[Federal Register Volume 79, Number 208 (Tuesday, October 28, 2014)]
[Notices]
[Pages 64237-64240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25550]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-3957/803-00221]
Ares Real Estate Management Holdings, LLC; Notice of Application
October 22, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an exemptive order under Section 206A
of the Investment Advisers Act of 1940 (the ``Advisers Act'') and Rule
206(4)-5(e).
-----------------------------------------------------------------------
Applicant: Ares Real Estate Management Holdings, LLC (formerly known as
AREA Management Holdings, LLC) (``Applicant'').
Relevant Advisers Act Sections: Exemption requested under section 206A
of the Advisers Act and rule 206(4)-5(e) from rule 206(4)-5(a)(1) under
the Advisers Act.
Summary of Application: Applicant requests that the Commission issue
an order under section 206A of the Advisers Act and rule 206(4)-5(e)
exempting it from rule 206(4)-5(a)(1) under the Advisers Act to permit
Applicant to receive compensation for investment advisory services
provided to a government entity within the two-year period following a
contribution by a covered associate of Applicant to an official of the
government entity.
Filing Dates: The application was filed on December 23, 2013, and
amended and restated applications were filed on April 28, 2014, and
July 15, 2014.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving Applicant with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on November 17, 2014, and should be accompanied by proof of
service on Applicant, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Advisers Act,
hearing requests should state the nature of the writer's interest, any
facts bearing upon the desirability of a hearing on the matter, the
reason for the request, and the issues contested. Persons may request
notification of a hearing by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-1090. Applicant, Ares Real Estate Management
Holdings, LLC, c/o Michael Weiner, 2000 Avenue of the Stars, Los
Angeles, CA 90067.
FOR FURTHER INFORMATION CONTACT: Brian McLaughlin Johnson, Senior
Counsel, or Melissa R. Harke, Branch Chief, at (202) 551-6825 (Division
of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site either at http://www.sec.gov/rules/iareleases.shtml or by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicant's Representations
1. Applicant is a limited liability company organized in Delaware
and registered with the Commission as an investment adviser under the
Advisers
[[Page 64238]]
Act.\1\ Applicant serves as investment adviser to several real estate-
focused private investment funds (the ``Funds'') in which one of the
investors is a Colorado public pension plan (the ``Client''). The
investment decisions for the Client are overseen by a board of trustees
composed of eleven members, three of whom are appointed by the Governor
of Colorado.
---------------------------------------------------------------------------
\1\ In May of 2013, Applicant entered into an agreement with
Ares Management LLC (``Ares'') pursuant to which Ares agreed to
acquire 100% ownership of the Applicant (the ``Acquisition''). The
Acquisition closed in July 2013. After the Acquisition closed,
Applicant became an indirect wholly-owned subsidiary of Ares and
Applicant's name was changed from ``AREA Management Holdings, LLC''
to ``Ares Real Estate Management Holdings, LLC.''
---------------------------------------------------------------------------
2. On or about February 11, 2013, Lee Neibart, a senior management
executive and senior partner of the Applicant (the ``Contributor''),
made a contribution of $1,100 (the ``Contribution'') to the campaign of
John Hickenlooper, the Governor of Colorado (the ``Official'').
Applicant represents that the amount of the Contribution, profile of
the candidate, and characteristics of the campaign fall generally
within the pattern of the Contributor's other political donations.
3. Applicant represents that the Contributor has confirmed that he
has not, at any time, had any contact with the Official regarding the
Client's investment activities with the Applicant, or otherwise met or
spoken with or otherwise communicated with the Official.
4. Applicant represents that the Client's relationship with the
applicant pre-dates the Contribution and that no investments were made
by the Client in the Funds after the Contribution. The Client made its
first investment in the Funds in 1996, and made its most recent
investment in the Funds in 2007, almost six years before the
Contribution was made and three years before the Official was first
elected as Governor. Applicant represents that all of the Funds in
which the Client is an investor are commingled closed-end funds (i.e.,
funds with multiple institutional investors) and, accordingly, the
Funds' investors, including the Client, do not have the ability to
withdraw or redeem capital. Applicant represents that the investors'
investment capital is committed at the time of subscription and
effectively locked-in for the duration of a Fund's term to maturity.
Applicant represents that each of the Funds in which the Client is an
investor is ``fully drawn'' and in varying stages of liquidation.
Applicant represents, based on these considerations, that the Client
has not had any investment decisions to consider with respect to the
Funds since the Client's last investment commitment in 2007.
