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July 31, 2006 at 08:00 PM
WASHINGTON (HedgeWorld.com)–The U.S. Securities and Exchange Commission’s division of investment management has issued no-action relief assuring a Caymans company that its involvement as the middle tier in a three-tier master-feeder arrangement won’t cause that unit to recommend that the SEC take enforcement action under the Investment Company Act of 1940.
Richard Horowitz, a partner at New York-based Clifford Chance LLP, wrote the division requesting this relief July 7. He explained that the purpose of the three tiers is to enable retirement plans and other tax-exempt or tax-deferred entities to invest in the Master Fund via the Cayman Fund without incurring unrelated business taxable income.
AIP Absolute Return Fund STS is the “top tier” fund. It will invest only in AIP Absolute Return Fund LDC Company, the Caymans fund, “which will, in turn, invest substantially all its assets in, and acquire securities of, Alternative Investment Partners Absolute Return Fund,” which Mr. Horowitz through the remainder of the letter simply called the Master Fund, a closed-end investment company that is registered under the 1940 act, and that is advised by Morgan Stanley AIP GP LP.
Mr. Horowitz pointed out that a somewhat similar three-tier master-feeder structure received a no-action letter two years ago, with regard to Man-Glenwood Lexington TEI LLC and Man-Glenwood Lexington TEI LDC. This case was a bit different, though, in that the top-tier fund won’t necessarily be the only investor in the Cayman Fund, which may also sell interests in itself to non-U.S. investors.
The no-action letter was signed on July 10 by Susan M. Olson, senior counsel at the division of investment management, but only posted on the SEC web site on July 26. She invoked Sect. 12(d)(1)(E) of the 1940 Act, which is the federal law’s primer on master-feeder funds and their structures.
She also wrote that the division believes the proposed arrangement will comply with that section so long as it operates within the following parameters:
?? 1/2 The principal underwriter of both the master fund and the top-tier fund, Morgan Stanley Distribution Inc., is a broker or dealer registered as such with the SEC;
