40-APP/A: Pearl Diver Entities Seek SEC Order for Co-Investment Flexibility

Pearl Diver Credit Company and related entities have filed an application with the SEC seeking an order to allow them to participate in joint investment transactions that would otherwise be prohibited.

Summary

• Pearl Diver Credit Company Inc. and related entities are requesting an order from the SEC to permit them to engage in co-investment transactions.
• This order would allow the Regulated Funds and Affiliated Funds to participate in the same investment opportunities, which would otherwise be prohibited under Section 17(d) of the Investment Company Act of 1940.
• The application outlines the investment process, including identification of opportunities, order placement, and board approval procedures.
• The order would cover initial investments, follow-on investments, and dispositions of securities.
• The applicants are seeking relief to avoid the practical and economic difficulties of structuring transactions while awaiting individual approvals and to reduce legal expenses.
• The proposed co-investment program includes specific conditions to ensure fairness and equitable treatment for all participating funds.
• The application details the roles of the Adviser, Regulated Funds, and Affiliated Funds in the co-investment process.
• The document also outlines the use of Wholly-Owned Investment Subs and their participation in co-investment transactions.
• The application includes a detailed explanation of the legal framework, including Section 17(d) of the Act and Rule 17d-1.
• The applicants believe the conditions outlined in the application will protect the interests of the Regulated Funds' shareholders.

Sentiment

Score: 7

Explanation: The document is a formal application for regulatory approval, so the sentiment is neutral to positive. The application seeks to enhance investment flexibility, which is generally viewed positively.

Positives

• The requested order would allow the Regulated Funds to participate in a larger number and greater variety of transactions.
• The Regulated Funds would be able to participate in larger transactions.
• The Regulated Funds would have greater bargaining power and more control over investments.
• The Regulated Funds should be able to obtain greater attention and better deal flow from investment bankers.
• The conditions are designed to ensure fairness and protect the interests of the Regulated Funds' shareholders.
• The order would reduce the legal and administrative burden of seeking individual approvals for each co-investment.

Risks

• The application is subject to SEC approval, and there is no guarantee that the order will be granted.
• The co-investment program involves complex procedures and conditions that must be strictly followed.
• There is a risk of potential conflicts of interest between the Regulated Funds and Affiliated Funds, although the conditions are designed to mitigate this risk.
• The success of the co-investment program depends on the effective implementation of the outlined policies and procedures.

Future Outlook

The applicants seek to implement a co-investment program that will allow them to participate in a wider range of investment opportunities, subject to the approval of the SEC.

Industry Context

The application is consistent with a trend of investment companies seeking co-investment relief to enhance their investment capabilities and efficiency. This is a common practice in the investment management industry, particularly for private credit and alternative investment strategies.

Comparison to Industry Standards

• The application is similar to other co-investment applications filed by investment companies seeking relief under Section 17(d) and Rule 17d-1 of the Investment Company Act.
• The conditions outlined in the application are consistent with those found in other SEC orders granting co-investment relief, such as those granted to Polen Credit Opportunities Fund, Sound Point Meridian Capital, and Brookfield Infrastructure Income Fund.
• The inclusion of an onboarding process for pre-existing investments is also a feature found in other recent co-investment orders.
• The pro rata allocation approach for follow-on investments and dispositions is a common practice in the industry and is consistent with the approach taken in Rule 23c-2.

Stakeholder Impact

• Shareholders of the Regulated Funds may benefit from increased investment opportunities and potentially higher returns.
• The co-investment program may enhance the efficiency and effectiveness of the investment management process.
• The conditions are designed to protect the interests of all stakeholders, including shareholders, by ensuring fair and equitable treatment.

Next Steps

• The SEC will review the application and may issue an order granting the requested relief.
• If the order is granted, the applicants will implement the co-investment program according to the outlined conditions.
• The applicants will provide regular reports to the board of directors and the SEC regarding the co-investment activities.

Key Dates

Keywords

co-investment, investment company act, SEC order, regulated funds, affiliated funds, joint transactions, investment adviser, follow-on investments, dispositions, rule 17d-1