SEC Company Response from Ares Management (ARES) — Apr 4, 2014
Ares Management Corp
Date: April 4, 2014 · CIK: 0001176948 · Accession: 0001104659-14-025793
AI Filing Summary & Sentiment
File numbers found in text: 333-194919
Referenced dates: March 31, 2014
Letter
VIA EDGAR AND FEDERAL EXPRESS U.S. Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, D.C. 20549-3628 Attention: Suzanne Hayes Re: Ares Management, L.P. Amendment No. 1 to Draft Registration Statement on Form S-1 Submitted March 14, 2014 CIK No. 0001176948
Dear Ms. Hayes:
On behalf of Ares Management, L.P. (the “Company”), we submit this letter in response to comments from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) received by letter dated March 31, 2014 relating to the above-referenced revised Draft Registration Statement of the Company submitted to the Commission on Form S-1 (CIK No. 0001176948) on March 17, 2013 (as amended and subsequently filed publicly with the Commission on Form S-1 (File No. 333-194919) on March 31, 2014, the “Registration Statement”).
The Company is concurrently filing via EDGAR Amendment No. 1 to the Registration Statement (“Amendment No. 1”), marked in accordance with Rule 310 of Regulation S-T. For the convenience of the Staff, we are supplementally providing blacklined copies, complete with exhibits, of Amendment No. 1, marked to show changes from the Registration Statement.
In this letter, we have recited the comments from the Staff in italicized type and have followed each comment with the Company’s response. Capitalized terms used but not defined in this letter shall have the meanings ascribed to such terms in Amendment No. 1. Except as otherwise specifically indicated, page references in the Company’s responses to the Staff’s comments correspond to the pagination of Amendment No. 1.
Beijing | Boca Raton | Boston | Chicago | Hong Kong | London | Los Angeles | New Orleans | New York | Newark | Paris | São Paulo | Washington, DC
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Draft Registration Statement on Form S-1
1. We note that you do not believe that Ares Management L.P. is an investment company for purposes of sections 3(a)(1)(A) and 3(a)(1)(C) of the Investment Company Act of 1940 (“Company Act”). Please provide further information necessary to conduct an analysis under section 3(a)(1)(A) and 3(a)(1)(C) of the Company Act for Ares Management L.P., including, but not limited to, the Ares Operating Group Managing Entities and Ares Operating Group Entities(as those terms are defined in the draft registration statement). Please provide this information prior to, and giving effect to, the proposed transaction. In particular, list all assets held by each entity and the value you assign to each. In addition:
a. Please identify and explain any interests in the Ares investment funds held by or through the Ares Operating Group Entities. For instance, please explain if interests in the investment funds are limited to general partnerships or if there are additional limited partnership interests, and the values of each. Do the Ares Operating Group Entities and/or the Ares Operating Group Managing Entities make contributions to the capital of the investment funds in connection with or apart from the general partner interests? What are the values with regard to each investment fund? Please describe the methodology used to value these interests and explain why that methodology was chosen.
b. Please explain why an investment in Ares Management L.P. is not equivalent to an investment in a fund of funds.
Response to Comment 1:
Ares Management, L.P. is not, and upon completion of the Reorganization and the offering will not be, an “investment company,” as that term is defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”). Under sections 3(a)(1)(A) and (C) of the Investment Company Act, a person will generally be deemed to be an “investment company” for purposes of the Investment Company Act if:
· it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or
· absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of Government securities (as defined in section 2(a)(16) of the Investment Company Act) and cash items) on an unconsolidated basis.(1)
Ares Management, L.P., through its “wholly-owned subsidiaries” and “majority-owned
(1) A third definition of “investment company” is found in section 3(a)(1)(B) of the Investment Company Act. Ares Management, L.P. is not an investment company within the meaning of section 3(a)(1)(B) because it is not an issuer that is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or that has been engaged in such business and has any such certificates outstanding.
