July 21, 2015

Office of Regulations and Interpretations

Office of Exemption Determinations  e‐ORI@dol.gov

Employee Benefits Security Administration  e‐OED@dol.gov

U.S. Department of Labor

200 Constitution Ave., NW

Washington, DC 20210

RE: Definition of the Term “Fiduciary” (RIN 1210‐AB32) and Best Interest Contract

Exemption (ZRIN 1210‐ZA25)

Dear Department Staff and Administrators,

We are writing today with respect to the Department’s proposed rule defining who is a

“fiduciary” ‐ by reason of providing investment advice for a fee or other compensation

(the “Conflict of Interest Rule”) ‐ and the related Best Interest Contract Exemption (the

“BIC Exemption”).   We appreciate the opportunity to reply to the Department’s request

for comment on this proposed regulatory action.  

First, we fully endorse the compelling comment letters submitted to the Department by

the Investment Program Association (IPA), the National Association of Real Estate

Investment Trusts (NAREIT), the Securities Industry Financial Markets Association

(SIFMA), the Financial Industry Regulatory Authority (FINRA), the U.S. Chamber of

Commerce and the Small Business Investor Alliance.  All have provided well‐thought and

detailed assessments of the proposed rule and the negative impact it would have on

investors and financial advisors, not to mention the direct investment industry’s capital

formation programs.  We anticipate that the Department will give their comments close

study and the utmost consideration.

Hines’ perspective on the proposed rules derive from its position as one of the largest

privately owned real estate companies in the world and a sponsor of a number of public

and private investment funds.  Of our firm’s nearly $85 billion in assets currently under

management, approximately $8.5 billion is the result of more than $6.1 billion in capital

invested by more than 130,000 retail investors in funds that we have sponsored and

managed since 2003. The remaining assets under management represents institutional

investors such as public and private pension funds, sovereign wealth funds, corporations

and other entities.

Our primary concern relates to the Department’s definition of “Assets” in the BIC

Exemption. The Department has specifically asked for commenters who believe that

additional investments should be included in the scope of the exemption to provide the

Department with information supporting their inclusion. Direct investment products

such as those we offer ‐ non‐listed Real Estate Investment Trusts (“NL REITs”) and

Business Development Companies (“NL BDCs”) ‐ are important investment vehicles for
American investors trying to save for, and earn income during, their retirement. None of

these products have been addressed by the Department in the proposed rule or

included in the BIC, which will have the impact of effectively making such investments

unappealing or “off limits” to financial advisors and thus unavailable to qualified IRA

investors.  Like the IPA and NAREIT, our position is that there should be no list of

“approved” or “legal” Assets set forth in the proposed rule, but should such list be part

of the proposed rule it should include NL REITs and NL BDCs.

Of concern to Hines and other sponsors of direct investment products is the lack of

criteria for what is, and is not, included in the BIC Exemption list.  Not only does the list

appear to be somewhat arbitrary, it does not provide for the addition of future products

through a timely process (i.e. without burdensome and lengthy review and approval).  

As pointed out in other comment letters, this is a dynamic industry that is adapting

rapidly to competition and regulatory requirements through the development and

introduction of new products and features.  Impeding or slowing that process would not

be in the best interest of investors.

Direct investments are not only a common investment for retail investors generally,

they are also a common investment for IRAs specifically.  Consistent with the IPA

comments that included gross numbers for the direct investment industry as a whole,

IRAs represent roughly half of the invested capital in funds we sponsor and manage.

It is clear from that NL REITs and NL BDCs serve an important purpose in portfolios

because non‐listed BDCs and REITs generally do not correlate with S&P 500 returns, thus

providing much needed – and highly recommended – portfolio diversification. In

addition, NL REITs and NL BDCs have favorable standard deviation rates, demonstrating

less volatility in their share prices and performance over time, another positive

attribute.  There is no principled reason why an IRA investor may not choose to invest in

NL REITs and NL BDCs.

For all the reasons mentioned above, we urge the Department to remove the BIC

Exemption list, or at a minimum to revise the BIC Exemption to include NL REITs and NL

BDCs within its scope.

I appreciate your time and attention in ensuring that retirement investors are provided

with the broadest array of investment options, while taking all possible measures to

avoid conflicted advice.

Sincerely yours,

Sherri W. Schugart

President and Chief Executive Officer

Hines Real Estate Investment Trust, Inc., Hines Global REIT, Inc., Hines Global REIT II, Inc.

& HMS Income Fund, Inc.