Registered Funds Alert

October 2018

Table of Contents
The Evolution of Co-Investment
Exemptive Orders and Why They
Should Become Extinct

2

An overview of recent developments in
co-investment relief and thoughts on a path
towards broader relief.
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Key Themes in Comments on SEC
Proposals Regarding Standard of
Conduct for Broker-Dealers andInvestment Advisers

6

A summary of the primary concerns
noted in comments to the SEC’s proposals
regarding standards of conduct foradvisers and broker-dealers.
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SEC Chairman Jay Clayton Issues
Reminder that Staff Guidance
Is Nonbinding

9

A discussion of recent statements andactions underscoring the limitations of
SEC staff guidance.
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SEC Considers Derivatives
Rule Re-Proposal

11

Our predictions of, and suggestions for, theSEC’s re-proposal of the derivatives rule.
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The latest edition of Simpson Thacher’s Registered Funds Alert discusses
recent developments in the registered funds industry, including:

Notable Transactions: Q2 201813

A list of notable transactions that occurredin the second quarter of 2018, including
M&A transactions and closed-end fundinitial public offerings.
Click here for more

an examination of co-investment relief history and suggestions moving
towards broader relief; a summary of themes of primary concern
regarding standards of conduct for advisers and broker-dealers; adiscussion of recent statements and actions emphasizing SEC staff
guidance limitations; and Simpson’s predictions and suggestions

Simpson Thacher & Bartlett LLP

regarding the SEC’s derivatives rule re-proposal.

The Evolution of
Co-Investment Exemptive
Orders and Why They Should
Become Extinct
A key issue facing our clients, and the asset
management industry generally, is developing ways
for retail investors to access investment strategies
typically reserved for institutional and other wealthy
investors. Based on recent remarks by SEC Chair
Jay Clayton and related media reports, the SEC
plans to issue a concept release seeking publiccomment on ways to increase the ability of retailinvestors to invest in private companies. Allowing
registered funds (i.e., an investment company
or business development company (“BDC”)) toco-invest with affiliated funds is a critical first step
toward accomplishing these goals. Unfortunately,
co-investing is prohibited for registered funds
except in certain limited circumstances, either
by relying on narrow no-action letters or going
through an expensive and time-consuming
exemptive application process that still restricts suchco-investment dramatically.
In this Alert, we provide background on the abilityof registered funds to co-invest with affiliatedfunds and describe the evolution of co-investment
exemptive orders that have been granted by the
SEC. We then propose that the SEC should revise its
historical approach and take steps to allow registeredfunds to engage in a broader range of co-investments
without requiring specific exemptive relief.

Over time, it has become clear that there aretransactions that are technically prohibited by the
Joint Transaction Regulations, but do not present
the dangers of self-dealing and overreaching thatanimate the Joint Transaction Regulations. For
decades, the SEC and the staff of the SEC’s Divisionof Investment Management (the “Staff”) havetaken the position that a registered fund shouldbe permitted to engage in certain limited types ofco-investment transactions with its affiliates without
violating the Joint Transaction Regulations. Since
it was first adopted in 1957, Rule 17d-1 has explicitly
contemplated exemptive orders that would permit
co-investments that would otherwise be prohibitedby the Joint Transaction Regulations. In 1992, after
reviewing the efficacy of existing regulation, theStaff went so far as to recommended that Rule 17d-1
be amended to permit certain joint transactions
where the registered fund participates on the sameterms as its affiliates.1 Resource constraints andother higher priority rulemaking initiatives have
prevented such an amendment to Rule 17d-1 frommaterializing and will likely continue to do so for theforeseeable future, but the Staff has taken no-action
positions and issued exemptive orders to lessen the
restrictiveness of the Joint Transaction Regulations,consistent with the recommendations it gave in the
1992 Report.

Overview and Background
One of the major problems that the Investment
Company Act of 1940 (the “1940 Act”), sought toaddress and regulate was the ability of investment
advisers and other affiliates to take advantage ofinvestment funds through affiliated transactions(either with the affiliate on the same side of thenegotiating table as the fund or as an opposing
counterparty). In this Alert, we focus on transactions
where a fund and its affiliate(s) are on the sameside of the negotiating table, typically referred toas a joint transaction or co-investment. Sections
17(d) and 57(a)(4), and Rule 17d-1 under the1940 Act (collectively, the “Joint Transaction
Regulations”) set forth the restrictions governing
joint transactions among registered funds
implemented to protect investors from the potential
harms associated with self-dealing and overreachingby advisers and other affiliates.

Under the relevant line of no-action letters, aregistered fund is permitted to co-invest alongside
an affiliated entity in transactions where all of theaffiliated parties participate on the same terms
and there are no terms negotiated other than price(“Non-Negotiated Co-Investments”) andallocations of opportunities are made fairly andpursuant to board-approved policies.2 Essentially,
the Staff’s position has been that because there
are no negotiations through which affiliates
could manipulate the terms of a Non-Negotiated
1. SEC Division of Investment Management, Protecting Investors: A Half
Century of Investment Company Regulation (May 1992) (the “1992
Report”).
2. Such transactions are commonly referred to as “Mass Mutual”
transactions, a reference to the seminal no-action letter on this topic.
2

