has taken all available 
steps to cause the contributor involved in making the contribution 
which resulted in such prohibition to obtain a return of the 
contribution; and (B) has taken such other remedial or preventive 
measures as may be appropriate under the circumstances;
    (3) Whether, at the time of the contribution, the contributor was a 
covered associate or otherwise an employee of the investment adviser, 
or was seeking such employment;
    (4) The timing and amount of the contribution which resulted in the 
prohibition;
    (5) The nature of the election (e.g., federal, state or local); and
    (6) The contributor's apparent intent or motive in making the 
contribution which resulted in the prohibition, as evidenced by the 
facts and circumstances surrounding such contribution.
    4. Applicant requests an order pursuant to Section 206A and rule 
206(4)-5(e), exempting them from the two-year prohibition on 
compensation imposed by rule 206(4)-5(a)(1) with respect to investment 
advisory services provided to the Client within the two-year period 
following the Contribution.
    5. Applicant submits that the exemption is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act. Applicant further submits that the other factors 
set forth in rule 206(4)-5(e) similarly weigh in favor of granting an 
exemption to Applicant to avoid consequences disproportionate to the 
violation.
    6. Applicant contends that, given the nature of the Contribution, 
and the lack of any evidence that the Adviser or the Contributor 
intended to, or actually did, interfere with the Client's merit-based 
process for the selection or retention of advisory services, the 
interests of the Client are best served by allowing the Adviser and the 
Client to continue their relationship uninterrupted. Applicant states 
that causing the Adviser to serve without compensation for the 
remainder of the two-year period could result in a financial loss that 
is more than 600 times the amount of the Contribution. Applicant 
suggests that the policy underlying rule 206(4)-5 is served by ensuring 
that no improper influence is exercised over investment decisions by 
governmental entities as a result of campaign contributions, and not by 
withholding compensation as a result of unintentional violations.
    7. Applicant represents that the Adviser adopted and implemented 
the Policy which is fully compliant with, and more rigorous than, the 
rule's requirements before the rule's initial proposal by the 
Commission and substantially before the rule's adoption or dates for 
required compliance. Applicant represents that the Adviser implemented 
a mandatory political contribution declaration for all employees 
provided a conditional offer of employment. It was this declaration 
that was effective in identifying the Contribution before the 
Contributor became a covered associate.
    8. Applicant asserts that actual knowledge of the Contribution at 
the time of its making cannot be imputed to the Adviser, given that the 
Contributor was not an employee of the Adviser. Applicant also 
represents that at no time did any employees of the Adviser other than 
the Contributor have any knowledge that the Contribution had been made 
prior to its discovery by the Adviser in October 2021.
    9. Applicant asserts that, after learning of the Contribution, the 
Adviser and the Contributor took all available steps to obtain a return 
of the Contribution. Before the Contributor began work with the 
Adviser, the Contributor had obtained a full refund of the 
Contribution. The Adviser has restricted the Contributor from 
soliciting the Client and is carefully monitoring the Contributor to 
ensure that it will begin restricting compensation related to the 
Client if the Contributor solicits any government entity.
    10. Applicant states that after learning of the Contribution, the 
Adviser took steps to limit the Contributor's contact with any 
representative of the Client for the remainder of the two-year period 
beginning July 23, 2021. The Adviser informed the Contributor that she 
could have no contact with any representative of the Client. However, 
she may solicit other government entities in the course of her duties, 
at which point, the two-year lookback would apply and a compensation 
ban would begin.
    11. Applicant states that the Adviser has had investments from the 
Client that predate the Contributor's employment with the Adviser. 
Applicant further states that the Contribution was consistent with the 
political affiliation of the Contributor and her history of 
contributions. Applicant also submits that the apparent intent in 
making the Contribution was not to influence the selection or retention 
of the Adviser. Applicant represents that the Contributor has a long 
history of backing candidates that share the political views of the 
Recipient by voting for them and contributing to their campaigns. 
Applicant also represents that the amount of the Contribution, profile 
of the candidate, and characteristics of the campaign fall squarely 
within the pattern of the Contributor's political leanings, and that 
the Contributor also had a legitimate interest in the outcome of the 
campaign given that she lives in Boston. Applicant states that the 
Contributor had no intention of soliciting investment advisory business 
from the Client or any other government entity of which the Recipient 
was an official.
    12. Applicant submits that neither the Adviser nor the Contributor 
sought to interfere with the Client's merit-based selection process for 
advisory services, nor did they seek to negotiate higher fees or 
greater ancillary benefits than would be achieved in arms' length 
transactions. Applicant further submits that there was no violation of 
the Adviser's fiduciary duty to deal fairly or disclose material 
conflicts given the absence of any intent or action by the Adviser or 
the Contributor to influence the selection process. Applicant contends 
that in the case of the Contribution, the imposition of the two-year 
prohibition on compensation does not achieve rule 206(4)-5's purposes 
and would result in consequences disproportionate to the mistake that 
was made.

Applicant's Conditions

    Applicant agrees that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. The Contributor will be prohibited from discussing any business 
of the

[[Page 5941]]

Adviser with any ``government entity'' client or prospective client for 
which the Recipient is an ``official,'' as defined in rule 206(4)-5(f) 
until July 23, 2023.
    2. The Contributor will receive a written notification of this 
condition and will provide a quarterly certification of compliance 
until July 23, 2023. Copies of the certifications will be maintained 
and preserved in an easily accessible place for a period of not less 
than five years, the first two years in an appropriate office of the 
Adviser, and be available for inspection by the staff of the 
Commission.
    3. The Adviser will conduct testing reasonably designed to prevent 
violations of the conditions of the Order and maintain records 
regarding such testing, which will be maintained and preserved in an 
easily accessible place for a period of not less than five years, the 
first two years in an appropriate office of the Adviser, and be 
available for inspection by the staff of the Commission.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01737 Filed 1-27-23; 8:45 am]
BILLING CODE 8011-01-P