81 FR 12178 - Ares Management LLC; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 45 (March 8, 2016)

Summary of Application: Applicants request an order to exempt certain limited partnerships and other entities (``Partnerships'') formed for the benefit of eligible employees of Ares Management LLC (the ``Company'') and its affiliates from certain provisions of the Act. Each Partnership will be an ``employees' securities company'' within the meaning of section 2(a)(13) of the Act. Applicant: The Company.

[Federal Register Volume 81, Number 45 (Tuesday, March 8, 2016)]
[Notices]
[Pages 12178-12184]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-05039]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32020; 813-00385]


Ares Management LLC; Notice of Application

March 2, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under sections 6(b) and 6(e) 
of the Investment Company Act of 1940 (the ``Act'') granting an 
exemption from all provisions of the Act and the rules and regulations 
thereunder, except sections 9, 17, 30, and 36 through 53 of the Act, 
and the rules and regulations thereunder (the ``Rules and 
Regulations''). With respect to sections 17(a), (d), (f), (g) and (j) 
and 30(a), (b), (e), and (h) of the Act, and the Rules and Regulations, 
and rule 38a-1 under the Act, the exemption is limited as set forth in 
the application.

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SUMMARY: Summary of Application: Applicants request an order to exempt 
certain limited partnerships and other entities (``Partnerships'') 
formed for the benefit of eligible employees of Ares Management LLC 
(the ``Company'') and its affiliates from certain provisions of the 
Act. Each Partnership will be an ``employees' securities company'' 
within the meaning of section 2(a)(13) of the Act.
    Applicant: The Company.

DATES: Filing Dates: The application was filed on May 11, 2015 and was 
amended on October 29, 2015 and January 15, 2016.
    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 applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on March 28, 2016, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicant: 2000 Avenue of the 
Stars, 12th Floor, Los Angeles, CA 90067.

FOR FURTHER INFORMATION CONTACT: James D. McGinnis, Attorney-Advisor, 
at (202) 551-3025, or Sara Crovitz, Assistant Chief Counsel, at (202) 
551-6720 (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 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. The Company is a Delaware limited liability company, and 
together with its ``affiliates,'' as defined in rule 12b-2 under the 
Securities Exchange Act of 1934 (the ``Exchange Act'') (collectively, 
``Ares,'' and each, an ``Ares entity''), may organize certain 
partnerships, limited liability companies, business trusts or other 
entities (each a ``Partnership'' and, collectively, the 
``Partnerships'') as ``employees' securities companies,'' as defined in 
section 2(a)(13) of the Act.
    2. A Partnership may be organized under the laws of the state of 
Delaware, another state, or a jurisdiction outside the United States. A 
Partnership may be organized under the laws of a non-U.S. jurisdiction 
to address any tax, legal, accounting and regulatory considerations 
applicable to certain Eligible Employees (as defined below) in other 
jurisdictions or the nature of the program. Interests in a Partnership 
(``Interests'') may be issued in one or more series, each of which 
corresponds to particular Partnership investments (each, a ``Series''). 
Each Series will be an ``employees' securities company''

[[Page 12179]]