Co-Investment and potentially place a registeredfund at a disadvantage relative to another client, a
Non-Negotiated Co-Investment does not pose therisks that the prohibitions in the Joint Transaction
Regulations are designed to address.
For joint investment opportunities that involve
negotiation of terms other than price (“Negotiated
Co-Investments”), the SEC has required registeredfunds to request specific relief through the exemptive
order process. To obtain such relief, the SEC hashistorically required applicant funds and theiradvisers agree to more than a dozen conditions
that restrict how the funds and advisers behavewith respect to identifying, entering into, allocating
and approving Negotiated Co-Investments. These
conditions form the guide rails of what becomes each
set of applicants’ “Co-Investment Program.”
While some aspects of co-investment exemptive
applications have evolved over time, there areseveral elements of each Co-Investment Programthat are generally consistent across the board.
One key condition that is universally included in
co-investment exemptive applications is that all
participating affiliates must invest on the same termsand (more or less) at the same time. This condition
mitigates the overreaching concern that a registeredfund could be disadvantaged relative to its affiliateswith respect to a specific transaction.
Another key condition is that Negotiated
Co-Investments considered for any affiliatedfund in the Co-Investment Program must also be
considered for a registered fund. That is to say, if theadviser is considering a Negotiated Co-Investment
opportunity for any affiliated private fund or one
specific registered fund in the Program, it mustalso consider whether the opportunity would beappropriate for all other registered funds in the
Program. From the view of the SEC, this condition
exists to ensure that registered funds are not only
brought in to participate on less lucrative deals, or toabsorb overflow, but instead have full access to any
deals available to the other funds participating in the
Co-Investment Program.
In addition to governing the initial Negotiated
Co-Investments, all Co-Investment Programs
also govern the process by which dispositions
and follow-on opportunities must be shared andthe process by which those decisions must be
made. Many Co-Investment Programs allow for
dispositions and follow-on transactions to be
conducted under the umbrella of the Co-Investment
Program (i.e. to permit Program participants tojointly negotiate the terms of a follow-on investment
or a disposition with respect to terms other thanprice) only if the initial investments were also madeunder the terms of the Co-Investment Program.
Once all relevant funds have had the opportunity
to determine whether to participate in a Negotiated
Co-Investment opportunity, and the participating
affiliated entities have made their determinations as
to their desired participation levels (as determinedby the adviser to each participating entity), theopportunity is allocated accordingly. If the demand
for the opportunity from participants exceeds
what is available to the manager as a whole, theinvestment opportunity is allocated among all of
the co-investing entities on a pro rata basis, basedon criteria specific to each Co-Investment Program.
The boards of each participating registered fund,including a majority of its independent directors,
must approve of the transaction before the registeredfund may participate.
Evolving Co-Investment Programs
For many years, Co-Investment Programs allfollowed a similar template, but certain variations
in exemptive orders have evolved rapidly over the
past few years. This evolution is primarily driven by
the fact that asset managers are increasingly large
and complex organizations, the one-size-fits-all
presumptions of the standard relief have proven to
be unworkable for numerous firms. For large asset
managers who often have multiple advisers witha variety of registered funds and private funds,
the conditions imposed under the standard formof exemptive relief require onerous amounts of
information to be shared between affiliates and asubstantial compliance framework to manage all of
the regulatory obligations.

“This evolution is primarily driven by thefact that asset managers are increasingly large
and complex organizations, the one-size-fits-all
presumptions of the standard relief have proven to
be unworkable for numerous firms.

”

The wave of new innovation in Co-Investment
Programs began with an order granted to Apollo
Investment Corporation and its affiliates (“Apollo”)
in 2016. After years of negotiation with the Staff,
Apollo was successful in seeking a more scalable andflexible approach than had been historically granted,
and better reflects the challenges facing certain typesof larger asset managers.
One notable modification that arose out of Apollo’s
relief was to add a mechanism that allows the boardof a registered fund to set criteria that would limit3the range of transactions that must be presented tothat registered fund. As fund investment strategies
are often broadly worded, this development allows anadviser to focus on opportunities that are the most
likely to be appropriate for a registered fund and cansignificantly reduce the administrative burden on
the adviser of documenting why a registered funddeclined to participate in opportunities that are
unlikely to fit its core strategy or target risk/return
profile. The line of applications that have adopted
this mechanism refer to this concept as “BoardEstablished Criteria.”
Apollo’s order also added the flexibility to allow
disposition and follow-on transactions with respect
to initial investments that were not made under the
Co-Investment Program to be completed under the
Co-Investment Program so long as certain conditions
and board approvals are met and obtained. The
newer applications that include this flexibility
refer to these as “enhanced-review” dispositions
and follow-ons.
Ultimately, however, Apollo’s application was
tailored to reflect how Apollo’s business is
structured, which does not necessarily reflect otherpotential applicants. The SEC has issued at least
45 co-investment exemptive orders since Apollo’s
was granted in 2016. As the SEC and the industry
have grappled with this reality, it has resulted in apatchwork of exemptive applications with varying
representations, conditions and requirements aseach applicant attempts to find a solution that works
for its business model.
For example, there has been a divergence in
exemptive applications since Apollo’s relief was
granted regarding how investment allocations are
made when an opportunity is oversubscribed. Prior
to Apollo’s exemptive order, applications statedthat in such circumstances allocations would bemade pro rata on the basis of available capital (i.e.,that the funds with the most cash on hand would
get the largest allocation). Advisers found thatthe strict available capital requirement could leadto undesirable results. Apollo’s application took
a different approach, instead basing allocations
for over-subscribed investments on the relative
size of “internal orders,” essentially reflecting theactual demand expressed by each affiliated fund.
In more recent applications using this “internal
order” approach, however, the SEC has begun to
add additional requirements around the internal
order process in an attempt to ensure that registeredfunds are not disadvantaged—even going so far as
to require legal or compliance personnel to attend
allocation committee meetings and take minutes.

Other recent applications have eschewed the internal
order model and instead modified the definition of“available capital” to be a more nuanced concept thatinvolves some discretion on the part of the adviser
and variables, such as liquidity considerations,existing commitments and reserves, if any, thetargeted leverage level, targeted asset mix, riskreturn and target-return profile, tax implications,etc. It is unclear at this point how much of adifference exists between the “internal order” andthe “modified available capital” approaches.
The Problem with Co-Investment Exemptive Relief
The growing patchwork of co-investment exemptive
orders is a consequence of the SEC granting
exemptive relief for individual Co-Investment
Programs rather than taking a principles-based
approach of blessing a wider variety of Negotiated
Co-Investments.
It takes an enormous amount of time for the SEC
Staff to review and understand the internal interplay
of increasingly large and complex asset managers,which takes valuable SEC resources away fromother important areas of focus. Similarly, while thebenefit of co-investment relief is that registeredfunds are allowed to participate in Negotiated
Co-Investments from which they would otherwise
be excluded, the complexity and restrictions of theapplications and related conditions can discourage
an asset manager from seeking the benefit of relief
for its registered funds. Absent a co-investment
order, registered funds are left out of Negotiated
Co-Investments altogether.
While the SEC’s goal of protecting registered funds
and their shareholders are well intentioned, theexclusion of registered funds from Negotiated
Co-Investments is ultimately to the detriment ofretail investors. Co-investments generally provide
registered funds a host of benefits, including an
increase in deal flow, the opportunity to participate
in larger financing commitments and enhanced
selectivity, and more favorable deal terms. All ofthese benefits have been recognized in the context
of Non-Negotiated Co-Investments throughno-action relief and in the context of Negotiated
Co-Investments through exemptive orders, but there
persist, in our view, unnecessary limitations on
registered funds’ access to attractive co-investment
opportunities.
The Path Forward
While the SEC’s willingness to grant the Apollostyle relief was a welcome departure from thehistorical one-size-fits-all relief, it has ultimately led
the SEC down a path where the Staff must review
4complex and detailed exemptive applications that
require a significant amount of customization foreach individual applicant. The resulting patchworkof exemptive orders with sometimes meaningfulvariation in representations and conditions creates
regulatory uncertainty and potentially competitive
advantages (or disadvantages) for some asset
management firms. As the SEC has recognized in the
ETF context, variations in the regulatory structurethat result from a complex web of exemptive orders
can pose a problem and are ripe for simplification.
Our view is that the SEC would be best served byexiting the business of granting exemptive orders forbasic forms of Co-Investment Programs.
As discussed, the SEC’s overarching concern is thata registered fund could be disadvantaged in the
co-investment context. As the Staff recognized in the
1992 Report, this aim clearly can be met while still
permitting co-investment transactions under certain

