1202011 Informal Interpretation

Michael Verne

- Associates - The key factor is being able to manage the investment
decisions (acquisitions and divestitures) of the fund. As we have indicated on
a number of occasions, the only reason that "operations" is
included is that some of the rules team thought that the "managing
investment decisions" language alone might not capture general partners,
particularly in oil and gas MLP structures, where we would like to see the
overlapping holdings of general partners with the MLPs.


From: (Redacted)
Sent: Thursday, February 23,2012 12:26 PM
To: Verne,B. Michael
Cc: Walsh, Kathryn

Subject: RE: associates

Thanks Mike and Kate. Iwas not sure on that point. The informal opinions and guidance key in onauthority to acquire and dispose fund portfolio holdings which Advisor does nothave (it only advises on those topics). So I thought that is likely end ofstory, and on this basis alone Advisor is not an associate. However, I noted inthe definition of Associate there is language relating to "managing theoperations ... of an acquiring entity" and I thought that could apply tomanaging the portfolio companies in addition to the Fund itself. Example 12also states that CORP (Advisor here) is not an associate because its managementservices do not constitute operational management, presumably of the LP'sinvestments. So I thought that there might be some level of managerial controlover the activities of the Fund's portfolio companies (in my view not meethere) that could result in Advisor being an associate notwithstanding the factthat GP manages the Fund and is responsible for decisions relating to Fundacquisitions and dispositions. Is it your view that the control (or not) overacquisitions and dispositions is the key factor in assessing whether thesemanagement contracts create associates? That is certainly how I read 1108003(Aug. 19, 2011 opinion), but I wanted to be sure I wasn't missing anything.

From: Verne, B. Michael [mailto:MVERNE@ftc.gov]
Sent: Thursday, February 23, 201212:04 PM
To: (Redacted)
Cc: Walsh, Kathryn
Subject: RE: associates

We agree with yourconclusion that Advisor is not an associate, however, we were wondering why youwere focusing on Advisor not having operation control of Fund A's portfoliocompanies in coming to that conclusion.

From: (Redacted)
Sent: Wednesday, February 22, 20125:52 PM
To: Verne,B. Michael
Subject: associates


I would like to confirm apoint regarding whether an entity providing certain contract services is anassociate. Based on my review of the various informal opinions, I believe thatunder the following hypothetical the answer is no.

Private equity limitedpartnership A (Fund A) is managed by corporate GP A (GP A) under the terms of apartnership agreement. Fund A entered into an advisory agreement"contract with a corporate advisor (Advisor). Advisor provides services to FundA, including analyzing and recommending potential portfolio companyacquisitions and dispositions, structuring acquisitions, monitoring theperformance of currently held portfolio companies, and providing certain otherservices relating to managing the portfolio companies currently held by Fund A.I believe that the latter referenced services of Advisor relating to managingthe portfolio companies currently held do not constitute operational managementof the Fund A portfolio companies for the following reason. Typically, aportfolio company will have its own officers, none of whom are employees of theprivate equity company. The private equity company will nominate some of itsemployees to its available seats on the board. However, decisions as to whichprivate equity employees will be nominated to the board will be made by GP A,not Advisor. It is then the officers and directors of each portfolio companythat operationally manage that company, not Advisor. In addition, Advisor hasno responsibility relating to the management of Fund A, which shall be the soleresponsibility of GP A. In particular, GP A acting in accordance with thepartnership agreement has sole responsibility over decisions relating to theacquisition and disposition of Fund A's portfolio investments. I read theinformal opinions (particularly 1108003 and 1107007) and other guidance, alongwith 801.1(d)(2) (particularly examples 9 and 12), to lead to the conclusionthat on these facts Advisor is not an associate. Do you agree?

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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