within the meaning of section 2(a)(13) of the Act. Each Partnership 
will operate as a closed-end management investment company, and a 
particular Partnership may operate as a ``diversified'' or ``non-
diversified'' vehicle within the meaning of the Act. The Partnerships 
are intended to provide investment opportunities for Eligible Employees 
that are competitive with those at other investment management and 
financial services firms and to facilitate the recruitment and 
retention of high caliber professionals. Ares will control each 
Partnership within the meaning of section 2(a)(9) of the Act.
    3. Each Partnership will have a general partner, managing member or 
other such similar entity (a ``General Partner''). All investors in a 
Partnership will be ``Limited Partners.'' The General Partner will be 
responsible for the overall management of each Partnership and will 
have the authority to make all decisions regarding the acquisition, 
management and disposition of Partnership investments. An Ares entity 
will be a General Partner of each Partnership. The General Partner may 
be permitted to delegate certain of its responsibilities regarding the 
acquisition, management and disposition of Partnership investments to 
an Investment Adviser (as defined below), provided that the ultimate 
responsibility for, and control of, each Partnership, remain with the 
General Partner.
    4. The General Partner or another Ares entity will serve as 
investment adviser to a Partnership (the ``Investment Adviser''). The 
Investment Adviser will be registered as an investment adviser under 
the Investment Advisers Act of 1940 (the ``Advisers Act''), if required 
under applicable law. Each Investment Adviser shall comply with the 
standards prescribed in Sections 9, 36 and 37 of the Act. The Applicant 
represents and concedes that each General Partner and Investment 
Adviser managing a Partnership is an ``investment adviser'' within the 
meaning of Sections 9 and 36 of the Act and is subject to those 
sections. An Investment Adviser may be paid a management fee, which 
will generally be determined as a percentage of the capital commitments 
or assets under management (appreciated capital commitments) of the 
Limited Partners. A General Partner or Investment Adviser may receive a 
performance-based fee (a ``Carried Interest'') based on the net gains 
of the Partnership's investments in addition to any amount allocable to 
the General Partner's or Investment Adviser's capital contribution.\1\
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    \1\ If a General Partner or Investment Adviser is registered 
under the Advisers Act, the Carried Interest payable to it by a 
Partnership will be pursuant to an arrangement that complies with 
rule 205-3 under the Advisers Act. If the General Partner or 
Investment Adviser is not required to register under the Advisers 
Act, the Carried Interest payable to it will comply with section 
205(b)(3) of the Advisers Act (with such Partnership treated as 
though it were a business development company solely for the purpose 
of that section).
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    5. If the General Partner determines that a Partnership enter into 
any side-by-side investment with an unaffiliated entity, the General 
Partner will be permitted to engage as sub-investment adviser the 
unaffiliated entity (an ``Unaffiliated Subadviser''), which will be 
responsible for the management of such side-by-side investment.
    6. Interests in a Partnership will be offered without registration 
in reliance on section 4(a)(2) of the Securities Act of 1933 (the 
``Securities Act''), or Regulation D or Regulation S under the 
Securities Act, and will be sold only to: (i) Eligible Employees; (ii) 
at the request of Eligible Employees and the discretion of the General 
Partner, to Qualified Participants (as defined below) of such Eligible 
Employees; or (iii) to Ares entities. Prior to offering Interests to an 
Eligible Employee or an Eligible Family Member (as defined below), a 
General Partner must reasonably believe that the Eligible Employee or 
Eligible Family Member will be capable of understanding and evaluating 
the merits and risks of participating in a Partnership and that each 
such individual is able to bear the economic risk of such participation 
and afford a complete loss of his or her investments in Partnerships. 
Investing in the Partnerships will be voluntary on the part of Eligible 
Employees and Qualified Participants.
    7. To qualify as an ``Eligible Employee,'' (a) an individual must 
(i) be a current or former employee, officer or director or current 
Consultant \2\ of Ares and (ii) except for certain individuals who meet 
the definition of ``knowledgeable employee'' in Rule 3c-5(a)(4) under 
the 1940 Act as if the Partnerships were ``Covered Companies'' within 
the meaning of the rule and a limited number of other employees of Ares 
\3\ (collectively, ``Non-Accredited Investors''), meet the standards of 
an ``accredited investor'' under Rule 501(a)(5) or (a)(6) of Regulation 
D, or (b) an entity must (i) be a current Consultant of Ares and (ii) 
meet the standards of an ``accredited investor'' under Rule 501(a) of 
Regulation D. A Partnership may not have more than 35 Non-Accredited 
Investors. At the request of an Eligible Employee and the discretion of 
the General Partner, Interests may be assigned by such Eligible 
Employee, or sold directly by the Partnership, to a Qualified 
Participant of an Eligible Employee. In order to qualify as a 
``Qualified Participant,'' an individual or entity must (i) be an 
Eligible Family Member or Eligible Investment Vehicle (in each case as 
defined below), respectively, of an Eligible Employee and (ii) if 
purchasing an Interest from a Partnership, except as discussed below, 
come within one of the categories of an ``accredited investor'' under 
Rule 501(a) of Regulation D. An ``Eligible Family Member'' is a spouse, 
parent, child, spouse of child, brother, sister or

[[Page 12180]]

