Notice2023-01737
AEW Capital Management, L.P.
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 30, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 19 (Monday, January 30, 2023)</title>
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[Federal Register Volume 88, Number 19 (Monday, January 30, 2023)]
[Notices]
[Pages 5938-5941]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-01737]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Advisers Act Release No. 6224/File No. 803-00248]
AEW Capital Management, L.P.
January 24, 2023.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of application for an exemptive order under Section 206A of
the Investment Advisers Act of 1940 (the ``Act'') and rule 206(4)-5(e)
under the Act.
Applicant: AEW Capital Management, L.P. (``Applicant'' or
``Adviser'')
Summary of Application: Applicant requests that the Commission
issue an order under section 206A of the Act and rule 206(4)-5(e) under
the Act exempting them from rule 206(4)-5(a)(1) under the Act to permit
Applicant to receive compensation from a government entity for
investment advisory services provided to the government entity within
the two-year period following a contribution by a covered associate of
Applicant to an official of the government entity.
Filing Dates: The application was filed on July 28, 2022, and an
amended and restated application was filed on September 28, 2022.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving Applicant with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on February 21, 2023 and should be accompanied by proof of
service on Applicant, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons may request
notification of a hearing by writing to the Commission's Secretary.
ADDRESSES: The Commission: Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090. Applicant: AEW
Capital Management, L.P., Two Seaport Lane, Boston, MA 02210-2021.
FOR FURTHER INFORMATION CONTACT: Juliet Han, Attorney-Adviser, at (202)
551-5213 or Kyle R. Ahlgren, Branch Chief, at (202) 551-6857 (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 website at <a href="http://www.sec.gov/rules/iareleases.shtml">http://www.sec.gov/rules/iareleases.shtml</a> or by
calling (202) 551-8090.
Applicant's Representations
1. Applicant is a Delaware limited partnership registered with the
Commission as an investment adviser under the Act. Applicant provides
discretionary investment advisory services relating to direct and
indirect investments in real estate and real estate related services
including providing
[[Page 5939]]
discretionary investment advisory services to private funds (the
``Funds'').
2. The individual who made the campaign contribution that triggered
the two-year compensation ban (the ``Contribution'') is Lauren O'Neill
Goff (the ``Contributor''). At the time of the Contribution, the
Contributor was a senior managing director and co-head of the Boston
office for Jones Lang LaSalle Incorporated (``JLL''), a real estate
firm that provides leasing, property and integrated facility
management, and capital market services. The Contributor was not a
covered associate, and she did not provide services to the Adviser at
the time of the Contribution. The Contributor was offered employment by
the Adviser on October 26, 2021 to serve as chief operating officer of
the Adviser's private equity group. The COO role for which the
Contributor was hired includes overseeing the Adviser's asset
management and reporting finance teams and evaluating, establishing and
monitoring operational standards for the Adviser's private equity
platform. Although the Contributor was not hired to be a marketer, her
role would ordinarily require attending diligence meetings with current
and prospective investors and participating in efforts to increase and
maintain capital commitments to the Adviser's Funds. Since joining the
Adviser, the Contributor has not solicited government entities. The
Contributor is not responsible for overseeing the Adviser's business
development function, but members of her team do participate in
solicitation meetings from time to time. Since starting employment with
the Adviser on January 24, 2022, the Contributor has assumed an
executive officer position. As such, the Contributor is a covered
associate as defined in rule 206(4)-5(f)(2)(i).
3. An investor in the Funds is a public pension plan identified as
a government entity, as defined in rule 206(4)-5(f)(5)(ii), with
respect to the City of Boston (the ``Client'').
4. The recipient of the Contribution was Kim Janey (the
``Recipient''), a Boston city council member who, at the time of the
Contribution, was acting mayor of Boston and a candidate for re-
election as mayor. The investment decisions for the Client, including
the hiring of an investment adviser, are overseen by a five-member
board, with two mayoral appointments. Due to the mayor's power of
appointment, a candidate for mayor such as the Recipient is an
``official'' of the Client as defined in rule 206(4)-5(f)(6)(ii). The
Contribution that triggered rule 206(4)-5's prohibition on compensation
under rule 206(4)-5(a)(1) was made on July 23, 2021, for the amount of
$1,000. The Recipient called the Contributor directly to solicit the
donation in question and to ask her to host an event. The Contributor
declined to host an event, but made a contribution. As a resident of
Boston, the Contributor decided to make the Contribution based on her
having a legitimate personal interest in the outcome of the campaign.
Applicant represents that the Contributor had no intention of
soliciting investment advisory business from the Client or any other
government entity of which the Recipient was an official.