included in existing Co-Investment Programs. Such
principles might include concepts such as:
Fiduciary Duties
Each adviser will manage the assets of each of its
clients in accordance with its fiduciary duty.
Same Terms
Each affiliated fund participating in a co-investment
will invest on the same terms.
Allocation Process and Conflict Policies
Advisers should have policies and procedures
adequately designed to ensure that as co-investment
opportunities arise falling within a registeredfund’s board-established criteria, the registeredfund’s portfolio management team is notified of theopportunity and receives the same information asother private funds.
Board Reporting and Compliance
The independent directors of a registered fundshould receive quarterly information regarding
all potential co-investment transactions that fellwithin the registered fund’s board-establishedcriteria, but were either declined by the registeredfund or not made available to it.

defined circumstances. The Staff could dramatically
improve access co-investment opportunities forregistered funds by taking a broad principle-based
no-action position, as was the case with NonNegotiated Co-Investments. All Co-Investment
Programs are designed to ensure that both aregistered fund’s adviser and board, each of whichowes a fiduciary duty to the fund, vet a transaction
with a focus on ensuring that the registered fundis not being disadvantaged. There does not seem tobe any clear reason why a no-action position thatincorporates the common restrictions and concepts
underpinning Co-Investment Programs could notachieve the same regulatory purpose as individual
exemptive orders.
We believe the Staff should take a no-action position
stating that it will not recommend enforcement
action under Section 17 or 57 of the 1940 Act if
registered funds co-invest in portfolio companies
with each other and with affiliated private funds
pursuant to a program based on certain generalcharacteristics, including several concepts currently

Additionally, on an annual basis, each registeredfund’s chief compliance officer and board of
directors should review and evaluate the fund’s
compliance with the no-action relief and thepolicies and procedures established to realize
such compliance. However, the SEC should avoid
dictating the requirements of a registered fund’s
compliance program, retaining the flexibility forthe fund and its adviser to create a program that isreflective of the organization’s unique structure.
Ethical Walls and Conflicts of Interest
Each adviser to a registered fund should adopt
sufficient ethical wall policies to address conflictsof interest, insider information and confidentiality
issues, including policies to address conflicts arisingfrom investing in different parts of an issuer’s
capital structure.

The rapid evolution of co-investment orders overthe past few years has resulted in a situation where
exemptive relief is no longer the best regulatory
option for permitting Co-Investment Programs. The
issuance of a no-action position described above
would not remove exemptive orders from the SEC’s
tool kit, but would instead allow the Staff to focus on
more novel requests related to this complex issue.

5Key Themes in Comments
on SEC Proposals Regarding
Standard of Conduct
for Broker-Dealers andInvestment Advisers
Earlier this year, the SEC issued a package of
regulatory proposals interpreting and enhancing
the standards of conduct for broker-dealers andinvestment advisers. In our previous Alert, we
focused on the SEC’s interpretation of advisers’
standards of conduct. In this Alert, we willsummarize the industry response to the proposals
based on comment letters that were submitted to
the SEC.
By the expiration of the 90-day public comment
period, the SEC had received:• nearly 150 comments to the proposal relating to
the SEC’s interpretation of the fiduciary duties
owed by investment advisers to their clients;• over 2,500 comments to the proposal relating toenhancing broker-dealers’ standards of conduct
towards retail clients; and• over 270 comments to the proposal relating to
new disclosure requirements for advisers andbroker-dealers on Form CRS.

The SEC has continued to receive additionalcomments since the expiration of the formal
comment period.
This Alert summarizes three primary concerns notedin comments to the proposal interpreting advisers’
fiduciary duties towards their clients. The comments
consistently noted:
1. the inconsistency between the proposal’sinterpretation of advisers’ duty of loyalty andestablished precedent;
2. the need for further clarification on advisers’abilities to define the scope of the advisory
relationship by contract and on the meaning of“informed consent” with respect to conflicts ofinterest; and3. the lack of distinction between fiduciary duties
owed to retail and institutional clients.

This Alert also summarizes, at a high level, theconcerns noted in comments to the proposals
relating to broker-dealers’ standards of conduct andForm CRS.
Proposed Investment Adviser Interpretation
The proposal’s interpretation of advisers’ duty ofloyalty is inconsistent with established precedentand industry practices.
The proposal interpreted the duty of loyalty broadly
to require an adviser to put its clients’ interests
ahead of its own and to refrain from unfairly
favoring one client over another. To meet this duty,
the proposal required that an adviser make “fulland fair disclosure to its clients of all material facts
relating to the advisory relationship.” In this regard,
the proposal is consistent with the U.S. Supreme
Court’s decision in SEC v. Capital Gains Research
Bureau, in which the Court noted, “[c]ourts have
imposed on a fiduciary an affirmative duty of ‘utmost
good faith, and full and fair disclosure of all material
facts,’ as well as an affirmative obligation ‘to employ
reasonable care to avoid misleading’ [its] clients.”
But the proposal goes one step further by suggesting
advisers should eliminate conflicts that are toocomplex to disclose with sufficient specificity.
Several commenters noted that this interpretation
is inconsistent with Capital Gains, which provided
that the Investment Advisers Act of 1940 (the“Advisers Act”) reflects “a congressional intent
to eliminate, or at least to expose, all conflicts ofinterest which might incline an investment adviser– consciously or unconsciously – to render advice
which was not disinterested [emphasis added].”Commenters pointed to this language as evidence
that clear disclosure of conflicts should be sufficient
without the need to eliminate such conflicts. As
one commenter noted, “the suggestion that someconflicts are too complex for an investment adviser tobe able to fulfill its fiduciary duty through disclosure
is not supported in the law.”
Advisers address complex conflicts in a numberof different ways. For example, firms may erect
information walls to restrict an adviser’s access tomaterial non-public information (“MNPI”) obtainedby affiliates, including requiring that employees
certify that they do not and have not shared MNPI.
To further address this conflict, the adviser may
disclose that it could be deemed to possess MNPI,
despite the fact that such MNPI was obtained by anaffiliate. In addition, strategic relationships between
firms and investors whereby an investor makes
capital commitments to an adviser and multiple
affiliates often give rise to complex conflicts due
6to the additional rights that inure to the benefitof the investor in consideration of its aggregate
commitment. Advisers typically address theseconflicts by clearly disclosing the existence andimplications of strategic relationships.
The proposal’s suggestion that certain conflicts are
too complex or expansive to be understood by clientsis inconsistent with industry practice and existing
disclosure requirements. When completing Form
ADV, advisers are required to disclose conflicts inplain English and instructed to use tables or bullet
lists for complex material and to avoid legal jargon
or highly technical business terms unless advisers
explain them or believe their clients will understandthem.

