[Federal Register Volume 80, Number 138 (Monday, July 20, 2015)]
[Notices]
[Pages 42857-42859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17715]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-4140/803-00219]
Crescent Capital Group, LP; Notice of Application
July 14, 2015.
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) thereunder.
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Applicant: Crescent Capital Group, LP (``Applicant'').
Relevant Advisers Act Sections: Exemption requested under Section 206A
of the Advisers Act and Rule 206(4)-5(e) thereunder 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)
thereunder exempting Applicant from Rule 206(4)-5(a)(1) under the
Advisers Act to permit Applicant to receive compensation from a
government entity client 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 October 31, 2013, and an
amended and restated application was filed on March 12, 2015.
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 August 10, 2015, and should be accompanied by proof of
[[Page 42858]]
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: Brent J. Fields, Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicant,
Crescent Capital Group, LP, c/o George Hawley, Esq., 1100 Santa Monica
Boulevard, Suite 2000, Los Angeles, CA 90025.
For Further Information Contact: Kyle R. Ahlgren, Senior Counsel, or
Holly L. Hunter-Ceci, 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 registered with the Commission as an investment
adviser under the Advisers Act. Applicant provides investment advisory
services to two private equity funds formed in 2006 and 2008, TCW/
Crescent Mezzanine Partners IV, L.P. (``Fund IV'') and TCW/Crescent
Mezzanine Partners V, L.P. (``Fund V'', and together with Fund IV, the
``Funds''), as well as additional funds. The Funds are ``covered
investment pools'' as defined in Rule 206(4)-5(f)(3)(ii) under the
Advisers Act that make long-term investments in private companies and
other illiquid assets.
2. Mr. Jean Marc Chapus (the ``Contributor'') is a managing partner
of Applicant. The Contributor is, and was at all relevant times, a
``covered associate'' of Applicant as that term is defined in Rule
206(4)-5(f)(2). The Contributor frequently has been solicited for, and
has made, political contributions in the past.
3. The Los Angeles City Employees' Retirement System (the ``Plan'')
falls within the definition of a ``government entity'' as that term is
defined in Rule 206(4)-5(f)(5)(iii). The Plan invested in the Funds in
2006 and 2008, (for Fund IV and Fund V, respectively) and each Fund has
been closed to new investors since that time. Under the terms of the
governing documents of the Funds, investors, including the Plan, are
not permitted to withdraw their investments, except under extraordinary
circumstances that are beyond the control of either Applicant or the
Plan, for a period of ten years following the date of the investment
(2016 or 2018 for Fund IV and Fund V, respectively). Applicant's fees
were established at the inception of the Funds and are not subject to
renegotiation during the term of the investment.
4. In June 2011, an individual known to the Contributor, but
unrelated to Applicant, contacted him directly and requested a
contribution to the campaign of Mr. Austin Beutner (the ``Recipient''),
a candidate for the office of Mayor of Los Angeles (the ``Office'').
The Office is entitled to appoint members of the Plan's Board of
Administration who can influence the selection of investment advisers
for the Plan and other related public pension plans. On June 10, 2011,
the Contributor made a contribution of $1,000 (the ``Contribution'') to
the Austin Beutner for Los Angeles Mayor 2013 Exploratory Committee
(the ``Committee''). At the time of the Contribution, each of the
Committee and the Recipient was an ``official'' for purposes of Rule
206(4)-5(f)(6). The Recipient withdrew from the campaign prior to the
election.
5. At the time of the Contribution, there was no discussion of the
Office's appointment powers, influence or responsibilities involving
any investment of public pension funds. Neither Applicant nor the
Contributor sought to interfere with the Plan'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 an arm's
length transactions, nor could they have, as the selections pre-dated
the Contribution. Applicant had an existing relationship with the Plan
at the time of the Contribution, but did not engage in any new sales
efforts involving limited partnership interests in the Funds, including
any efforts designed to retain the investments in the Funds or to
renegotiate its fees.
6. Applicant first became aware of the Contribution one month
following the date it was made when, in July 2011, as a result of a
quarterly survey of political contributions conducted by Applicant's
compliance department pursuant to Applicant's contribution policies and
procedures, the Contribution was self-reported by the Contributor. Upon
learning of the Contribution, Applicant's chief compliance officer,
with the cooperation of the Contributor, promptly contacted the
Committee, which returned the Contribution shortly thereafter. At the
same time, Applicant created an escrow account to custody advisory fees
for the Funds that were attributable to the Plan. The fees that
Applicant otherwise would have earned during the two-year period
following the Contribution (the ``Time Out Period'') remain in the
escrow account.
