& YOUNG, LLP
Attorneys at Law
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
Fax: (215) 564-8120
Direct Dial: (215) 564-8115
February 18, 1997
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Comment Regarding Proposed Private Investment Company Rules
File No. S7-30-96
Dear Mr. Katz:
We are submitting this comment letter on behalf of Brinson Partners, Inc., a registered investment adviser which as of September 30, 1996 managed approximately $60 billion in assets, primarily for pension and profit sharing institutional accounts. Brinson Partners, Inc. has provided investment advisory services to certain registered open-end investment companies since 1992 and currently manages such companies with assets of $3.5 billion.
The newly enacted definition of "Qualified Purchaser" added by the National Securities Markets Improvement Act of 1996 as Section 2(a)(51)(A) of the Investment Company Act of 1940, as amended (the "Act"), raises a question of considerable concern to our client, and we believe many similarly situated investment advisers, who are planning to create private investment companies under newly enacted Section 3(c)(7) of the Act. We believe that there is some ambiguity in Section 2(a)(51)(A) with respect to whether a registered investment company ("RIC") may be a Qualified Purchaser. It appears that the only Subsection pursuant to which a RIC could be deemed a Qualified Purchaser is Subsection 2(a)(51)(A)(iv). This subsection provides that "any person, acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in investments"
may be deemed a Qualified Purchaser. When applied to a RIC, this wording raises the question of whether a RIC acts for its own account. 1 It could be argued that the RIC acts for its own account through the agency of its investment adviser, but this argument is somewhat negated by the fact that the investment adviser has, in most if not all instances, investment discretion with respect to the investments by the RIC. If each RIC were deemed to act for its own account, most RICs could qualify with ownership of "not less than $25,000,000 in investments" based on the amount that the RIC must own and the definition of "investments" as promulgated in the proposed rule.
In telephone conversations on February 7 and February 10, 1997, we discussed this question with David P. Mathews, Senior Counsel, Office of Regulatory Policy, Division of Investment Management, Securities and Exchange Commission (the "Commission"), and he said that this question had been raised at the recent Investment Company Institute compliance conference. He discussed this question with members of the Commission staff and he indicated that he and other members of the staff were inclined to interpret Subsection 2(a)(51)(A)(iv) in a manner that would permit a RIC to be deemed a Qualified Purchaser.
We are aware that the proposed rules do not directly address the issue we have raised and that Congress may not have specifically asked the Securities and Exchange Commission to provide further definition on the point we are raising, but this is a matter of urgent concern to our client, and we believe many similarly situated investment advisers. As this is a matter which could potentially affect a large number of RICs and a great deal of money invested in private investment companies, we request that the Commission expressly clarify in the release adopting the private investment company rules whether RICs that meet the $25,000,000 in investments threshold are to be deemed Qualified Purchasers.
Very truly yours,
Bruce G. Leto
|1||With respect to "acting for . . . the accounts of other qualified purchasers," it is unlikely that most RICs, if any, would qualify, except for a few RICs that have only large institutional clients as shareholders.|