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subsidiaries” (as such terms are defined in the Investment Company Act), is and holds itself out as being engaged primarily, and proposes to engage primarily, in the business of providing asset management services and not in the business of investing, reinvesting or trading in securities. Accordingly, Ares Management, L.P. is not, and upon completion of the Reorganization and the offering will not be, an “orthodox” investment company as defined in section 3(a)(1)(A) of the Investment Company Act. Furthermore, as described in further detail below, both prior to and after giving effect to the proposed Reorganization and the offering, investment securities will comprise less than 40% of the total assets of Ares Management, L.P. Accordingly, Ares Management, L.P. is not an “investment company,” as that term is defined under section 3(a)(1)(C) of the Investment Company Act.
Section 3(a)(1)(A)
As noted above, Ares Management, L.P., through its “wholly-owned subsidiaries” and “majority-owned subsidiaries” (referred to collectively with Ares Management, L.P. as the “Ares Group”) is and holds itself out as being engaged primarily, and proposes to engage primarily, in the business of providing asset management services and not primarily in the business of investing, reinvesting or trading in securities.
Whether an issuer is engaged “primarily” in an investment company business is a factual issue. The Commission and the courts have developed a number of criteria to be used in determining whether an issuer is engaged “primarily” in a non-investment business.(2) Ares Management, L.P. addresses each of these criteria in turn.
· The issuer’s historical development
The Ares Group was founded in 1997 as an asset manager and since that time has been, and has held itself out as being, primarily engaged in providing asset management services.
· The issuer’s public representations concerning its activities
In its public representations, statements and utterances, including those contained in the Amendment No. 1, the Ares Group has consistently held itself out as being primarily engaged in providing asset management services. On the very first page of the “Summary” section of Amendment No. 1 and throughout that filing, the Ares Group describes itself as “a leading global alternative asset manager with approximately $74 billion of assets under management” providing “a range of investment strategies and seek[ing] to deliver attractive performance to a growing investor base that includes over 500 direct institutional relationships and a significant retail investor base across [its] publicly traded and sub-advised funds.”
· The activities of the issuer’s officers and directors, and the extent of their involvement in the management of the issuer
(2) See, Tonopah Mining Co., 26 S.E.C. 426 (1947). See also, SEC v. National Presto Industries, Inc., No. 05-4612 (7th Cir. 2007).
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As an asset manager, the Ares Group’s officers and employees devote the bulk of their time and efforts to asset management activities or in support of these activities, including sourcing and managing investments, as well as raising capital from, managing relationships with and reporting to, the third party investors in the Ares Group’s investment funds. The officers and employees of the Ares Group have historically spent and continue to spend a de minimis amount of time making proprietary investments for the firm. Ares Management, L.P. notes that, in accordance with standard practice in the alternative asset management industry, the Ares Group does make investments in the Ares Group’s investment funds. Such investments are typically pursuant to the Ares Group’s contractual arrangements with the third party investors in its investment funds and are consistent with the expectations of these third party investors that the Ares Group align its interests with those of its investors. The substantial majority of these investments take the form of general partner interests in the applicable the Ares Group investment fund and, accordingly and as described in additional detail herein, such interests are not investment securities within the meaning of the Investment Company Act.
· The nature of the issuer’s present assets
As discussed in further detail below, as of March 1, 2014, on a pro forma basis giving effect to the Reorganization and the offering:
· none of the assets of Ares Management, L.P. constitute “investment securities” (within the meaning of the Investment Company Act);
· none of the assets of any of the 100% owned direct subsidiaries of Ares Management, L.P. (collectively, but not including Ares Investments L.P., the “Ares Operating Group Managing Entities”) constitute investment securities; and
· investment securities amount to less than 1% of the consolidated assets of Ares Holdings L.P., none of the consolidated assets of Ares Domestic Holdings L.P., approximately 10% of the consolidated assets of Ares Offshore Holdings L.P., approximately 20% of the consolidated assets of Ares Investments L.P., and less than 2% of the consolidated assets of Ares Real Estate Holdings L.P. (collectively, the “Ares Operating Group Entities”) based on the fair value of these assets as determined in good faith by the board of directors of Ares Management GP LLC, the general partner of Ares Management, L.P., and supported by an independent assessment of value conducted by Duff & Phelps, LLC.