grandchild of an Eligible Employee, including step and adoptive 
relationships. An ``Eligible Investment Vehicle'' is (a) a trust of 
which the trustee, grantor and/or beneficiary is an Eligible Employee, 
(b) a partnership, corporation or other entity controlled by an 
Eligible Employee,\4\ or (c) a trust or other entity established solely 
for the benefit of an Eligible Employee and/or one or more Eligible 
Family Members of an Eligible Employee.
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    \2\ A ``Consultant'' is a person or entity whom Ares has engaged 
on retainer to provide services and professional expertise on an 
ongoing basis as a regular consultant or as a business or legal 
adviser and who shares a community of interest with Ares and its 
employees. In order to participate in a Partnership, Consultants 
must be currently engaged with Ares and will be required to be 
sophisticated investors who qualify as accredited investors 
(``Accredited Investors'') under Rule 501(a)(5) or Rule 501(a)(6) of 
Regulation D under the Securities Act (if a Consultant is an 
individual) or, if not an individual, meet the standards of an 
``accredited investor'' under Rule 501(a) of Regulation D. If a 
Consultant is an entity (such as, for example, a law firm or 
consulting firm), and the Consultant proposes to invest in the 
Partnership through a partnership, corporation or other entity that 
is controlled by the Consultant, the individual participants in such 
partnership, corporation or other entity will be limited to senior 
level employees, members or partners of the Consultant who are 
responsible for the activities of the Consultant and will be 
required to qualify as Accredited Investors. In addition, such 
entities will be limited to businesses controlled by individuals who 
have levels of expertise and sophistication in the area of 
investments in securities that are comparable to other Eligible 
Employees who are employees, officers or directors of Ares and who 
have an interest in maintaining an ongoing relationship with Ares. 
The individuals participating through such entities will belong to 
that class of persons who will have access to the directors and 
officers of the General Partner and/or the officers of Ares 
responsible for making investments for the Partnerships similar to 
the access afforded other Eligible Employees who are employees, 
officers or directors of Ares.
    \3\ Such employees must meet the sophistication requirements set 
forth in Rule 506(b)(2)(ii) of Regulation D under the Securities Act 
and may be permitted to invest his or her own funds in the 
Partnership if, at the time of the employee's investment in a 
Partnership, he or she (a) has a graduate degree in business, law or 
accounting, (b) has a minimum of five years of consulting, 
investment banking or similar business experience, and (c) has had 
reportable income from all sources of at least $100,000 in each of 
the two most recent years and a reasonable expectation of income 
from all sources of at least $140,000 in each year in which such 
person will be committed to make investments in a Partnership. In 
addition, such an employee will not be permitted to invest in any 
year more than 10% of his or her income from all sources for the 
immediately preceding year in the aggregate in such Partnership and 
in all other Partnerships in which he or she has previously 
invested.
    \4\ The inclusion of partnerships, corporations, or other 
entities controlled by an Eligible Employee in the definition of 
``Eligible Investment Vehicle'' is intended to enable Eligible 
Employees to make investments in the Partnerships through personal 
investment vehicles for the purpose of personal and family 
investment and estate planning objectives.
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    8. An Eligible Employee or Eligible Family Member may purchase an 
Interest through an Eligible Investment Vehicle only if either (i) the 
investment vehicle is an accredited investor, as defined in rule 501(a) 
of Regulation D under the Securities Act or (ii) the applicable 
Eligible Employee or Eligible Family Member is a settlor \5\ and 
principal investment decision-maker with respect to the investment 
vehicle. Eligible Investment Vehicles that are not accredited investors 
will be included in accordance with Regulation D toward the 35 Non-
Accredited Investor limit discussed above.
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    \5\ If such investment vehicle is an entity other than a trust, 
the term ``settlor'' will be read to mean a person who created such 
vehicle, alone or together with other Eligible Employees and/or 
Eligible Family Members, and contributed funds to such vehicle.
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    9. While the terms of a Partnership will be determined by Ares in 
its discretion, these terms will be fully disclosed to each Eligible 
Employee and, if a Qualified Participant of such Eligible Employee is 
required to make an investment decision with respect to whether or not 
to participate in a Partnership, to such Qualified Participant, at the 
time such Eligible Employee or Qualified Participant is invited to 
participate in the Partnership. A Partnership will send its Limited 
Partners an annual financial statement with respect to those Series in 
which the Limited Partner had an Interest within 120 days, or as soon 
as practicable, after the end of the Partnership's fiscal year. The 
financial statement will be audited \6\ by independent certified public 
accountants, except in cases of Partnerships formed to make a single 
portfolio investment.\7\ In addition, as soon as practicable after the 
end of each fiscal year of a Partnership, a report will be sent to each 
Limited Partner setting forth the information with respect such Limited 
Partner's share of income, gains, losses, credits, and other items for 
federal and state income tax purposes.
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    \6\ ``Audit'' will have the meaning defined in rule 1-02(d) of 
Regulation S-X.
    \7\ In such cases, the Partnership may send unaudited financial 
statements, but each Limited Partner will receive financial 
statements of the single portfolio investment audited by such 
entity's independent accountants.
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    10. Interests in each Partnership will be non-transferable except 
with the prior written consent of the General Partner, and, in any 
event, no person or entity will be admitted into the Partnership as a 
Limited Partner unless such person is (i) an Eligible Employee, (ii) a 
Qualified Participant or (iii) an Ares entity. No sales load or similar 
fee of any kind will be charged in connection with the sale of 
Interests.
    11. The Applicant states that a General Partner may have the right 
to repurchase or cancel the Interest of (i) an Eligible Employee who 
ceases to be an employee, officer, director or current Consultant of 
any Ares entity for any reason or (ii) any Qualified Participant of any 
person described in clause (i). Once a Consultant's ongoing 
relationship with an Ares entity is terminated: (i) Such Consultant and 
its Qualified Participants, if any, will not be permitted to contribute 
any additional capital to a Partnership; and (ii) the existing 
Interests of such Consultant and its Qualified Participants, if any, as 
of the date of such termination will (A) to the extent the governing 
documents of a Partnership provide for periodic redemptions in the 
ordinary course, be redeemed as of the next regularly scheduled 
redemption date and (B) to the extent the governing documents of a 
Partnership do not provide for such periodic redemptions (e.g., as a 
result of the vehicle primarily investing in illiquid investments), be 
retained. The Partnership Agreement or private placement memorandum for 
each Partnership will describe, if applicable, the amount that a 
Limited Partner would receive upon repurchase, cancellation or 
forfeiture of its Interest. A Limited Partner would receive upon 
repurchase, cancellation or forfeiture of its Interest, at a minimum, 
the lesser of (i) the amount actually paid by or (subject to any 
vesting requirements) on behalf of the Limited Partner to acquire the 
Interest, plus interest, less any distributions, and (ii) the fair 
market value of the Interest determined at the time of the repurchase 
or cancellation as determined in good faith by the General Partner. The 
amount to be received by the Limited Partner will be subject to any 
applicable vesting schedule or forfeiture provisions and to the extent 
there is an oversubscription for a regularly scheduled redemption, 
existing Interests of the Limited Partner will be redeemed on a pro 
rata basis with all other Limited Partners who have made a request, in 
accordance with the governing documents, to be redeemed as of that 
redemption date and any subsequent regularly scheduled redemption date 
until all of such Limited Partner's existing Interests are redeemed.
    12. The Applicant states that the Partnerships may invest either 
directly or through investments in limited partnerships and other 
investment pools (including pools that are exempt from registration in 
reliance on section 3(c)(1) or 3(c)(7) of the Act) and investments in 
registered investment companies.\8\ Investments may be made side by 
side with Ares entities and through investment pools (including 
``Aggregation Vehicles'') \9\ sponsored or managed by an Ares entity or 
an unaffiliated entity.
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    \8\ The Applicant is not requesting any exemption from any 
provision of the Act or any rule thereunder that may govern the 
eligibility of a Partnership to invest in an entity relying on 
section 3(c)(1) or 3(c)(7) of the Act or any such entity's status 
under the Act.
    \9\ An ``Aggregation Vehicle'' is an investment pool sponsored 
or managed by an Ares entity that is formed solely for the purpose 
of permitting a Partnership and other Ares entities or Third Party 
Funds to collectively invest in other entities. The Applicant states 
that it may be more efficient for a Partnership and other Ares 
entities and Third Party Funds to invest in an entity together 
through an Aggregation Vehicle rather than having each investor 
separately acquire a direct interest in such entity. An Aggregation 
Vehicle will not be used to issue interests that discriminate 
against a Partnership or provide preferential treatment to an Ares 
entity or other Ares-related investors with respect to a portfolio 
company investment. The Applicant submits that because no investment 
decisions are made at the Aggregation Vehicle level, the fact that a 
person who participates in the Partnership's decision to acquire an 
interest in an Aggregation Vehicle also serves as an officer, 
director, general partner or investment adviser of the Aggregation 
Vehicle would not create a conflict of interest on the part of such 
person.
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    13. The Applicant states that a Partnership may also co-invest in a 
portfolio company with Ares or an investment fund or separate account 
organized primarily for the benefit of investors who are not affiliated 
with Ares over which an Ares entity or an Unaffiliated Subadviser 
exercises investment discretion (``Third Party Funds''). The General 
Partner will not delegate management and investment discretion for the 
Partnership to an Unaffiliated Subadviser or a sponsor of a Third Party 
Fund. Side-by-side investments held by a Third Party Fund, or by an 
Ares entity in a transaction in which the Ares investment was made