7. At the time of the Contribution, Applicant had developed written
policies and procedures to assure compliance with Rule 206(4)-5. The
policies and procedures included a requirement for pre-clearance of all
political contributions and provided for quarterly surveys of all
covered associates. Such policies and procedures were designed, among
other things, to assure that any unreported political contributions
were detected by Applicant's compliance department in a timely fashion.
8. At the time of the Contribution, communication from the
Committee, as well as the Committee's Web site and other published
information, referred consistently to its ``exploratory'' nature.\1\
While the Contributor had received compliance training, he did not
consider whether Rule 206(4)-5 and Applicant's pre-clearance
requirement would have applied to contributions made to exploratory
committees. The Contributor therefore did not pre-clear the
Contribution with Applicant as required under its policies.
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\1\ The Committee had in fact filed as a campaign committee with
the local election commission. Under Rule 206(4)-5(f)(6), the term
``official'' includes election committees.
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9. Subsequent to the Contribution, Applicant has enhanced its
training program by stressing the importance of its pre-clearance
requirement and has highlighted the fact that contributions to
exploratory and other political committees are subject to its pre-
clearance requirement, among other things.
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 Plan 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 each of the Committee and the Recipient is an ``official''
as defined
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in Rule 206(4)-5(f)(6). Rule 206(4)-5(c) 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 Funds 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 similarly weigh in favor of granting an
exemption to Applicant to avoid consequences disproportionate to the
violation.
6. Applicant states that the Plan first determined to invest in the
Funds before the Contribution was made, and established and maintained
its relationships with Applicant on an arm's length basis free from any
improper influence as a result of the Contribution. Applicant notes
that: (i) The Plan's most recent investment decision was made in 2008,
prior to the Contribution, at the time of its last investment
commitment in Fund V; and (ii) due to the committed nature of the
Plan's investment in the Funds, the Plan had no investment decision to
consider at the time of the Contribution.
7. Applicant states that it had developed policies and procedures
to assure compliance with Rule 206(4)-5, which included a requirement
for pre-clearance of all political contributions and provided for
quarterly surveys of all covered associates, and that such quarterly
survey prompted the Contributor to report the Contribution. Applicant
further states that training was provided to Applicant's employees,
including the Contributor, that addressed Rule 206(4)-5 and Applicant's
policies and procedures.
8. Applicant states that at no time did any employees of Applicant,
other than the Contributor, have any knowledge that the Contribution
had been made prior to its disclosure by the Contributor in July 2011.
9. Applicant states that once the Contribution was discovered,
Applicant began to gather additional facts about the Contribution and
the Committee, and fees attributable to the Plan's investment in the
Funds were placed in escrow. Applicant further states that after
learning of the Contribution, Applicant took steps to limit the
Contributor's contact with any representative of the Plan or related
plans for the duration of the Time Out Period, and that the Contributor
had no contact with any representative of the Plan or related plans
during the Time Out Period.
10. Applicant states that the Contribution was made solely for the
purpose of participating in the local election process, and was not
intended to improperly influence any decision by the Plan. Applicant
notes that the Contributor resides in the community in which the
Recipient was running for office and that the Contributor was entitled
to vote in the election. Applicant further states that the Contributor
has a history of making political contributions to candidates for
elected office.
11. Applicant states that Applicant had an existing relationship
with the Plan at the time of the Contribution, but did not engage in
any new sales efforts involving limited partnership interests in the
Funds, including any efforts designed to retain the investments in the
Funds or to renegotiate its fees.
12. Applicant contends that imposing a limitation on the receipt of
advisory compensation associated with the Plan's investment in the
Funds would result in a disproportionate consequence to Applicant that
is not necessary to achieve the intended purposes of Rule 206(4)-5.
Applicant states that neither Applicant nor the Contributor sought to
interfere with the Plan'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 an arm's length
transactions, nor could they have, as the selections pre-dated the
Contribution. Applicant further states that there was no violation of
Applicant's fiduciary duty to deal fairly or disclose material
conflicts of interest given the absence of any intent or action by
Applicant or the Contributor to influence the selection process.
For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-17715 Filed 7-17-15; 8:45 am]
BILLING CODE 8011-01-P