5. The Client has been an investor in the Adviser's Funds since
2006, with additional investments having been made in 2017 and April
2020. Applicant represents that: the Contributor has never presented
for, or met with, any of the Client's representatives over the course
of the relationship; the Contributor is not directly involved with the
Client; the Contributor has had no contact with any representative of
the Client and no contact with any member of the Client's board; and at
no time did any employees of the Adviser other than the Contributor
have any knowledge that the Contribution had been made prior to its
discovery by the Adviser in October 2021.
6. Applicant learned of the Contribution in late October 2021 in
the course of prospective employee vetting that included review of a
pre-hire political contribution declaration on which the Contributor
disclosed the Contribution. The Adviser informed the Contributor that
she would need to seek a refund, which she did in November 2021. The
Contribution was refunded by the campaign on December 23, 2021. The
Adviser determined that although the Contributor would be a covered
associate under rule 206(4)-5, she is only subject to the 6-month
lookback under rule 206(4)-5(b)(2). She did not become a covered
associate until more than six months had elapsed since the date of her
contribution. However, the Contributor's role would ordinarily involve
soliciting government entities. She is refraining from such
solicitation, but in the event she were to solicit a government entity,
the full two-year lookback would apply and trigger a ban. Applicant
represents that at the point of such solicitation, the portion of
management fees and carried interest attributable to the Client's
investments in the Funds from the date the Contributor became a covered
associate until two years after the date of the contribution would be
held by the Funds or placed in escrow and not distributed to the
Adviser. Applicant further represents that the Adviser also took steps
to limit the Contributor's contact with any representative of the
Client for the duration of the two-year period beginning July 23, 2021,
including informing the Contributor that she could have no contact with
any representative of the Client.
7. Applicant's Pay-to-Play Policies and Procedures (the ``Policy'')
were adopted and implemented before the Contribution was made. The
Policy requires that all contributions to federal, state and local
office incumbents and candidates are subject to pre-clearance by
employees. There is no de minimis exemption from the pre-clearance for
small contributions to these state and local officials. All employees
of the Adviser are subject to the Policy; its application is not
limited to the Adviser's managing members, executive officers and other
``covered associates'' under the rule. When hiring an individual, the
Adviser makes its job offer conditional on the individual disclosing
any political contributions within the past two years. If any
contributions are reported, the Adviser's human resources team will
escalate to the legal and compliance team for review and action. At
time of hire, all new employees are provided with the Adviser's
compliance training which includes the Policy. Annually, all employees
must certify to their adherence to all policies in the compliance
manual and code of ethics and specifically the Policy. As part of this
annual certification, employees confirm that no political contributions
were made other than those pre-cleared through the Adviser's compliance
system. The Adviser conducts periodic forensic testing to confirm that
the Policy is being followed.
Applicant's Legal Analysis
1. Rule 206(4)-5(a)(1) under the Act prohibits a registered
investment adviser from providing investment advisory services for
compensation to a government entity within two years after a
contribution to an official of a government entity is made by the
investment adviser or any covered associate of the investment adviser.
The Client is a ``government entity,'' as defined in rule 206(4)-
5(f)(5), the Contributor is a ``covered associate'' as defined in rule
206(4)-5(f)(2), and the Official is an ``official'' as defined in rule
206(4)-5(f)(6).
2. Section 206A of the Act authorizes the Commission to
``conditionally or unconditionally exempt any person or transaction . .
. from any provision or provisions of [the Act] or of any rule or
regulation thereunder, if and to the extent that such exemption is
necessary
[[Page 5940]]
or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of [the Act].''
3. Rule 206(4)-5(e) provides that the Commission may conditionally
or unconditionally grant an exemption to an investment adviser from the
prohibition under rule 206(4)-5(a)(1) upon consideration of the factors
listed below, among others:
(1) Whether the exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act;
(2) Whether the investment adviser: (i) before the contribution
resulting in the prohibition was made, adopted and implemented policies
and procedures reasonably designed to prevent violations of the rule;
(ii) prior to or at the time the contribution which resulted in such
prohibition was made, had no actual knowledge of the contribution; and
(iii) after learning of the contribution: (A) has taken all available
steps to cause the contributor involved in making the contribution
which resulted in such prohibition to obtain a return of the
contribution; and (B) has taken such other remedial or preventive
measures as may be appropriate under the circumstances;
(3) Whether, at the time of the contribution, the contributor was a
covered associate or otherwise an employee of the investment adviser,
or was seeking such employment;
(4) The timing and amount of the contribution which resulted in the
prohibition;
(5) The nature of the election (e.g., federal, state or local); and
(6) The contributor's apparent intent or motive in making the
contribution which resulted in the prohibition, as evidenced by the
facts and circumstances surrounding such contribution.
4. Applicant requests an order pursuant to Section 206A and rule
206(4)-5(e), exempting them from the two-year prohibition on
compensation imposed by rule 206(4)-5(a)(1) with respect to investment
advisory services provided to the Client within the two-year period
following the Contribution.