is not reasonably designed to be full and fair to theclient. Similarly, another commenter submitted that
the SEC should clarify this assertion to reaffirm theability of an adviser and its clients to contractuallyagree to terms that modify the scope of services andduties of the adviser, provided the client is given fulland fair disclosure.
Commenters were critical of the proposal’s lack of
specificity regarding what constitutes “informed
consent” and the process by which such consent
is obtained. One commenter noted that thisomission implies that whether a client’s consent is“informed” is a highly subjective determination.
The commenter stated that, for advisers that offer

In sum, the industry emphasized to the SEC that the
proposal’s suggestion that disclosure and informed
consent may be insufficient to satisfy an adviser’s
fiduciary duty of loyalty is inconsistent with thecurrent state of the law and industry practice.
The SEC should clarify advisers’ abilities to define
the scope of the advisory relationship by contract
and the meaning of “informed consent” with respect
to conflicts of interest.
Commenters highlighted inconsistencies between the
proposal and industry practice, in addition to within
the proposal itself, with respect to an adviser’s ability
to define the scope of its duties through contract,
and the proposal’s lack of specificity when describing
what constitutes “informed consent,” which theproposal did not clearly define.
While the proposal explained that advisers andclients may shape their relationship through contract
when the client receives full and fair disclosure
and provides informed consent, it goes on to assertthat an adviser “cannot disclose or negotiate away,
and the investor cannot waive, the federal fiduciary
duty.” One commenter noted that this assertion is
not supported by any case law or the realities of themarketplace, explaining that advisers often engage inpractices that present potential conflicts that could
be inconsistent with their fiduciary duties (e.g., using
client brokerage commissions to pay for researchthat may not directly benefit the client) after clearly
disclosing such conflicts and obtaining client consent
via contract; however, in these cases, the adviser
does not generally waive its duties as a fiduciary. This
commenter suggested that, to avoid confusion overan adviser’s ability to enter into agreements defining
the scope of its services and duties, the assertion thatan adviser “cannot disclose or negotiate away, andthe investor cannot waive, the federal fiduciary duty”
should be limited to situations involving a blanket
waiver of all conflicts or the use of disclosure thata strategy or account to many different clients,
making a subjective, case-by-case determination
whether each client’s consent is “informed” may be
extraordinarily costly, if not impossible, and thatit should be sufficient to infer informed consent if
the adviser has employed reasonable care to avoid
misleading its clients with respect to those conflicts.
The commenter suggested that, assuming adequate
disclosure, unless an adviser has reason to believethat a client does not understand or agree to theexistence of the disclosed potential or actual conflict,the client’s willingness to continue the business
relationship should be deemed to be sufficientevidence of informed consent.
The SEC should recognize that fiduciary duties maylead to different problems with respect to retail andinstitutional clients.
Commenters expressed concern that the proposal
did not distinguish between fiduciary duties owed
to retail and institutional clients. In practice, such
distinctions are commonplace. Advisers distinguishbetween retail and institutional clients whenassessing the suitability of an investment for aparticular client and describing conflicts of interest,for example. Disparate treatment resulting from7

differences in financial sophistication are appropriate
to ensure clients receive advisory services tailored
towards their respective goals, risk profiles andliquidity needs. With respect to disclosure, the SEC
recognizes the appropriateness of such distinctions,
instructing advisers to consider their clients’ level offinancial sophistication when completing Form ADV.
One commenter noted that the proposal’s contention
that certain conflicts may be too complex to beadequately disclosed weakens the historical relianceon disclosure that has served as a key underpinningof the Advisers Act. The commenter stated that
this contention is unwarranted with respect toinstitutional investors that have received full and fairdisclosure, and noted that the federal securities laws
recognize that sophisticated investors do not require
the same level of protection as retail investors (e.g.,“qualified purchasers” invest in unregistered funds
and “accredited investors” participate in private
offerings).
While the proposal interprets an adviser’s duty ofcare to include a duty to make a reasonable inquiry
into a client’s level of financial sophistication toensure the suitability of investment advice, it does
not provide further guidance on the appropriatenessof disparate conduct based on a client’s
sophistication. One commenter stated that the
proposal’s assertion that “[a]n investment adviser hasa fiduciary duty to all of its clients, whether or not theclient is a retail investor,” suggests that advisers must
treat institutional and retail clients the same andover-simplifies “the duties that have been articulatedvis-à-vis different types of clients.” In the proposal,
such duties principally relate to the suitability of
personalized investment advice in light of clients’varying risk tolerances.
The commenter noted that statements in the
proposal “about the adequacy of disclosure andthe ability to negotiate the scope of an investment
adviser’s duties appear to be aimed more atinvestment advisers’ interactions with retail clients.”
This observation is consistent with Chairman
Clayton’s Statement at the Open Meeting onStandards of Conduct for Investment Professionals
in April, where he stated that the SEC “has focusedon how to best bridge any gaps between what retailinvestors reasonably expect from their investment
professionals and what our laws and regulations
require, while ensuring that investor access andinvestor choice are preserved.”
Further highlighting the differences between
retail and institutional clients, one commenter
noted that the proposal interpreted an adviser’s
fiduciary obligations to require the adviser to makea reasonable inquiry into a client’s investment