[[Page 12181]]

pursuant to a contractual obligation to a Third Party Fund, will not be 
subject to the restrictions contained in Condition 3 below. All other 
side-by-side investments held by Ares entities will be subject to the 
restrictions contained in Condition 3.
    14. A Partnership will not borrow from any person if the borrowing 
would cause any person not named in section 2(a)(13) of the Act to own 
securities of the Partnership (other than short-term paper). A 
Partnership will not make any loans to the Company, its subsidiaries or 
any entity that controls the Company.\10\ A Partnership will not borrow 
from any person if the borrowing would cause the Partnership not to be 
an ``employees' securities company'' as defined in Section 2(a)(13) of 
the Act. Any indebtedness of a Partnership, other than indebtedness 
incurred specifically on behalf of a Limited Partner where the Limited 
Partner has agreed to guarantee the loan or to act as co-obligor of the 
loan, will be the debt of the Partnership and without recourse to the 
Limited Partners.
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    \10\ A Partnership may, subject to the terms and conditions set 
out herein, make investments in issuers that are portfolio companies 
of funds managed by Ares, and such investments may take the form of 
loans.
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    15. In compliance with section 12(d)(1)(A)(i) of the Act, a 
Partnership will not purchase or otherwise acquire any security issued 
by a registered investment company if, immediately after the 
acquisition, the Partnership will own, in the aggregate, more than 3% 
of the outstanding voting stock of the registered investment company.