5. Applicant represents that, based on Applicant's general
knowledge and representations from the Client subsequent to 2007,
Applicant generally understood that the Client did not have investment
capital available for additional investments in either the Funds or any
new real estate-focused investments managed by Applicant. Applicant
represents that, as a result, neither the Applicant nor the Contributor
has engaged in any investment solicitation of the Client since the
Client's last investment commitment in 2007. Applicant further
represents that, at the time of the Contribution, the Contributor did
not plan to solicit the Client (or any other government entity for
which the Official is an ``official'' as defined in rule 206(4)-5) for
any other investments, and the Applicant did not have any intention to
solicit the Client (or any other government entity for which the
Official is an ``official'' as defined in rule 206(4)-5) for any other
investments.
6. Applicant represents that the Contributor's role with the Client
was limited to making substantive presentations to the Client's
representatives regarding the investment strategies of the Funds and
that the Contributor had no contact with any representative of the
Client outside of those presentations, and no contact with any member
of the Client's board.
7. Applicant represents that at no time did the Applicant or any
employees of the Applicant other than the Contributor have any
knowledge of the Contribution prior to its discovery by Ares's
Compliance Department in July 2013. Applicant represents that the
Contribution was discovered by Ares' Compliance Department through the
Contributor's voluntary disclosure in response to a political
contribution questionnaire, and that the Contributor obtained a full
refund of the Contribution within one week after the Contribution was
discovered. Applicant represents that it established an escrow account
for the benefit of the Client and deposited an amount equal to the sum
of all fees paid to the Applicant with respect to the Client's
investments in the Funds since the date of the Contribution. Applicant
represents that additional fees with respect to the Client's
investments in the Funds accruing in favor of the Applicant will
continue to be deposited in the escrow account until it is determined
whether exemptive relief will be granted to the Applicant, which
amounts will be immediately returned to the Client should an exemptive
order not be granted.
8. Applicant represents that at all relevant times it had
compliance procedures requiring pre-clearance and reporting of all of
its employees' proposed political contributions and that these
procedures have been more restrictive than is required under rule
206(4)-5. Applicant represents that all contributions to state and
local office incumbents and candidates are subject to pre-clearance and
that there are no exceptions for de minimis contributions. Applicant
represents that its employees are reminded periodically during the year
of these procedures and that all employees are required to certify
their compliance on a periodic basis; a request for a contribution like
the Contribution would have been rejected under the procedures.
Applicant represents that the Contributor was aware of (and otherwise
in compliance with) the procedures but, because neither the Applicant
nor the Contributor had solicited any investments in the Funds from the
Client or the State of Colorado since 2007, the Contributor failed to
appreciate that the Contribution was subject to the procedures.
9. After learning of the contribution, Applicant represents that it
has taken steps designed to limit the Contributor's contact with
representatives of the Client. Applicant represents that the
Contributor was informed that he could not solicit new investment
commitments from the Client and that his communications with the Client
with respect to the Funds should be limited to responding to inquiries
from the Client's representatives and consultants with respect to the
status of the Funds' investment portfolios. Applicant represents that
the Contributor has been directed to maintain a log of such
interactions in accordance with the retention requirements set forth in
rule 204-2(e).
Applicant's Legal Analysis
1. Rule 206(4)-5(a)(1) under the Advisers Act prohibits a
registered investment adviser from providing investment advisory
services for compensation to a government entity within two years after
a contribution to an official of the government entity is made by the
investment adviser or any covered associate of the investment adviser.
The Client is a ``government entity,'' as defined in rule 206(4)-
5(f)(5), the Contributor is a ``covered associate'' as defined in rule
206(4)-5(f)(2), and the Official is an ``official'' as defined in rule
206(4)-5(f)(6). Rule 206(4)-5(c)
[[Page 64239]]
provides that when a government entity invests in a covered investment
pool, the investment adviser to that covered investment pool is treated
as providing advisory services directly to the government entity. The
Funds are ``covered investment pools,'' as defined in rule 206(4)-
5(f)(3)(ii).
2. Section 206A of the Advisers Act grants the Commission the
authority to ``conditionally or unconditionally exempt any person or
transaction . . . from any provision or provisions of [the Advisers
Act] or of any rule or regulation thereunder, if and to the extent that
such exemption is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of [the Advisers Act].''
3. Rule 206(4)-5(e) provides that the Commission may exempt an
investment adviser from the prohibition under Rule 206(4)-5(a)(1) upon
consideration of the factors listed below, among others:
(1) Whether the exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Advisers
Act;
(2) Whether the investment adviser: (i) Before the contribution
resulting in the prohibition was made, adopted and implemented policies
and procedures reasonably designed to prevent violations of the rule;
and (ii) prior to or at the time the contribution which resulted in
such prohibition was made, had no actual knowledge of the contribution;
and (iii) after learning of the contribution: (A) Has taken all
available steps to cause the contributor involved in making the
contribution which resulted in such prohibition to obtain a return of
the contribution; and (B) has taken such other remedial or preventive
measures as may be appropriate under the circumstances;
(3) Whether, at the time of the contribution, the contributor was a
covered associate or otherwise an employee of the investment adviser,
or was seeking such employment;
(4) The timing and amount of the contribution which resulted in the
prohibition;
(5) The nature of the election (e.g., federal, state or local); and
(6) The contributor's apparent intent or motive in making the
contribution which resulted in the prohibition, as evidenced by the
facts and circumstances surrounding such contribution.