· The sources of the issuer’s present income
In 2013, approximately 90% of the total segment revenues of the Ares Group were derived from management fees, fees for the provision of administrative, consulting, advisory, transaction and other similar services and net performance fees (which may be either an incentive fee or carried interest in the event that specified investment returns are
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achieved by the fund).(3) The substantial majority of the Ares Group’s carried interests take the form of general partner interests in the applicable Ares investment fund and, accordingly and as described in additional detail herein, such interests are not investment securities within the meaning of the Investment Company Act. Ares Management, L.P. also notes that, of the remaining approximately 10% of the total segment revenues of the Ares Group during this period, only a small portion was derived from net investments in investment securities.
Section 3(a)(1)(C)
As noted above, both prior to and after giving effect to the proposed Reorganization and the offering, investment securities will comprise less than 40% of the total assets of Ares Management, L.P. Accordingly, Ares Management, L.P. is not an “investment company,” as that term is defined under section 3(a)(1)(C) of the Investment Company Act.
Section 3(a)(1)(C) of the Investment Company Act defines “investment company” as a company that “is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities,” and that owns or proposes to acquire investment securities having a value exceeding 40% of the value of the company’s total assets, exclusive of Government securities (as defined in section 2(a)(41) of the Investment Company Act) and cash items, on an unconsolidated basis. Section 3(a)(2) of the Investment Company Act defines “investment security” to mean all securities other than Government securities, securities issued by employees’ securities companies and securities issued by majority-owned subsidiaries of the owner that are neither investment companies nor companies relying on the exception from the definition of investment company in section 3(c)(1) or 3(c)(7) of the Investment Company Act.
Section 2(a)(24) of the Investment Company Act defines the “majority-owned subsidiary” of a person to mean a company 50% or more of whose outstanding voting securities are owned by that person or by a company that is a majority-owned subsidiary of that person. Section 2(a)(43) of the Investment Company Act defines the “wholly-owned subsidiary” of a person to mean a company, 95% or more of whose outstanding voting securities are owned by that person or by a company that is a wholly-owned subsidiary of that person. Section 2(a)(42) of the Investment Company Act defines “voting security” to mean a security presently entitling its owner or holder to vote for the election of a company’s directors. Section 2(a)(12) of the Investment Company Act defines “director” to include “any director of a corporation or any person performing similar functions with respect to any organization, whether incorporated or unincorporated . . . .” The Commission and the Staff generally consider the general partner of a limited partnership to be a “director” of the limited partnership under section 2(a)(12) because it performs a function with respect to the limited partnership similar to that of the board of directors of a corporation.(4)
(3) Ares Group’s segment reporting deconsolidates certain investment funds that it is required to consolidate under U.S. generally accepted accounting principles.
(4) Investment Company General Partners Not Deemed Interested Persons, Investment Company Act Release No. 18,868, 57 Fed. Reg. 34,726, 34,727 & n.5 (Aug. 6, 1992); Integrated Resources, Inc., SEC No-Action Letter, 1979 SEC No-Act. LEXIS 2940, at *1—*2 (June 1, 1979).