Applicant's Legal Analysis

    1. Section 6(b) of the Act provides that, upon application, the 
Commission will exempt employees' securities companies from the 
provisions of the Act to the extent that the exemption is consistent 
with the protection of investors. Section 6(b) provides that the 
Commission will consider, in determining the provisions of the Act from 
which the company should be exempt, the company's form of organization 
and capital structure, the persons owning and controlling its 
securities, the price of the company's securities and the amount of any 
sales load, how the company's funds are invested, and the relationship 
between the company and the issuers of the securities in which it 
invests. Section 2(a)(13) defines an employees' securities company, in 
relevant part, as any investment company all of whose securities (other 
than short-term paper) are beneficially owned (a) by current or former 
employees, or persons on retainer, of one or more affiliated employers, 
(b) by immediate family members of such persons, or (c) by such 
employer or employers together with any of the persons in (a) or (b).
    2. Section 7 of the Act generally prohibits investment companies 
that are not registered under section 8 of the Act from selling or 
redeeming their securities. Section 6(e) of the Act provides that, in 
connection with any order exempting an investment company from any 
provision of section 7, certain provisions of the Act, as specified by 
the Commission, will be applicable to the company and other persons 
dealing with the company as though the company were registered under 
the Act. The Applicant requests an order under sections 6(b) and 6(e) 
of the Act exempting the Partnerships from all provisions of the Act, 
except sections 9, 17, 30, and 36 through 53 of the Act, and the Rules 
and Regulations. With respect to sections 17(a), (d), (f), (g), and (j) 
and 30(a), (b), (e), and (h) of the Act, and the Rules and Regulations, 
and rule 38a-1 under the Act, the exemption is limited as set forth in 
the application.
    3. Section 17(a) generally prohibits any affiliated person of a 
registered investment company, or any affiliated person of an 
affiliated person, acting as principal, from knowingly selling or 
purchasing any security or other property to or from the company. The 
Applicant requests an exemption from section 17(a) to the extent 
necessary to permit an Ares entity or a Third Party Fund (or any 
affiliated person of any such Ares entity or Third Party Fund), acting 
as principal, to purchase or sell securities or other property to or 
from any Partnership or any company controlled by such Partnership. Any 
such transaction to which any Partnership is a party will be effected 
only after a determination by the General Partner that the requirements 
of condition 1 below have been satisfied. In addition, the Applicant, 
on behalf of the Partnerships, represents that any transactions 
otherwise subject to section 17(a) of the Act, for which exemptive 
relief has not been requested, would require approval of the 
Commission.
    4. The Applicant submits that an exemption from section 17(a) is 
consistent with the purposes of the Partnerships and the protection of 
investors. The Applicant states that the Limited Partners will be 
informed of the possible extent of the Partnership's dealings with Ares 
and of the potential conflicts of interest that may exist. The 
Applicant also states that, as professionals engaged in financial 
services businesses, the Limited Partners will be able to evaluate the 
risks associated with those dealings. The Applicant asserts that the 
community of interest among the Limited Partners and Ares will serve to 
reduce the risk of abuse. The Applicant acknowledges that the requested 
relief will not extend to any transactions between a Partnership and an 
Unaffiliated Subadviser or an affiliated person of an Unaffiliated 
Subadviser, or between a Partnership and any person who is not an 
employee, officer or director of Ares or is an entity outside of Ares 
and is an affiliated person of the Partnership as defined in section 
2(a)(3)(E) of the Act (``Advisory Person'') or any affiliated person of 
such a person.
    5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person or principal underwriter of a registered 
investment company, or any affiliated person of such person or 
principal underwriter, acting as principal, from participating in any 
joint arrangement with the company unless authorized by the Commission. 
The Applicant requests relief to permit affiliated persons of the 
Partnerships, or affiliated persons of any of such persons, to 
participate in, or effect any transaction in connection with, any joint 
enterprise or other joint arrangement or profit-sharing plan in which a 
Partnership or a company controlled by a Partnership is a participant. 
The Applicant acknowledges that the requested relief will not extend to 
any transaction in which an Unaffiliated Subadviser or an Advisory 
Person, or an affiliated person of either such person, has an interest, 
except in connection with a Third Party Fund sponsored by an 
Unaffiliated Subadviser.
    6. The Applicant asserts that compliance with section 17(d) would 
cause the Partnership to forego investment opportunities simply because 
a Limited Partner, the General Partner or any other affiliated person 
of the Partnership (or any affiliate of the affiliated person) made a 
similar investment. The Applicant submits that the types of investment 
opportunities considered by a Partnership often require each investor 
to make funds available in an amount that may be substantially greater 
than what a Partnership may be able to make available on its own. The 
Applicant contends that, as a result, the only way in which a 
Partnership may be able to participate in these opportunities may be to 
co-invest with other persons, including its affiliates. The Applicant 
asserts that the flexibility to structure co-investments and joint 
investments will not involve abuses of the type

[[Page 12182]]