4. Applicant requests an order pursuant to section 206A and rule
206(4)-5(e), exempting it from the two-year prohibition on compensation
imposed by rule 206(4)-5(a)(1) with respect to investment advisory
services provided to the Client within the two-year period following
the Contribution.
5. Applicant submits that the exemption is necessary and
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act. Applicant further submits that the other factors
set forth in rule 206(4)-5(e) similarly weigh in favor of granting an
exemption to the Applicant to avoid consequences disproportionate to
the violation.
6. Applicant states that the Client first determined to invest in
the Funds advised by the Applicant over fifteen years before the
Contribution was made, and established and maintains its relationships
with the Applicant on an arms'-length basis free from any improper
influence as a result of the Contribution. In support of this argument,
Applicant states that the most recent investment commitment in the
Funds was made by the Client in 2007; due to the locked-in nature of
the Client's investment capital in the Funds and the fact that the
Funds are fully funded, the Client had no current investment decision
to consider at the time of the Contribution and no new or additional
investment commitments, nor any withdrawals, could have been made by
the Client after the Contribution. Applicant also states that neither
Applicant nor the Contributor engaged in any investment solicitation of
the Client since the Client's last investment commitment to the
Applicant in 2007 and that, at the time of the Contribution, the
Contributor did not plan to solicit the Client (or any other government
entity for which the Official is an ``official'' as defined in rule
206(4)-5) for any other investments, and the Applicant did not have any
intent to solicit the Client (or any other government entity for which
the Official is an ``official'' as defined in rule 206(4)-5) for any
other investments.
7. Applicant states that at all relevant times it had policies
which were fully compliant with, and more rigorous than, rule 206(4)-
5's requirements at the time of the Contribution. Applicant further
states that at no time did Applicant or any employees of Applicant,
other than the Contributor, have any knowledge that the Contribution
had been made prior to its discovery by Ares' Compliance Department in
July 2013. After learning of the Contribution, Applicant and the
Contributor took all available steps to obtain a return of the
Contribution, which was returned within one week of discovery, and the
Applicant set up an escrow account in which all fees charged to the
Client's capital accounts in the Funds since the date of the
Contribution were, and will continue to be, deposited by Applicant in
the escrow account for immediate return to the Client should an
exemptive order not be granted.
8. Applicant states that the Contributor's apparent intent in
making the Contribution was not to influence the selection or retention
of the Applicant. Applicant states that the Contributor has a long
history of making permissible contributions to candidates that share
the general political views of the Official. The amount of the
Contribution, profile of the candidate, and characteristics of the
campaign fall generally within the pattern of the Contributor's other
political donations. Applicant further states, as discussed above, that
the Contributor has confirmed that he has not, at any time, had any
contact with the Official regarding the Client's investment activities
with the Applicant, or otherwise met or spoken with or otherwise
communicated with the Official, and that the Contributor's role with
the Client was limited to making substantive presentations to the
Client's representatives regarding the investment strategies of the
Funds and that the Contributor had no contact with any representative
of the (or its board) outside of making those presentations. Following
the Contribution, Applicant took steps designed to further limit and
document any such contact during the duration of the two-year time out
on compensation.
Applicant's Conditions
Applicant agrees that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. The Contributor will be prohibited from discussing any business
of the Applicant with any ``government entity'' client for which the
Official is an ``official,'' each as defined in rule 206(4)-5(f), until
February 11, 2015.
2. Notwithstanding Condition 1, the Contributor is permitted to
respond to inquiries from the Client regarding the Funds. The Applicant
will maintain a log of such interactions, which will be maintained and
preserved in an easily accessible place for a period of not less than
five years, the first two years in an appropriate office of the
Applicant, and be available for inspection by the staff of the
Commission.
3. The Contributor will receive a written notification of these
conditions and will provide a quarterly
[[Page 64240]]
certification of compliance until February 11, 2015. Copies of the
certifications will be maintained and preserved in an easily accessible
place for a period of not less than five years, the first two years in
an appropriate office of the Applicant, and be available for inspection
by the staff of the Commission.
4. The Applicant will conduct testing reasonably designed to
prevent violations of the conditions of this Order and maintain records
regarding such testing, which will be maintained and preserved in an
easily accessible place for a period of not less than five years, the
first two years in an appropriate office of the Applicant, and be
available for inspection by the staff of the Commission.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25550 Filed 10-27-14; 8:45 am]
BILLING CODE 8011-01-P