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As described in further detail below, as of March 1, 2014, on a pro forma basis giving effect to the Reorganization and the offering, neither the assets of Ares Management, L.P., nor the assets of the Ares Operating Group Managing Entities constitute investment securities (within the meaning of the Investment Company Act), and investment securities amount to less than 1% of the consolidated assets of Ares Holdings L.P., none of the consolidated assets of Ares Domestic Holdings L.P., approximately 10% of the consolidated assets of Ares Offshore Holdings L.P., approximately 20% of the consolidated assets of Ares Investments L.P., and less than 2% of
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CORRESP 1 filename1.htm Proskauer Rose LLP 2049 Century Park East, 32nd Floor Los Angeles, CA 90067-3206 Philippa M. Bond Member of the Firm d 310.284.5607 f 310.557.2193 pbond@proskauer.com www.proskauer.com April 4, 2014 VIA EDGAR AND FEDERAL EXPRESS U.S. Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, D.C. 20549-3628 Attention: Suzanne Hayes Re: Ares Management, L.P. Amendment No. 1 to Draft Registration Statement on Form S-1 Submitted March 14, 2014 CIK No. 0001176948 Dear Ms. Hayes: On behalf of Ares Management, L.P. (the “Company”), we submit this letter in response to comments from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) received by letter dated March 31, 2014 relating to the above-referenced revised Draft Registration Statement of the Company submitted to the Commission on Form S-1 (CIK No. 0001176948) on March 17, 2013 (as amended and subsequently filed publicly with the Commission on Form S-1 (File No. 333-194919) on March 31, 2014, the “Registration Statement”). The Company is concurrently filing via EDGAR Amendment No. 1 to the Registration Statement (“Amendment No. 1”), marked in accordance with Rule 310 of Regulation S-T. For the convenience of the Staff, we are supplementally providing blacklined copies, complete with exhibits, of Amendment No. 1, marked to show changes from the Registration Statement. In this letter, we have recited the comments from the Staff in italicized type and have followed each comment with the Company’s response. Capitalized terms used but not defined in this letter shall have the meanings ascribed to such terms in Amendment No. 1. Except as otherwise specifically indicated, page references in the Company’s responses to the Staff’s comments correspond to the pagination of Amendment No. 1. Beijing | Boca Raton | Boston | Chicago | Hong Kong | London | Los Angeles | New Orleans | New York | Newark | Paris | São Paulo | Washington, DC U.S. Securities and Exchange Commission April 4, 2014 Page 2 Draft Registration Statement on Form S-1 1. We note that you do not believe that Ares Management L.P. is an investment company for purposes of sections 3(a)(1)(A) and 3(a)(1)(C) of the Investment Company Act of 1940 (“Company Act”). Please provide further information necessary to conduct an analysis under section 3(a)(1)(A) and 3(a)(1)(C) of the Company Act for Ares Management L.P., including, but not limited to, the Ares Operating Group Managing Entities and Ares Operating Group Entities(as those terms are defined in the draft registration statement). Please provide this information prior to, and giving effect to, the proposed transaction. In particular, list all assets held by each entity and the value you assign to each. In addition: a. Please identify and explain any interests in the Ares investment funds held by or through the Ares Operating Group Entities. For instance, please explain if interests in the investment funds are limited to general partnerships or if there are additional limited partnership interests, and the values of each. Do the Ares Operating Group Entities and/or the Ares Operating Group Managing Entities make contributions to the capital of the investment funds in connection with or apart from the general partner interests? What are the values with regard to each investment fund? Please describe the methodology used to value these interests and explain why that methodology was chosen. b. Please explain why an investment in Ares Management L.P. is not equivalent to an investment in a fund of funds. Response to Comment 1: Ares Management, L.P. is not, and upon completion of the Reorganization and the offering will not be, an “investment company,” as that term is defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”). Under sections 3(a)(1)(A) and (C) of the Investment Company Act, a person will generally be deemed to be an “investment company” for purposes of the Investment Company Act if: · it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or · absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of Government securities (as defined in section 2(a)(16) of the Investment Company Act) and cash items) on an unconsolidated basis.