On March 29, 2016, the SEC issued an exemptive order to the Apollo Group (notice and order) in which the SEC expanded the scope of permissible co-investment transactions under its “standard” co-investment relief orders. The applicants explained that, from time to time, its registered funds and private funds may have opportunities to make follow-on investments in an issuer in which registered funds and private funds previously have invested and continue to hold an investment. In some of these opportunities, the registered funds or private funds have not previously participated in a co-investment transaction with respect to the issuer (e.g., a registered fund and an affiliated private fund acquire the same issuer’s securities in separate, non-joint transactions). Subsequently, negotiation is required with the issuer to make follow-on investments in (or dispose of) the securities. The SEC’s prior standard co-investment orders would not permit these follow-on transactions where the registered funds or private funds have not previously participated in a co-investment transaction with respect to the issuer. However, the recent order permits the registered funds and private funds to rely on the order to make such follow-on investments without violating Rule 17d-1 under the 1940 Act, provided they have satisfied certain “enhanced review requirements.” The order also permits co-dispositions where the registered funds or private funds have not previously participated in a co-investment transaction with respect to the issuer in which both types of funds hold an investment, provided they satisfy the same enhanced review requirements.
Separately, the exemptive order also provided relief from a condition in the standard co-investment relief orders requiring that registered funds always must be advised of, and be given the opportunity participate in, any co-investment transaction that falls within its investment objectives and strategies. The applicants explained that, unlike the organizations in prior co-investment orders, the applicants have multiple advisers with several registered funds and numerous private funds that have similar, but not identical, investment objectives and policies. The applicants asserted that, due to the size and complexity of their operations, an order based on existing precedents would not provide sufficient flexibility for their registered funds to participate in attractive and appropriate investment opportunities. Therefore, the applicants proposed to limit the prospective co-investment transactions of which each adviser would be required to be advised of to those investments that would be consistent with each fund’s then-current objectives and strategies and pre-existing, board-established criteria that could be tested objectively (e.g., industry/sector of the issuer, minimum EBITDA of the issuer, asset class of the investment opportunity or required commitment size). This would reduce the scope of potential co-investment transactions required to be presented to a registered fund’s adviser to those more consistent with the registered fund’s emphasis. Nevertheless, board approval would still be required for all co-investment transactions.