section 17(d) and rule 17d-1 were designed to prevent. In addition, the 
Applicant represents that any transactions otherwise subject to section 
17(d) of the Act and rule 17d-1 thereunder, for which exemptive relief 
has not been requested, would require approval by the Commission.
    7. Co-investments with Third Party Funds, or by an Ares entity 
pursuant to a contractual obligation to a Third Party Fund, will not be 
subject to condition 3 below. The Applicant notes that it is common for 
a Third Party Fund to require that Ares invest its own capital in Third 
Party Fund investments, and that Ares investments be subject to 
substantially the same terms as those applicable to the Third Party 
Fund. The Applicant believes it is important that the interests of the 
Third Party Fund take priority over the interests of the Partnerships, 
and that the Third Party Fund not be burdened or otherwise affected by 
activities of the Partnerships. In addition, the Applicant asserts that 
the relationship of a Partnership to a Third Party Fund is 
fundamentally different from a Partnership's relationship to Ares. The 
Applicant contends that the focus of, and the rationale for, the 
protections contained in the requested relief are to protect the 
Partnerships from any overreaching by Ares in the employer/employee 
context, whereas the same concerns are not present with respect to the 
Partnerships vis-[agrave]-vis a Third Party Fund.
    8. Section 17(e) of the Act and rule 17e-1 under the Act limit the 
compensation an affiliated person may receive when acting as agent or 
broker for a registered investment company. The Applicant requests an 
exemption from section 17(e) to permit an Ares entity (including the 
General Partner) that acts as an agent or broker to receive placement 
fees, advisory fees, or other compensation from a Partnership in 
connection with the purchase or sale by the Partnership of securities, 
provided that the fees or other compensation are deemed ``usual and 
customary.'' The Applicant states that for purposes of the application, 
fees or other compensation that are charged or received by an Ares 
entity will be deemed ``usual and customary'' only if (a) the 
Partnership is purchasing or selling securities with other unaffiliated 
third parties, including Third Party Funds, (b) the fees or other 
compensation being charged to the Partnership (directly or indirectly) 
are also being charged to the unaffiliated third parties, including 
Third Party Funds, and (c) the amount of securities being purchased or 
sold by the Partnership (directly or indirectly) does not exceed 50% of 
the total amount of securities being purchased or sold by the 
Partnership (directly or indirectly) and the unaffiliated third 
parties, including Third Party Funds. The Applicant asserts that, 
because Ares does not wish to appear to be favoring the Partnerships, 
compliance with section 17(e) would prevent a Partnership from 
participating in transactions where the Partnership is being charged 
lower fees than unaffiliated third parties. The Applicant asserts that 
the fees or other compensation paid by a Partnership to an Ares entity 
will be the same as those negotiated at arm's length with unaffiliated 
third parties.
    9. Rule 17e-1(b) under the Act requires that a majority of 
directors who are not ``interested persons'' (as defined in section 
2(a)(19) of the Act) take actions and make approvals regarding 
commissions, fees, or other remuneration. Rule 17e-1(c) under the Act 
requires each investment company relying on the rule to satisfy the 
fund governance standards defined in rule 0-1(a)(7) under the Act (the 
``Fund Governance Standards''). The Applicant requests an exemption 
from rule 17e-1 to the extent necessary to permit each Partnership to 
comply with the rule without having a majority of the directors of the 
General Partner who are not interested persons take actions and make 
determinations as set forth in paragraph (b) of the rule, and without 
having to satisfy the standards set forth in paragraph (c) of the rule. 
The Applicant states that because all the directors of the General 
Partner will be affiliated persons, without the relief requested, a 
Partnership could not comply with rule 17e-1. The Applicant states that 
each Partnership will comply with rule 17e-1 by having a majority of 
the directors of the General Partner take actions and make approvals as 
set forth in the rule. The Applicant states that each Partnership will 
otherwise comply with rule 17e-1.
    10. Section 17(f) of the Act designates the entities that may act 
as investment company custodians, and rule 17f-1 under the Act imposes 
certain requirements when the custodian is a member of a national 
securities exchange. The Applicant requests an exemption from section 
17(f) and subsections (a), (b) (to the extent such subsection refers to 
contractual requirements), (c), and (d) of rule 17f-1 to permit an Ares 
entity to act as custodian of Partnership assets without a written 
contract. The Applicant also requests an exemption from the rule 17f-
1(b)(4) requirement that an independent accountant periodically verify 
the assets held by the custodian. The Applicant states that, because of 
the community of interest between Ares and the Partnerships and the 
existing requirement for an independent audit, compliance with this 
requirement would be unnecessary. The Applicant will comply with all 
other requirements of rule 17f-1.
    11. The Applicant also requests an exemption from section 17 and 
rule 17f-2 to permit the following exceptions from the requirements of 
rule 17f-2: (a) A Partnership's investments may be kept in the locked 
files of the Ares, the General Partner or the Investment Adviser; (b) 
for purposes of paragraph (d) of the rule, (i) employees of the General 
Partner (or Ares) will be deemed to be employees of the Partnerships, 
(ii) officers or managers of the General Partner of a Partnership (or 
Ares) will be deemed to be officers of the Partnership and (iii) the 
General Partner of a Partnership or its board of directors will be 
deemed to be the board of directors of a Partnership and (c) in place 
of the verification procedure under paragraph (f) of the rule, 
verification will be effected quarterly by two employees, each of whom 
will have sufficient knowledge, sophistication and experience in 
business matters to perform such examination. The Applicant expects 
that, with respect to certain Partnerships, some of their investments 
may be evidenced only by partnership agreements, participation 
agreements or similar documents, rather than by negotiable certificates 
that could be misappropriated. The Applicant asserts that for such a 
Partnership, these instruments are most suitably kept in the files of 
Ares, the General Partner, or the Ares entity that serves as investment 
adviser to the Partnership, where they can be referred to as necessary. 
The Applicant will comply with all other provisions of rule 17f-2.
    12. Section 17(g) of the Act and rule 17g-1 under the Act generally 
require the bonding of officers and employees of a registered 
investment company who have access to its securities or funds. Rule 
17g-1 requires that a majority of directors who are not interested 
persons of a registered investment company take certain actions and 
give certain approvals relating to fidelity bonding. The rule also 
requires that the board of directors of an investment company relying 
on the rule satisfy the Fund Governance Standards. The Applicant 
requests relief to permit the General Partner's board of directors, who 
may be deemed interested persons, to take actions and make 
determinations as set forth in the rule. The Applicant states that, 
because all directors or other governing body of the General Partner