(1) Ares Management, L.P., through its “wholly-owned subsidiaries” and “majority-owned (1) A third definition of “investment company” is found in section 3(a)(1)(B) of the Investment Company Act. Ares Management, L.P. is not an investment company within the meaning of section 3(a)(1)(B) because it is not an issuer that is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or that has been engaged in such business and has any such certificates outstanding. U.S. Securities and Exchange Commission April 4, 2014 Page 3 subsidiaries” (as such terms are defined in the Investment Company Act), is and holds itself out as being engaged primarily, and proposes to engage primarily, in the business of providing asset management services and not in the business of investing, reinvesting or trading in securities. Accordingly, Ares Management, L.P. is not, and upon completion of the Reorganization and the offering will not be, an “orthodox” investment company as defined in section 3(a)(1)(A) of the Investment Company Act. Furthermore, as described in further detail below, both prior to and after giving effect to the proposed Reorganization and the offering, investment securities will comprise less than 40% of the total assets of Ares Management, L.P. Accordingly, Ares Management, L.P. is not an “investment company,” as that term is defined under section 3(a)(1)(C) of the Investment Company Act. Section 3(a)(1)(A) As noted above, Ares Management, L.P., through its “wholly-owned subsidiaries” and “majority-owned subsidiaries” (referred to collectively with Ares Management, L.P. as the “Ares Group”) is and holds itself out as being engaged primarily, and proposes to engage primarily, in the business of providing asset management services and not primarily in the business of investing, reinvesting or trading in securities. Whether an issuer is engaged “primarily” in an investment company business is a factual issue. The Commission and the courts have developed a number of criteria to be used in determining whether an issuer is engaged “primarily” in a non-investment business.(2) Ares Management, L.P. addresses each of these criteria in turn. · The issuer’s historical development The Ares Group was founded in 1997 as an asset manager and since that time has been, and has held itself out as being, primarily engaged in providing asset management services. · The issuer’s public representations concerning its activities In its public representations, statements and utterances, including those contained in the Amendment No. 1, the Ares Group has consistently held itself out as being primarily engaged in providing asset management services. On the very first page of the “Summary” section of Amendment No. 1 and throughout that filing, the Ares Group describes itself as “a leading global alternative asset manager with approximately $74 billion of assets under management” providing “a range of investment strategies and seek[ing] to deliver attractive performance to a growing investor base that includes over 500 direct institutional relationships and a significant retail investor base across [its] publicly traded and sub-advised funds.” · The activities of the issuer’s officers and directors, and the extent of their involvement in the management of the issuer (2) See, Tonopah Mining Co., 26 S.E.C. 426 (1947). See also, SEC v. National Presto Industries, Inc., No. 05-4612 (7th Cir. 2007). U.S. Securities and Exchange Commission April 4, 2014 Page 4 As an asset manager, the Ares Group’s officers and employees devote the bulk of their time and efforts to asset management activities or in support of these activities, including sourcing and managing investments, as well as raising capital from, managing relationships with and reporting to, the third party investors in the Ares Group’s investment funds. The officers and employees of the Ares Group have historically spent and continue to spend a de minimis amount of time making proprietary investments for the firm. Ares Management, L.P. notes that, in accordance with standard practice in the alternative asset management industry, the Ares Group does make investments in the Ares Group’s investment funds. Such investments are typically pursuant to the Ares Group’s contractual arrangements with the third party investors in its investment funds and are consistent with the expectations of these third party investors that the Ares Group align its interests with those of its investors. The substantial majority of these investments take the form of general partner interests in the applicable the Ares Group investment fund and, accordingly and as described in additional detail herein, such interests are not investment securities within the meaning of the Investment Company Act. · The nature of the issuer’s present assets As discussed in further detail below, as of March 1, 2014, on a pro forma basis giving effect to the Reorganization and the offering: · none of the assets of Ares Management, L.P. constitute “investment securities” (within the meaning of the Investment Company Act); · none of the assets of any of the 100% owned direct subsidiaries of Ares Management, L.P. (collectively, but not including Ares Investments L.P., the “Ares Operating Group Managing Entities”) constitute investment securities; and · investment securities amount to less than 1% of the consolidated assets of Ares Holdings L.P., none of the