profile and update it as necessary to reflect changes
in circumstances, which may not apply to advisers
to institutional clients. For example, rather than asubadviser to a fund periodically updating the fund’s“investment profile,” it would provide advice basedon the terms of the subadvisory agreement and thefund’s investment objectives. Similarly, the proposalinterpreted an adviser’s duty of care to include
the duty to provide advice and monitoring overthe course of a client relationship. The commenter
believes that this interpretation is an overly broadstatement of law given the variety of advisory
relationships and models that exist, including
institutional mandates that may be more limited or
specific. Rather, the commenter suggested the SEC
acknowledge that the extent of an adviser’s advice
and duty to monitor are established by agreement
between the adviser and the client.
Proposed Regulation Best Interest
Proposed Regulation Best Interest would a “bestinterest” standard of conduct for broker-dealers,
requiring that broker-dealers act in the best interestof their retail customers without placing theirfinancial or other interests ahead of their customers’.
The proposal provides that the best interest standard
would be satisfied if broker-dealers meet certain
disclosure, care and conflicts obligations.
The relatively large number of individual comments
to the proposal appear to be the result of an
AARP campaign encouraging the public to submit
comments requesting a higher standard than the
one imposed by Regulation Best Interest. In AARP’sown comment letter, it criticizes the proposal for
failing to impose a fiduciary standard and pressed
the SEC to better define the contours of the bestinterest standard. Regulation Best Interest does notdefinitively define “best interest,” instead leaving
broker-dealers to interpret the standard based on thefacts and circumstances surrounding an investment
recommendation. AARP encouraged the SEC torevise the proposal to adopt a fiduciary standard
that would require that recommendations are made“solely in the interest” of the customer and with the“care, skill, prudence, and diligence that a prudent
person acting in a like capacity and familiar withsuch matters would use,” which was substantiallythe same standard adopted under the Department ofLabor’s now-defunct fiduciary rule.
Other commenters echoed this sentiment, noting
concerns that Regulation Best Interest did notprovide clear guidance on the types of conductthat would be impermissible under the newstandard, and that such ambiguity subjects the8standard to differing interpretations based on facts
and circumstances.
Proposed Form CRS Relationship Summary
Proposed Form CRS would require that advisers andbroker-dealers provide a brief relationship summary
to retail investors. While commenters generally
supported requirements mandating clear disclosuresabout how financial professionals describe the retailcustomer relationship, they encouraged the SEC
to adopt a less confusing, more flexible approachto disclosure. For example, one commenter notedthat the proposed Form CRS for dually-registeredbroker-dealers and advisers could confuse investors
by presenting information that may not be relevantto them, including a substantial percentage of retailinvestors who do not qualify for advisory services
that require a minimum account balance.

While the financial industry generally supports
the proposals and welcomed the leadership of the
SEC in enhancing and clarifying the standards ofconduct applicable towards investment advisers andbroker-dealers, commenters raised valid concernsthat may result in a final set of rules and regulations
substantially different from what was proposed. We
will continue to monitor these developments anddiscuss them in future Alerts.

SEC Chairman Jay Clayton
Issues Reminder that Staff
Guidance Is Nonbinding
SEC Chairman Jay Clayton issued a statement lastmonth reiterating the Commission’s longstanding
position that “all staff statements are nonbinding andcreate no enforceable legal rights or obligations of theCommission or other parties.” Staff of the Division of
Investment Management (“IM”) followed Chairman
Clayton’s lead by withdrawing letters3 the Staff
issued in 2004 related to proxy advisory firms. We
discuss these curious developments below.
SEC Staff Guidance Is Not Law

The proposal also included two new rules under the
Securities Exchange Act of 1934 aiming to reduceinvestor confusion in the marketplace for firm
services. The first rule would restrict broker-dealers,
when communicating with a retail investor, fromusing the term “adviser” or “advisor” in specified
circumstances. The second rule would require
broker-dealers and advisers disclose in retail investor
communications the firm’s registration status with
the SEC. While these rules did not garner as muchattention as its headline-grabbing counterparts,
one commenter noted that the new rule restricting
brokers’ use of names, which is intended to reduceinvestor confusion, is unnecessary because proposed
Form CRS would require clear and concise disclosure
about the client relationship. The commenter alsosuggested that the new rule regarding registration
status disclosure be eliminated because a firm would
already be required to disclose its registration statusin proposed Form CRS.
***

While unusual to see in writing from the SEC,
Chairman Clayton’s statement highlights a wellknown legal principle – communications by the
Staff are not law, nor are they rules, regulations
or statements of the SEC. Rather, such statements
represent the views of the Staff, which can evolve
over time. The timing of Chairman Clayton’s
statement corresponds with similar statements
by other federal agencies, indicating a broader
communications effort by leaders of federal agencies.

“

Communications by the Staff are not law, nor
are they rules, regulations or statements of theSEC. Rather, such statements represent the viewsof the Staff, which can evolve over time.

”

The Chairman’s position applies to all Staff
communications, including letters, speeches,
responses to frequently asked questions andresponses to specific requests for assistance.4
The statement explains that Chairman Clayton
3. Egan-Jones Proxy Services, SEC Staff Letter (May 27, 2004)(Withdrawn); Institutional Shareholder Services, Inc., SEC Staff Letter(Sept. 15, 2004) (Withdrawn).
4. The statement specifically identifies guidance updates from the Divisionof Investment Management as an example of a nonbinding statement.
9recently instructed the directors of the Division
of Enforcement and the Office of Compliance
Inspections and Examinations to further
emphasize to their staff the distinction between
the Commission’s rules and regulations, on the
one hand, and Staff views on the other. Chairman
Clayton encouraged engagement on Staff statements
and documents, “with the recognition that it is theCommission and only the Commission that adopts
rules and regulations that have the force and effectof law.”
Likely the most significant news arising from
Chairman Clayton’s statement was his revelationthat he recently instructed the directors of theenforcement and examination units to emphasize
to their staff the legal distinctions between laws
and rules, on the one hand, and Staff guidance,on the other hand. As market participants arewell aware, SEC examiners routinely cite to Staff
no-action letters and informal Staff positions
when communicating purported deficiencies
they identify in the course of an examination. If
followed, Chairman Clayton’s instruction should
lead examiners to change practice and cite either
to an actual law, rule or regulation for a particular
deficiency or, in the absence of relevant law, refrainfrom finding deficiencies based on Staff positions.
Perhaps we are overly optimistic, but anotherpotential salutary effect of the statement could bea change of practice by IM’s disclosure examiners.
Many in the registered funds industry have received
disclosure comments that have no source in any
law or regulation. Effectively, disclosure examiners
have made rules informally through the registration
statement review process. This practice shouldchange. The disclosure review process requires more
centralized oversight to ensure compliance with thepolicies expressed in Chairman Clayton’s statement.
Withdrawal of Proxy Advisory Letters
The proxy advisory letters withdrawn by IM werefirst issued in response to requests for guidancefrom two proxy advisory firms during the first proxyvoting season following the compliance date of Rule206(4)-6 under the Advisers Act. That rule addresses
an investment adviser’s fiduciary obligation to its
clients when the adviser has authority to vote theirproxies. The rule requires, in relevant part, aninvestment adviser that exercises voting authority
over client proxies to adopt policies and procedures
reasonably designed to ensure that the adviser votes
proxies in the best interest of clients. An adviser’s
policies and procedures under the Rule must address
how the adviser resolves material conflicts of interest
with its clients. To this end, the Rule’s adopting
release states:

An adviser that votes securities based on a predetermined voting policy could demonstrate that its
vote was not a product of a conflict of interest if theapplication of the policy to the matter presented toshareholders involved little discretion on the part of
the adviser. Similarly, an adviser could demonstratethat the vote was not a product of a conflict ofinterest if it voted client securities, in accordancewith a pre-determined policy, based upon therecommendations of an independent third party. . . .
Other policies and procedures are also available;
their effectiveness (and the effectiveness of any
policies and procedures) will turn on how well they
insulate the decision on how to vote client proxies
from the conflict.5

The proxy advisory firms sought clarity from theStaff regarding how an adviser should assess a
proxy advisory firm’s recommendation of a votein light of a conflict of interest the proxy advisory
firm may have with respect to an issuer. The lettersprovided guidance – not traditional no-action
relief – stating that a proxy advisory firm’s receipt
of compensation from an issuer generally would notaffect the proxy advisory firm’s independence froman investment adviser for purposes of making voting
recommendations concerning the issuer’s proxies
for the investment adviser’s clients. Taken together,
the letters indicated that an investment adviser
could view a proxy advisory firm’s recommendation
not to be conflicted even though that firm received
compensation from an issuer. This determination
would be made on a case-by-case evaluation of
the proxy voting firm’s relationship with issuers, athorough review of the proxy voting firm’s conflictprocedures, and/or other means reasonably designed
to ensure the integrity of the proxy voting process.
Subsequent to the withdrawal of the letters, theDirector of IM explained to a Congressionaloversight committee that the withdrawal of theletters was intended to facilitate discussion at anupcoming SEC roundtable on the proxy process. In
developing the agenda for that roundtable, the Staff
determined to withdraw the proxy advisory lettersimmediately in light of developments since 2004,
when the letters were first issued. The Director of IM
further elaborated that the roundtable discussion
about investment advisers’ responsibilities invoting client proxies, and about potential conflictsof interest in voting recommendations made by theproxy advisory firms, would best be facilitated if theletters were withdrawn.
Importantly, IM did not withdraw Staff Legal
Bulletin No. 20, which provides guidance on the
5. Proxy Voting by Investment Advisers, SEC Release No. IA-2106 (Jan. 31,
2003).
10

retention of proxy advisory firms.6 This legal bulletin
states that, when retaining a proxy advisory firm, aninvestment adviser could consider the robustnessof the proxy advisory firm’s policies and procedures
regarding its ability to identify and address any
conflicts of interest and any other considerations
that the investment adviser believes would beappropriate in considering the nature and qualityof the services provided by the proxy advisory firm.
At the Congressional committee hearing, the IM
director expressed her view that the legal bulletin
provides guidance that is more consistent with Rule206(4)-6 than the guidance contained in the nowwithdrawn letters.
What is the key takeaway from the withdrawal of
the letters? In our view, not much has changed.
Investment advisers that currently engage inappropriate diligence of proxy advisory firm conflictsin accordance with Rule 206(4)-6 and Staff Legal
Bulletin No. 20 should not be adversely affectedby the withdrawal of the Proxy Advisory Letters.
Investment advisers that rely on proxy advisory
firms should continue to consider whether a proxyadviser is providing conflicted advice. This could
continue to take the form of a consideration of
the robustness of a proxy advisory firm’s conflicts
policies and procedures.

SEC Considers Derivatives
Rule Re-Proposal
As our readers may recall, in 2015 the SEC proposed arule that was intended to restrict the use of derivatives
by registered funds (“Proposal”). We previously
discussed this proposed rule at length in our February
and May 2016 Alerts. As proposed, the derivatives
rule would have, among other things, required
registered funds to adhere to one of two limits onderivatives use—an exposure- or risk-based limit. The
exposure-based limit would have prevented a fundfrom having aggregate exposure to (i) derivatives
transactions (based on notional amount), (ii)“financial commitment transactions” (based on total
indebtedness), totaling more than 150% of its net
asset value. The proposed risk-based limit would haveallowed a fund to have aggregate exposure of up to
300% of its net assets, so long as the fund’s derivatives
positions reduced the fund’s overall value-at-risk(“VaR”). The Proposal also would have established
new asset segregation and risk management
requirements related to derivatives.
Generally speaking, the fund industry had a strong
negative reaction to the Proposal. After receiving
6. See Staff Legal Bulletin No. 20 (June 30, 2014).

over 175 comment letters on the proposed rule,
including a letter from Simpson Thacher, andundergoing a change in presidential administrations
and SEC leadership, the derivatives rule wasremoved from the SEC’s Regulatory Flexibility
Agenda (“Reg-Flex Agenda”), the formal agenda
for SEC rulemaking. However, the derivatives rule
recently reappeared on the Spring 2018 Reg-Flex
Agenda, where it was noted that IM is “considering
recommending that the Commission re-propose”
the rule. Based on feedback from our clients,
we understand that the Staff has begun actively
reaching out to certain members of the industry who
submitted comments on the Proposal for feedback as
it considers a re-proposal of the derivatives rule.
This Alert lays out our predictions of, andsuggestions for, the SEC’s re-proposal of thederivatives rule. Overall, we anticipate that the SEC
will move away from relying on notional limits inlight of the significant concerns expressed by theindustry in the comment process that notional
exposure is an “imperfect” indicator and “not anappropriate measure” of leverage, economic exposureand risk”7 and the impact of the rule on the abilityof certain types of registered funds to continue
to operate. Instead, the SEC should focus on aderivatives rule that is flexible enough to accountfor variation in fund investment strategies and thatincorporates asset segregation, which the industry
supports. However, if the SEC remains focused on
notional exposure, we suggest that the SEC use
notional exposure as a nothing more than a potential
trigger for a fund to implement a derivatives risk
management program (as opposed to a hard cap onderivatives use).