[[Page 12183]]

will be affiliated persons, a Partnership could not comply with rule 
17g-1 without the requested relief. Specifically, each Partnership will 
comply with rule 17g-1 by having a majority of the General Partner's 
directors (or members of a comparable body) take actions and make 
determinations as set forth in rule 17g-1. The Applicant also requests 
an exemption from the requirements of: (i) Paragraph (g) of the rule 
relating to the filing of copies of fidelity bonds and related 
information with the Commission and the provision of notices to the 
board of directors; (ii) paragraph (h) of the rule relating to the 
appointment of a person to make the filings and provide the notices 
required by paragraph (g); and (iii) paragraph (j)(3) of the rule 
relating to compliance with the Fund Governance Standards. The 
Applicant states that the fidelity bond of each Partnership will cover 
Ares employees who have access to the securities and funds of the 
Partnership. The Applicant states that the Partnerships will comply 
with all other requirements of rule 17g-1.
    13. Section 17(j) of the Act and paragraph (b) of rule 17j-1 under 
the Act make it unlawful for certain enumerated persons to engage in 
fraudulent or deceptive practices in connection with the purchase or 
sale of a security held or to be acquired by a registered investment 
company. Rule 17j-1 also requires that every registered investment 
company adopt a written code of ethics and that every access person of 
a registered investment company report personal securities 
transactions. The Applicant requests an exemption from section 17(j) 
and the provisions of rule 17j-1, except for the anti-fraud provisions 
of paragraph (b), because they assert that these requirements are 
unnecessarily burdensome as applied to the Partnerships. The relief 
requested will only extend to Ares entities and is not requested with 
respect to any Unaffiliated Subadviser or Advisory Person.
    14. The Applicant requests an exemption from the requirements in 
sections 30(a), 30(b), and 30(e) of the Act, and the rules under those 
sections, that registered investment companies prepare and file with 
the Commission and mail to their shareholders certain periodic reports 
and financial statements. The Applicant contends that the forms 
prescribed by the Commission for periodic reports have little relevance 
to the Partnerships and would entail administrative and legal costs 
that outweigh any benefit to the Limited Partners. The Applicant 
requests exemptive relief to the extent necessary to permit each 
Partnership to report annually to its Limited Partners, as described in 
the application. The Applicant also requests an exemption from section 
30(h) of the Act to the extent necessary to exempt the General Partner 
of each Partnership, members of the General Partner or any board of 
managers or directors or committee of Ares employees to whom the 
General Partner may delegate its functions, and any other persons who 
may be deemed to be members of an advisory board of a Partnership, from 
filing Forms 3, 4, and 5 under section 16(a) of the Exchange Act with 
respect to their ownership of Interests in the Partnership. The 
Applicant asserts that, because there will be no trading market and the 
transfers of Interests will be severely restricted, these filings are 
unnecessary for the protection of investors and burdensome to those 
required to make them.
    15. Rule 38a-1 requires registered investment companies to adopt, 
implement and periodically review written policies reasonable designed 
to prevent violation of the federal securities law and to appoint a 
chief compliance officer. Each Partnership will comply will rule 38a-
1(a), (c) and (d), except that (i) since the Partnership does not have 
a board of directors, the board of directors or other governing body of 
the General Partner will fulfill the responsibilities assigned to the 
Partnership's board of directors under the rule, and (ii) since the 
board of directors or other governing body of the General Partner does 
not have any disinterested members, (a) approval by a majority of the 
disinterested board members required by rule 38a-1 will not be 
obtained, and (b) the Partnerships will comply with the requirement in 
rule 38a-1(a)(4)(iv) that the chief compliance officer meet with the 
independent directors by having the chief compliance officer meet with 
the board of directors of the General Partner as constituted.

Applicant's Conditions

    The Applicant agrees that any order granting the requested relief 
will be subject to the following conditions:
    1. Each proposed transaction involving a Partnership otherwise 
prohibited by section 17(a) or section 17(d) of the Act and rule 17d-1 
under the Act to which a Partnership is a party (the ``Section 17 
Transactions'') will be effected only if the General Partner determines 
that (i) the terms of the Section 17 Transaction, including the 
consideration to be paid or received, are fair and reasonable to the 
Limited Partners of the Partnership and do not involve overreaching of 
the Partnership or its Limited Partners on the part of any person 
concerned, and (ii) the Section 17 Transaction is consistent with the 
interests of the Limited Partners, the Partnership's organizational 
documents and the Partnership's reports to its Limited Partners.\11\
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    \11\ If a Partnership invests through an Aggregation Vehicle and 
such investment is a Section 17 Transaction, this condition will 
apply with respect to both the investment in the Aggregation Vehicle 
and any investment by the Aggregation Vehicle of Partnership funds.
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    In addition, the General Partner of a Partnership will record and 
preserve a description of all Section 17 Transactions, the General 
Partner's findings, the information or materials upon which the 
findings are based and the basis for the findings. All such records 
will be maintained for the life of the Partnership and at least six 
years thereafter and will be subject to examination by the Commission 
and its staff.\12\
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    \12\ Each Partnership will preserve the accounts, books and 
other documents required to be maintained in an easily accessible 
place for the first two years.
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    2. The General Partner of each Partnership will adopt, and 
periodically review and update, procedures designed to ensure that 
reasonable inquiry is made, prior to the consummation of any Section 17 
Transaction, with respect to the possible involvement in the 
transaction of any affiliated person or promoter of or principal 
underwriter for the Partnership or any affiliated person of such 
person, promoter or principal underwriter.
    3. The General Partner of each Partnership will not invest the 
funds of the Partnership in any investment in which an ``Affiliated Co-
Investor'' (as defined below) has acquired or proposes to acquire the 
same class of securities of the same issuer and where the investment 
transaction involves a joint enterprise or other joint arrangement 
within the meaning of Rule 17d-1 in which the Partnership and an 
Affiliated Co-Investor are participants (each such investment, a ``Rule 
17d-1 Investment''), unless any such Affiliated Co-Investor, prior to 
disposing of all or part of its investment, (i) gives the General 
Partner sufficient, but not less than one day's, notice of its intent 
to dispose of its investment; and (ii) refrains from disposing of its 
investment unless the Partnership has the opportunity to dispose of the 
Partnership's investment prior to or concurrently with, on the same 
terms as, and pro rata with the Affiliated Co-