5. Applicant submits that the exemption is necessary and
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act. Applicant further submits that the other factors
set forth in rule 206(4)-5(e) similarly weigh in favor of granting an
exemption to Applicant to avoid consequences disproportionate to the
violation.
6. Applicant contends that, given the nature of the Contribution,
and the lack of any evidence that the Adviser or the Contributor
intended to, or actually did, interfere with the Client's merit-based
process for the selection or retention of advisory services, the
interests of the Client are best served by allowing the Adviser and the
Client to continue their relationship uninterrupted. Applicant states
that causing the Adviser to serve without compensation for the
remainder of the two-year period could result in a financial loss that
is more than 600 times the amount of the Contribution. Applicant
suggests that the policy underlying rule 206(4)-5 is served by ensuring
that no improper influence is exercised over investment decisions by
governmental entities as a result of campaign contributions, and not by
withholding compensation as a result of unintentional violations.
7. Applicant represents that the Adviser adopted and implemented
the Policy which is fully compliant with, and more rigorous than, the
rule's requirements before the rule's initial proposal by the
Commission and substantially before the rule's adoption or dates for
required compliance. Applicant represents that the Adviser implemented
a mandatory political contribution declaration for all employees
provided a conditional offer of employment. It was this declaration
that was effective in identifying the Contribution before the
Contributor became a covered associate.
8. Applicant asserts that actual knowledge of the Contribution at
the time of its making cannot be imputed to the Adviser, given that the
Contributor was not an employee of the Adviser. Applicant also
represents that at no time did any employees of the Adviser other than
the Contributor have any knowledge that the Contribution had been made
prior to its discovery by the Adviser in October 2021.
9. Applicant asserts that, after learning of the Contribution, the
Adviser and the Contributor took all available steps to obtain a return
of the Contribution. Before the Contributor began work with the
Adviser, the Contributor had obtained a full refund of the
Contribution. The Adviser has restricted the Contributor from
soliciting the Client and is carefully monitoring the Contributor to
ensure that it will begin restricting compensation related to the
Client if the Contributor solicits any government entity.
10. Applicant states that after learning of the Contribution, the
Adviser took steps to limit the Contributor's contact with any
representative of the Client for the remainder of the two-year period
beginning July 23, 2021. The Adviser informed the Contributor that she
could have no contact with any representative of the Client. However,
she may solicit other government entities in the course of her duties,
at which point, the two-year lookback would apply and a compensation
ban would begin.
11. Applicant states that the Adviser has had investments from the
Client that predate the Contributor's employment with the Adviser.
Applicant further states that the Contribution was consistent with the
political affiliation of the Contributor and her history of
contributions. Applicant also submits that the apparent intent in
making the Contribution was not to influence the selection or retention
of the Adviser. Applicant represents that the Contributor has a long
history of backing candidates that share the political views of the
Recipient by voting for them and contributing to their campaigns.
Applicant also represents that the amount of the Contribution, profile
of the candidate, and characteristics of the campaign fall squarely
within the pattern of the Contributor's political leanings, and that
the Contributor also had a legitimate interest in the outcome of the
campaign given that she lives in Boston. Applicant states that the
Contributor had no intention of soliciting investment advisory business
from the Client or any other government entity of which the Recipient
was an official.
12. Applicant submits that neither the Adviser nor the Contributor
sought to interfere with the Client's merit-based selection process for
advisory services, nor did they seek to negotiate higher fees or
greater ancillary benefits than would be achieved in arms' length
transactions. Applicant further submits that there was no violation of
the Adviser's fiduciary duty to deal fairly or disclose material
conflicts given the absence of any intent or action by the Adviser or
the Contributor to influence the selection process. Applicant contends
that in the case of the Contribution, the imposition of the two-year
prohibition on compensation does not achieve rule 206(4)-5's purposes
and would result in consequences disproportionate to the mistake that
was made.
Applicant's Conditions
Applicant agrees that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. The Contributor will be prohibited from discussing any business
of the
[[Page 5941]]
Adviser with any ``government entity'' client or prospective client for
which the Recipient is an ``official,'' as defined in rule 206(4)-5(f)
until July 23, 2023.
2. The Contributor will receive a written notification of this
condition and will provide a quarterly certification of compliance
until July 23, 2023. Copies of the certifications will be maintained
and preserved in an easily accessible place for a period of not less
than five years, the first two years in an appropriate office of the
Adviser, and be available for inspection by the staff of the
Commission.
3. The Adviser will conduct testing reasonably designed to prevent
violations of the conditions of the Order and maintain records
regarding such testing, which will be maintained and preserved in an
easily accessible place for a period of not less than five years, the
first two years in an appropriate office of the Adviser, and be
available for inspection by the staff of the Commission.
For the Commission, by the Division of Investment Management,
under delegated authority.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01737 Filed 1-27-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on January 30, 2023.
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