“

The SEC should focus on a derivatives rule thatis flexible enough to account for variation in fundinvestment strategies and that incorporates asset
segregation, which the industry supports.
Asset Segregation”

We expect that the SEC will, at a minimum, retain
its focus on asset segregation in the new rule. In the
Proposal, the SEC had proposed that funds segregate
assets based on mark-to-market derivatives
exposure plus risk-based buffers, which generally
received support from the industry as a method tominimize any risk posed by registered funds’ use ofderivatives. Relying primarily on asset segregationis consistent with historical practices with respect
to derivatives. The addition of a requirement to
7. See, e.g., comment letters submitted by Blackstone Alternative
Investment Advisors LLC and the Investment Company Institute.
11

account for a risk-based buffer in segregating assets
was a new concept, but the industry generally viewed
this enhancement as a workable change. The main
objection to the asset segregation requirements in
the Proposal was that it would only allow funds
to use cash and cash equivalents to count toward“qualifying coverage assets” that would satisfy the
proposed asset segregation requirements.
A common theme in comment letters on the Proposal
was that the SEC should expand the definition ofqualifying coverage assets to be more in line withthe range of assets that are permitted to be used
for initial and variation margin for derivatives by
U.S. and international regulators. This approach
would allow funds to segregate a wide range of
low-risk, low-volatility assets to cover derivatives
transactions—specifically, high-quality governmentand central bank securities, high-quality corporate
bonds and equities included in major stock market
indicies. Industry comments also urged the SEC tofollow internationally adopted guidelines that would
allow highly liquid assets to count for segregation
purposes after an appropriate haircut. Permitting awider range of highly liquid assets to be used to meetcoverage requirements would allow funds to continue
to hold assets consistent with their investment
strategy to minimize “cash drag” as discussed in
the Investment Company Institute’s (ICI) comment
letter, while also addressing the SEC’s concern thatfunds have sufficient assets available to meet their
obligations even if their assets decline in value. We
expect that the SEC will respond to the chorus ofindustry comments on this point and adjust the ruleaccordingly when re-proposed.
Reduced Reliance on Notional Limits
Funds use derivatives for a host of reasons—toachieve cost-effective exposure to investments, toprovide non-correlated returns to traditional, longonly products and for hedging and risk management
purposes. Given these uses, and the strong industry
response to the suggestion of a notional exposure
limit on such use of derivatives, we predict that the
SEC will move away from a notional cap and focus
primarily on asset segregation. There is a chance,
however, that the SEC suggests retaining some sortof additional restraints on funds’ use of derivatives toprevent undue risk and speculation. The Staff may begrappling with the question of whether to impose apractical limit on leverage, which might require somedegree of prudential regulation such as testing value
at risk or stress testing.
While we would hope the SEC avoids incorporating
notional amounts into a derivatives rule, as even
the SEC has acknowledged that it is a “blunt

measurement” that fails to account for differences intypes of derivatives, if notional amounts are includedin the re-proposal, we strongly suggest that the SEC
avoid using notional amounts to impose a limit on
the use of derivatives.
We propose instead that notional amounts only
be used, if at all, as an indicator of when a fundis a sufficient user of derivatives to warrant theuse of more sophisticated mechanisms to manage
derivative risk effectively. For example, notional
exposure might serve as a threshold that, if
exceeded, would trigger the requirement to establish
a derivatives risk management program with aderivatives risk manager who is independent from
portfolio management. This approach, which only
applies the risk management requirements to certain
users, would be similar to the approach the SEC
took in the liquidity risk management rule where
funds that primarily hold highly liquid investments
are subject to a reduced burden. A rule thatmandates all funds that use derivatives to have a risk
management program with a risk manager would
be too over-inclusive and burdensome, so if the SEC
feels compelled to retain some requirements tied tonotional amounts, this might be an approach that
could be workable in achieving the SEC’s regulatory
aims without unduly burdening the entire industry.
Risk Management Program
With respect to risk management requirements,
we believe that the SEC should make it clear in
re-proposing a derivatives rule that a deviation froma derivatives risk management program will not beviewed as an automatic compliance violation by the
SEC examination and enforcement staff. Many of therisk assessments that need to be made under sucha program are inherently subjective, and therefore
subject to second guessing (especially with thebenefit of hindsight). It would provide significant
comfort to the industry if the SEC made it clear, forexample, that any person designated as derivativerisk manager should not be personally liable (or thetarget of any SEC enforcement actions) for any goodfaith decisions he or she makes in such capacity.
Similarly, the derivatives risk manager should not beliable for the performance of derivatives transactionsor their effects on a portfolio in the event that adecision ultimately turns out to be wrong.
If the SEC re-proposes a derivatives rule, we expectthat the SEC will receive a significant amount ofcomment from the industry and other interested
parties. Simpson Thacher will be actively monitoring
progress with regard to a potential derivatives
re-proposal and will address any developments infuture Alerts.
12

M&A Transactions
Acquiror

Acquired or
Target Company

Type of Transactionand Status

American International Group,
Inc., a finance and insurance
corporation with approximately $498
billion AUM

Covenant Credit Partners, a
North Carolina-based investment
management company that oversees
two CLOs through which it manages
approximately $900 million ofbroadly-syndicated leveraged loan
collateralAcquisition(terms not disclosed)

Dyal Capital Partners, a divisionof Neuberger Berman Group focusing
on acquiring minority equity interests
in institutional alternative asset
management businesses

Vector Capital, a global private
equity firm specializing intransformational investments inestablished technology businesses
with approximately $3.8 billion ofcapital under management

Acquisition of a passive, non-voting,minority stake(terms not disclosed)

Federated Investors, Inc., a
United States-based investment
manager with 108 fund and a variety
of separately managed accountoptions and approximately $397.6
billion in assets

Hermes Fund Managers
Limited, a U.K.-based asset
manager serving the wholesale
and institutional markets withapproximate EUR 33 billion AUM

Acquisition of majority interest with apurchase price of approximately $350
million for a 60 percent interest will befunded through a combination of cash andan existing revolving credit facility, and put/call provisions for purchasing additional
shares over the next three to six years

Fidante Partners, an international
investment management businesswith approximately $56 billion in
AUM

Latigo Partners, L.P., a New Yorkbased fund manager specializing in
event-driven investing, including
distress securities, special situations
and long/short credit and equity
investingAcquisition of a minority interest(terms not disclosed)