[[Page 12184]]

Investor.\13\ The term ``Affiliated Co-Investor'' with respect to any 
Partnership means any person who is: (i) An ``affiliated person'' (as 
such term is defined in section 2(a)(3) of the Act) of the Partnership 
(other than a Third Party Fund); (ii) Ares; (iii) an officer or 
director of Ares; (iv) an Eligible Employee; or (v) an entity (other 
than a Third Party Fund) in which an Ares entity acts as a general 
partner or has a similar capacity to control the sale or other 
disposition of the entity's securities. The restrictions contained in 
this condition, however, shall not be deemed to limit or prevent the 
disposition of an investment by an Affiliated Co-Investor (i) to its 
direct or indirect wholly-owned subsidiary, to any company (a 
``Parent'') of which the Affiliated Co-Investor is a direct or indirect 
wholly-owned subsidiary or to a direct or indirect wholly-owned 
subsidiary of its Parent, (ii) to immediate family members of the 
Affiliated Co-Investor or a trust or other investment vehicle 
established for any Affiliated Co-Investor or any such immediate family 
member, or (iii) when the investment is comprised of securities that 
are (a) listed on a national securities exchange registered under 
section 6 of the Exchange Act, (b) NMS stocks pursuant to section 
11A(a)(2) of the Exchange Act and rule 600(a) of Regulation NMS 
thereunder, (c) government securities as defined in section 2(a)(16) of 
the Act or other securities that meet the definition of ``Eligible 
Security'' in rule 2a-7 under the Act, or (d) listed or traded on any 
foreign securities exchange or board of trade that satisfies regulatory 
requirements under the law of the jurisdiction in which such foreign 
securities exchange or board of trade is organized similar to those 
that apply to a national securities exchange or a national market 
system for securities.
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    \13\ If a Partnership invests in a Rule 17d-1 Investment through 
an Aggregation Vehicle, the requirements of clauses (i) and (ii) of 
this sentence shall apply to both the Affiliated Co-Investor's 
disposition of such Rule 17d-1 Investment and, if the Affiliated Co-
Investor also holds a Rule 17d-1 Investment through such Aggregation 
Vehicle, its disposition of all or part of its investment in the 
Aggregation Vehicle.
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    4. Each Partnership and its General Partner will maintain and 
preserve, for the life of each Series of the Partnership and at least 
six years thereafter, such accounts, books and other documents 
constituting the record forming the basis for the audited financial 
statements that are to be provided to the Limited Partners in the 
Partnership, and each annual report of the Partnership required to be 
sent to the Limited Partners, and agree that all such records will be 
subject to examination by the Commission and its staff.\14\
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    \14\ Each Partnership will preserve the accounts, books and 
other documents required to be maintained in an easily accessible 
place for the first two years.
---------------------------------------------------------------------------

    5. Within 120 days after the end of each fiscal year of each 
Partnership, or as soon as practicable thereafter, the General Partner 
of each Partnership will send to each Limited Partner having an 
Interest in the Partnership at any time during the fiscal year then 
ended, Partnership financial statements audited by the Partnership's 
independent accountants with respect to those Series in which the 
Limited Partner had an Interest, except under certain circumstances in 
the case of a Partnership formed to make a single portfolio investment. 
In such cases, the Partnership may send unaudited financial statements, 
but each Limited Partner will receive financial statements of the 
single portfolio investment audited by such entity's independent 
accountants. At the end of each fiscal year, the General Partner will 
make or cause to be made a valuation of all of the assets of the 
Partnership as of such fiscal year end in a manner consistent with 
customary practice with respect to the valuation of assets of the kind 
held by the Partnership. In addition, within 120 days after the end of 
each fiscal year of each Partnership (or as soon as practicable 
thereafter), the General Partner will send a report to each person who 
was a Limited Partner at any time during the fiscal year then ended, 
setting forth such tax information as shall be necessary for the 
preparation by the Limited Partner of that partner's federal and state 
income tax returns and a report of the investment activities of the 
Partnership during that fiscal year.
    6. If a Partnership makes purchases or sales from or to an entity 
affiliated with the Partnership by reason of an officer, director or 
employee of an Ares entity (i) serving as an officer, director, general 
partner, manager or investment adviser of the entity (other than an 
entity that is an Aggregation Vehicle), or (ii) having a 5% or more 
investment in the entity, such individual will not participate in the 
Partnership's determination of whether or not to effect the purchase or 
sale.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-05039 Filed 3-7-16; 8:45 am]
BILLING CODE 8011-01-P