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Investment Company Act of 1940 - Section 3(c)(7) and Rule 2a51-1
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RESPONSE OF THE OFFICE OF CHIEF COUNSEL |
Our Ref. No. 20059131134 |
Your letter dated March 12, 2007 requests our assurance that we would not recommend enforcement action to the Commission under Section 7 of the Investment Company Act of 1940 (the "Investment Company Act")1 against Goldman Sachs Asset Management, L.P. and its affiliates ("Goldman"), or investment vehicles managed and/or distributed by Goldman which rely on the exclusion from the definition of "investment company" provided by Section 3(c)(7) of the Investment Company Act (the "Private Funds"), if they treat certain charitable foundations that (a) qualify for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code ("Section 501(c)(3)")2 and (b) are formed as non-profit, non-stock corporations ("charitable corporations"), as qualified purchasers under Section 2(a)(51)(A).
Generally, for an issuer to be eligible for the exclusion from the definition of investment company provided by Section 3(c)(7) of the Investment Company Act, all of the outstanding securities of such issuer must be owned by persons who, at the time of acquisition of such securities, are qualified purchasers as defined in Section 2(a)(51)(A) of the Investment Company Act.3 Section 2(a)(51)(A) lists four categories of qualified purchasers. These four categories are "based on minimum standards of financial sophistication,"4 and include:
You generally state that a charitable corporation that does not have the requisite amount of investments to satisfy Section 2(a)(51)(A)(iv) may not meet the definition of qualified purchaser because it is not: (1) a company "owned" by two or more related persons under Section 2(a)(51)(A)(ii);8 (2) a trust under Section 2(a)(51)(A)(iii); or (3) a company all of the beneficial owners of the securities of which are qualified purchasers.9 You believe, however, that charitable corporations meeting certain criteria should be deemed to be qualified purchasers for purposes of determining the status of the Private Funds under Section 3(c)(7).
In particular, you argue that charitable corporations that satisfy the requirements of Section 2(a)(51)(A)(ii), but for the fact that they are not "owned" in the traditional sense of the word,10 should be deemed to be qualified purchasers. You argue that because the traditional concept of ownership is not pertinent to charitable corporations, a more natural method of evaluating a charitable corporation's status as a qualified purchaser would be to look to the relationships between the parties who have contributed assets to the corporation. Accordingly, you state that a charitable corporation that has been funded solely by two or more persons having the relationship(s) enumerated in Section 2(a)(51)(A)(ii) should be treated as a qualified purchaser so long as it is not formed for the specific purpose of investing in a Private Fund and owns not less than $5 million in investments, as defined under Rule 2a51-1(b).
You also argue that charitable corporations that satisfy the requirements of Section 2(a)(51)(A)(iii), but for the fact that they are corporations and not trusts, should be deemed to be qualified purchasers. You state that a charitable trust would be a qualified purchaser under Section 2(a)(51)(A)(iii) if it is not formed for the specific purpose of investing in a Private Fund, and if each person authorized to make investment decisions for it, and each person who has contributed assets to it, is a person described in Section 2(a)(51)(A)(i), (ii) or (iv). You argue that there is no apparent reason to treat charitable corporations differently than charitable trusts that are qualified purchasers under Section 2(a)(51)(A)(iii). In particular, you point out the donative purpose, and lack of beneficial owners, of charitable corporations. You also note your view that the financial sophistication that underlies the concept of qualified purchaser in Section 2(a)(51)(A)(iii) is met, and should be sufficient for determining whether a charitable corporation is a qualified purchaser, when such a corporation is funded, and the investment decisions for such corporation are made, by persons who are qualified purchasers under Section 2(a)(51)(A)(i), (ii) or (iv).11
Without necessarily agreeing with your legal analysis, we would not recommend enforcement action to the Commission under Section 7 of the Investment Company Act against Goldman or the Private Funds if Goldman and the Private Funds treat as a qualified purchaser:
This letter expresses the Division's position on enforcement action only and does not purport to express any legal conclusion on the issues presented. Our position is based upon the facts and representations set forth in your letter, in particular your representations that a charitable corporation relying on Section 501(c)(3) for tax-exempt status does not have "owners" in the traditional sense and that no portion of a charitable corporation's earnings or assets inures to the benefit of any private shareholders or individuals. Any different facts or representations may require a different conclusion.13
Ian McGrath
Senior Counsel
In addition, for purposes of Section 2(a)(51), a company may be deemed to be a qualified purchaser if each beneficial owner of the company's securities is a qualified purchaser. See Rule 2a51-3(b).
The Incoming Letter is in Acrobat format.
http://www.sec.gov/divisions/investment/noaction/2007/
gsam031307-3c7.htm
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