FIS Group, a Pennsylvania-based
institutional investment firm
specializing in global and non-US
strategies with approximately $5.6
billion in AUM

Piedmont Investment Advisors,
LLC, a North Carolina-based
institutional money management
firm specializing in active, passive
and structured beta equity strategies
and core fixed income managementwith approximately $4.7 billion in
AUM

Acquisition(terms not disclosed)

Hellman & Friedman, a Californiabased private equity firm that focuseson investing in business franchises
and serving as a value-added partner
to management

Financial Engines, an investment
adviser with approximately $169
billion AUM

Acquisition through an all-cash transaction
paying Financial Engines shareholders $45
per share in cash for an aggregate value ofapproximately $3.02 billion

LaSalle Investment
Management, Inc., a global realestate investment manager withapproximately $60 billion AUM

Aviva Investors’ Real
Estate Multi-Manager, withapproximately $7 billion AUM

Acquisition(terms not disclosed)13

M&A Transactions (continued)
Acquiror

Acquired or
Target Company

Type of Transactionand Status

LaSalle Investment
Management, Inc., a global realestate investment manager withapproximately $60 billion AUM

Encore+ Fund, a diversified
Continental European real estate
fund with a gross asset value ofapproximately EUR 1.7 billion

Acquisition of Aviva Investor’s interest in
the joint management of the fund whereby
LaSalle will become sole manager(terms not disclosed)

Schonfeld Strategic Advisors
LLC, an investment advisory firmwith more than $20 billion in grossmarket value

Folger Hill Asset Management,a New York-based hedge fund withmore than $1 billion in AUM

Acquisition in which Folger Hill’s parent
company, Leucadia National Corp. and its
founder Sol Kumin will receive a revenue
share in Schonfeld’s fundamental equity
business

White Oak Equity Partners, a New
York-based private equity firm thatpurchases non-controlling GP interestin alternative asset manager firms
with less than $2B in AUM

FCO Advisors LP, a limited
partnership operating as a private
municipal credit focused investment
fund with more than $1 billion in
AUM

Acquisition of minority interest(terms not disclosed)

2nd Quarter 2018
Closed-End Fund Public Offerings
Destra International & Event-Driven Credit Fund
Structure:

Interval fund with quarterly repurchase offers of no less than 5% and no more than 25% of its
outstanding shares

Investment Objectives/
Policies:

The Fund’s investment objective is to provide attractive total returns, consisting of income andcapital appreciation. The Fund seeks to achieve its investment objective by investing at least 80%
of its total assets in credit related instruments and/or investments that have similar economic
characteristics as credit related instruments. “Credit related instruments” include bonds, debt
securities and loans issued by various U.S. and non-U.S. public- or private-sector entities,
including issuers in emerging markets, derivatives and cash equivalents. The Fund will allocate
its assets between two strategies: (i) Multi-Strategy International Credit and (ii) Event-Driven
Credit. The Multi-Strategy International Credit strategy focuses on investments in non-U.S.
credit related instruments. The Event-Driven Credit strategy focuses on investing in securities ofcompanies facing a corporate, market or regulatory event. Such events include, but are not limited
to, corporate events, such as restructurings, spin-offs, mergers and tender offers; significant
litigation; initial and seasoned debt or equity offerings; launches of new products; regulatorychanges; analysts meetings; earnings announcements; covenant issues; bankruptcies; corporate
reorganizations; shareholder activism; and significant management and external changes that
dramatically change the company’s profit margins. There is no currency limitation on securities
acquired by the Fund. The Fund uses the market value of its derivative contracts for the purposesof its 80% investment policy in credit related instruments.

Manager:

Destra Capital Advisors LLC

Distributor:

Destra Capital Investments LLC

14

Simpson Thacher’s dynamic, long-standing Registered Funds Practice encompasses all
aspects of the investment management business. Our practice focuses on alternative asset
managers seeking to access retail investor channels, asset management mergers andacquisitions, and advising on cutting-edge regulatory policy and strategy matters.
David W. Blass • 1-202-636-5863 • david.blass@stblaw.com
David Blass is a Partner in Simpson Thacher & Bartlett LLP’s Investment Funds Practice. David is a leading
regulatory lawyer in the funds industry and has advised on matters involving innovative registered funds
products, Investment Advisers Act compliance, SEC examination and enforcement matters, and broker-dealer
regulatory compliance. Prior to joining Simpson Thacher, David served as General Counsel of the Investment
Company Institute (ICI), where he was responsible for the full range of legal and regulatory matters affecting
the asset management industry, including investment company, capital markets, pension and tax issues. He alsopreviously was Chief Counsel of the SEC’s Division of Trading and Markets.

Rajib Chanda • +1-202-636-5543 • rajib.chanda@stblaw.com
Rajib Chanda is a Partner in the Washington, D.C. and New York offices of Simpson Thacher & Bartlett LLP,
and is the Head of the Firm’s Registered Funds Practice. Rajib’s practice focuses on all aspects of issues facing
registered investment advisers and sponsors of registered funds. Rajib has particular experience working withalternative asset managers seeking to access retail investor channels through mutual funds, business development
companies, closed-end funds, exchange-traded funds and permanent capital vehicles. He also works extensively
with more traditional registered fund sponsors and works closely with the firm’s asset management M&Agroup on transactions involving registered advisers and funds. In addition, Rajib provides counsel to boardsof registered funds, and has substantial experience advising companies on issues relating to social media andcybersecurity.

Sarah E. Cogan • +1-212-455-3575 • scogan@stblaw.com
Sarah Cogan is a Partner in the New York office of Simpson Thacher & Bartlett LLP. Sarah’s practiceencompasses all aspects of the registered funds industry and she represents closed-end investment companies,
open-end mutual funds, investment advisers and independent directors of investment companies. She has aparticular expertise in advising underwriters and sponsors in offerings by closed-end funds and businessdevelopment companies. In addition, Sarah advises fund clients on corporate and securities law, including
investment management, regulatory, compliance and M&A matters.

The contents of this publication are for informational purposes only. Neither this publication nor the
lawyers who authored it are rendering legal or other professional advice or opinions on specific facts
or matters, nor does the distribution of this publication to any person constitute the establishment of
an attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability in connection
with the use of this publication. Please contact your relationship partner if we can be of assistanceregarding these important developments. The names and office locations of all of our partners, as wellas our recent memoranda, can be obtained from our website, www.simpsonthacher.com.

15

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16