40-APP: Columbia Management Seeks SEC Approval for Co-Investment Program

Columbia Management Investment Advisers, LLC, along with Tri-Continental Corporation and Columbia Credit Income Opportunities Fund, has applied for an order to allow affiliated funds to participate in joint investment opportunities.

Summary

• Columbia Management Investment Advisers, LLC, Tri-Continental Corporation, and Columbia Credit Income Opportunities Fund have jointly filed an application with the SEC seeking an order to permit co-investment transactions between affiliated funds.
• The application requests relief from Sections 17(d) and 57(a)(4) of the Investment Company Act of 1940, which would otherwise prohibit these joint transactions.
• The proposed co-investment program would allow multiple regulated funds and affiliated funds to participate in the same investment opportunities, including private placements and follow-on investments.
• The program includes detailed procedures for identifying, allocating, and approving co-investment opportunities, ensuring fair treatment for all participating funds.
• The application outlines conditions designed to protect the interests of the regulated funds and their shareholders, including requirements for board approval and pro-rata participation.
• The program also addresses the handling of dispositions of securities and the use of wholly-owned investment subsidiaries.
• The applicants believe that the co-investment program will enable the regulated funds to access a wider range of investment opportunities and achieve better outcomes for their shareholders.

Sentiment

Score: 7

Explanation: The document is a formal application for regulatory approval, and the tone is neutral and professional. The proposed program is expected to benefit the funds and their shareholders, but there are also risks and complexities involved. The sentiment is therefore moderately positive.

Positives

• The co-investment program is expected to provide access to a larger number and greater variety of investment opportunities.
• The program should enable the regulated funds to participate in larger transactions.
• The regulated funds are expected to have greater bargaining power and control over investments.
• The program is designed to ensure fair and equitable treatment of all participating funds.
• The program includes robust compliance procedures and board oversight.
• The program is expected to reduce the need to bring in external investors or structure investments to satisfy different needs of external investors.
• The program is expected to enable the regulated funds to obtain greater attention and better deal flow from investment bankers and others who act as sources of investments.

Negatives

• The program requires a complex set of conditions and procedures to ensure compliance.
• There is a potential for conflicts of interest between the affiliated funds and the regulated funds, which the conditions are designed to mitigate.
• The program requires significant board oversight and reporting.

Risks

• The SEC may not approve the application, or may impose additional conditions.
• The program may not achieve the expected benefits if not implemented effectively.
• There is a risk of non-compliance with the conditions, which could lead to regulatory issues.
• The program may increase the complexity of investment management and oversight.

Future Outlook

The applicants seek to establish a framework for co-investment transactions that will allow them to participate in a wider range of investment opportunities, potentially enhancing returns for their shareholders.

Management Comments

• The Adviser manages or will manage the assets entrusted to it by its clients in accordance with its fiduciary duty to those clients and, in the case of the Regulated Funds, the Act.
• The Adviser has established rigorous processes for allocating initial investment opportunities, opportunities for subsequent investments in an issuer and dispositions of securities holdings reasonably designed to treat all clients fairly and equitably.
• The Board, including the Required Majority, of each Regulated Fund will determine that it is in the best interests of the Regulated Fund to participate in Co-Investment Transactions.

Industry Context

This application is part of a broader trend of investment managers seeking regulatory relief to allow for more flexible co-investment strategies, particularly in private markets. The application is similar to other recent filings seeking similar relief.

Comparison to Industry Standards

• The application cites numerous precedents where the SEC has granted similar exemptive orders, including Franklin Lexington Private Markets Fund, Great Elm Capital Corp., and CION Grosvenor Infrastructure Fund.
• The conditions outlined in the application are consistent with and expand upon the range of investor protections found in these precedents.
• The pro-rata allocation approach is similar to that used in Rule 23c-2, which relates to the redemption by a closed-end investment company of less than all of a class of its securities.
• The application's approach to delayed settlement is also consistent with other similar applications.

Stakeholder Impact

• Shareholders of the regulated funds are expected to benefit from the increased investment opportunities and potential for enhanced returns.
• The program is designed to ensure fair treatment of all participating funds, including affiliated funds.
• The program is expected to provide greater bargaining power and control over investments for the regulated funds.

Next Steps

• The SEC will review the application and may issue an order granting the requested relief.
• The applicants will need to implement the policies and procedures outlined in the application if the order is granted.
• The applicants will need to comply with the conditions of the order on an ongoing basis.

Key Dates

Keywords

co-investment, investment company act, affiliated funds, regulated funds, joint transactions, private placements, follow-on investments, SEC, exemptive order, investment adviser