consolidated assets of Ares Domestic Holdings L.P., approximately 10% of the consolidated assets of Ares Offshore Holdings L.P., approximately 20% of the consolidated assets of Ares Investments L.P., and less than 2% of the consolidated assets of Ares Real Estate Holdings L.P. (collectively, the “Ares Operating Group Entities”) based on the fair value of these assets as determined in good faith by the board of directors of Ares Management GP LLC, the general partner of Ares Management, L.P., and supported by an independent assessment of value conducted by Duff & Phelps, LLC. · The sources of the issuer’s present income In 2013, approximately 90% of the total segment revenues of the Ares Group were derived from management fees, fees for the provision of administrative, consulting, advisory, transaction and other similar services and net performance fees (which may be either an incentive fee or carried interest in the event that specified investment returns are U.S. Securities and Exchange Commission April 4, 2014 Page 5 achieved by the fund).(3) The substantial majority of the Ares Group’s carried interests take the form of general partner interests in the applicable Ares investment fund and, accordingly and as described in additional detail herein, such interests are not investment securities within the meaning of the Investment Company Act. Ares Management, L.P. also notes that, of the remaining approximately 10% of the total segment revenues of the Ares Group during this period, only a small portion was derived from net investments in investment securities. Section 3(a)(1)(C) As noted above, both prior to and after giving effect to the proposed Reorganization and the offering, investment securities will comprise less than 40% of the total assets of Ares Management, L.P. Accordingly, Ares Management, L.P. is not an “investment company,” as that term is defined under section 3(a)(1)(C) of the Investment Company Act. Section 3(a)(1)(C) of the Investment Company Act defines “investment company” as a company that “is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities,” and that owns or proposes to acquire investment securities having a value exceeding 40% of the value of the company’s total assets, exclusive of Government securities (as defined in section 2(a)(41) of the Investment Company Act) and cash items, on an unconsolidated basis. Section 3(a)(2) of the Investment Company Act defines “investment security” to mean all securities other than Government securities, securities issued by employees’ securities companies and securities issued by majority-owned subsidiaries of the owner that are neither investment companies nor companies relying on the exception from the definition of investment company in section 3(c)(1) or 3(c)(7) of the Investment Company Act. Section 2(a)(24) of the Investment Company Act defines the “majority-owned subsidiary” of a person to mean a company 50% or more of whose outstanding voting securities are owned by that person or by a company that is a majority-owned subsidiary of that person. Section 2(a)(43) of the Investment Company Act defines the “wholly-owned subsidiary” of a person to mean a company, 95% or more of whose outstanding voting securities are owned by that person or by a company that is a wholly-owned subsidiary of that person. Section 2(a)(42) of the Investment Company Act defines “voting security” to mean a security presently entitling its owner or holder to vote for the election of a company’s directors. Section 2(a)(12) of the Investment Company Act defines “director” to include “any director of a corporation or any person performing similar functions with respect to any organization, whether incorporated or unincorporated . . . .” The Commission and the Staff generally consider the general partner of a limited partnership to be a “director” of the limited partnership under section 2(a)(12) because it performs a function with respect to the limited partnership similar to that of the board of directors of a corporation.(4) (3) Ares Group’s segment reporting deconsolidates certain investment funds that it is required to consolidate under U.S. generally accepted accounting principles. (4) Investment Company General Partners Not Deemed Interested Persons, Investment Company Act Release No. 18,868, 57 Fed. Reg. 34,726, 34,727 & n.5 (Aug. 6, 1992); Integrated Resources, Inc., SEC No-Action Letter, 1979 SEC No-Act. LEXIS 2940, at *1—*2 (June 1, 1979). U.S. Securities and Exchange Commission April 4, 2014 Page 6 As described in further detail below, as of March 1, 2014, on a pro forma basis giving effect to the Reorganization and the offering, neither the assets of Ares Management, L.P., nor the assets of the Ares Operating Group Managing Entities constitute investment securities (within the meaning of the Investment Company Act), and investment securities amount to less than 1% of the consolidated assets of Ares Holdings L.P., none of the consolidated assets of Ares Domestic Holdings L.P., approximately 10% of the consolidated assets of Ares Offshore Holdings L.P., approximately 20% of the consolidated assets of Ares Investments L.P., and less than 2% of