[Federal Register: August 12, 2010 (Volume 75, Number 155)]
[Notices]
[Page 48999-49005]
[DOCID:fr12au10-94]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29378; File No. 813-00375]

The Blackstone Group, LP; Notice of Application

August 5, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under sections 6(b) and 6(e)
of the Investment Company Act of 1940 (the ``Act'') granting an
exemption from all provisions of the Act, except section 9, and
sections 36 through 53, and the rules and regulations under the Act.
With respect to sections 17 and 30 of the Act, and the rules and
regulations thereunder, and rule 38a-1 under the Act, the exemption is
limited as set forth in the application.

-----------------------------------------------------------------------

SUMMARY: Summary of Application: Applicant requests an order to exempt
certain future partnerships, limited liability companies and other
investment vehicles that it and/or its affiliates sponsor
(``Partnerships'') formed for the benefit of eligible employees of The
Blackstone Group, LP and its affiliates from certain provisions of the
Act. Each Partnership will be an ``employees' securities company''
within the meaning of section 2(a)(13) of the Act.

Applicant: The Blackstone Group LP (``Company'').

DATES: Filing Dates: The application was filed on October 16, 2008 and
amended on May 14, 2009 and May 27, 2010. Applicant has agreed to file
an amendment during the notice period, the substance of which is
reflected in this notice.

Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicant with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on August 30, 2010 and should be accompanied by proof of service
on applicant, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090; Applicant, The Blackstone Group
LP, 345 Park Avenue, New York, NY 10154.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at
(202) 551-6915, or Julia Kim Gilmer, Branch Chief, at<PHONE_NUMBER>
(Division of Investment Management, Office of Investment Company
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling<PHONE_NUMBER>.

Applicant's Representations

    1. The Company is a Delaware limited partnership. The Company and
its ``Affiliates,'' as defined in rule 12b-2 under the Securities
Exchange Act of 1934 (the ``Exchange Act''), are referred to
collectively as ``Blackstone.'' Blackstone is a global alternative
asset manager and provider of financial advisory services. The
alternative asset management businesses include the management of
corporate private equity funds, real estate funds, funds of hedge

funds, credit-oriented funds, collateralized loan obligation vehicles,
and publicly-traded closed-end mutual funds. Blackstone also provides
various financial advisory services, including corporate and mergers
and acquisitions advisory, restructuring and reorganization advisory
and fund placement services.
    2. Each of the Partnerships will be a limited partnership, limited
liability company, corporation, business trust or other entity
organized under the laws of the state of Delaware or any other U.S. or
non-U.S. jurisdiction. Each Partnership will be identical in all
material respects (other than investment objectives and strategies,
form of organization and related structural and operative provisions
contained in the constitutive documents of such Partnerships). The
Partnerships will be formed as an ``employees' securities company''
within the meaning of section 2(a)(13) of the Act and will operate as a
diversified or non-diversified, closed-end management investment
company, provided that the governing documents of a Partnership may
provide for periodic subscriptions and redemptions.\1\ The Partnerships
will be established primarily for the benefit of Eligible Employees
(defined below) of the Company or of any Affiliate of the Company as
part of a program designed to create capital building opportunities
that are competitive with those at other financial services firms and
to facilitate the recruitment of high caliber professionals.
---------------------------------------------------------------------------

    \1\ Applicant also may implement a pretax plan arrangement
(``Pretax Plan''). In this case, no investment vehicle will be
formed with respect to such Pretax Plan. Pursuant to a Pretax Plan,
Blackstone will enter into arrangements with certain Eligible
Employees, as defined below, of Blackstone, which will generally
provide that (a) an Eligible Employee will defer a portion of his or
her compensation payable by Blackstone, (b) such deferred
compensation will be treated as having been notionally invested in
investments designated for these purposes pursuant to the specific
compensation plan, and (c) an Eligible Employee will be entitled to
receive cash, securities or other property at the times and in the
amounts set forth in the specific compensation plan, where the
aggregate amount received by such Eligible Employee would be based
upon the investment performance of the investments designated for
these purposes pursuant to such compensation plan. The Pretax Plan
will not actually purchase or sell any securities. Blackstone
expects to offer, through Pretax Plans, economic benefits comparable
to what would have been offered in an arrangement where an
investment vehicle is formed. For purposes of the application, a
Partnership will be deemed to be formed with respect to each Pretax
Plan and each reference in the application to ``Partnership,''
``capital contribution,'' ``General Partner,'' ``Limited Partner,''
``loans,'' and ``Interest'' will be deemed to refer to the Pretax
Plan, the notional capital contribution to the Pretax Plan,
Blackstone, a participant of the Pretax Plan, notional loans, and
participation rights in the Pretax Plan, respectively.
---------------------------------------------------------------------------

    3. The general partner of each Partnership will be an Affiliate of
the Company (``General Partner''). Any partner, member of, or other
investor in a Partnership (collectively, the ``Partners'') other than a
General Partner is a ``Limited Partner'' or ``Participant.'' The
General Partner of each Partnership will manage, operate, and control
that Partnership. The General Partner will be authorized to delegate
investment management responsibility to a Blackstone entity or a group
of Blackstone employees (the ``Investment Manager''). The ultimate
responsibility for the Partnerships' investments delegated to an
Investment Manager will remain with the General Partner. Any Blackstone
entity that is delegated the responsibility of making investment
decisions for a Partnership will be registered as an investment adviser
under the Investment Advisers Act of 1940 (the ``Advisers Act'') (or,
in the case of a group of Blackstone employees, be reflected in the
Form ADV of the applicable Blackstone entity) if required under
applicable law.
    4. The General Partner, Blackstone or any employee of the General
Partner or Blackstone may be entitled to receive a performance-based
fee (such as a ``carried interest'') based on the gains and losses of
the investment program or of the Partnership's investment portfolio.\2\
All Partnership investments are referred to herein collectively as
``Portfolio Investments.''
---------------------------------------------------------------------------

    \2\ A ``carried interest'' is an allocation to the General
Partner, a Limited Partner, or an Investment Manager based on net
gains in addition to the amount allocable to such entity in
proportion to its invested capital. A General Partner, Limited
Partner or Investment Manager that is registered as an investment
adviser under the Advisers Act may charge a carried interest only if
permitted by rule 205-3 under the Advisers Act. Any carried interest
paid to a General Partner, Limited Partner or Investment Manager
that is not registered under the Advisers Act may be paid only if
permitted by rule 205-3 as if such General Partner, Limited Partner
or Investment Manager were registered under the Advisers Act.
---------------------------------------------------------------------------

    5. Ownership interests in the Partnerships (``Interests'') will be
offered without registration in reliance on section 4(2) of the
Securities Act of 1933 (the ``Securities Act''), or Regulation D under
the Securities Act, and will be sold only to ``Eligible Employees'' and
``Qualified Participants,'' in each case as defined below, or to
Blackstone entities.\3\ Prior to offering Interests to an Eligible
Employee, the General Partner must reasonably believe that the Eligible
Employee will be a sophisticated investor capable of understanding and
evaluating the risks of participating in the Partnership without the
benefit of regulatory safeguards.
---------------------------------------------------------------------------

    \3\ If applicant implements a Pretax Plan, participation rights
in such Pretax Plan will only be offered to Eligible Employees who
are current employees or Consultants, as defined below, of
Blackstone.
---------------------------------------------------------------------------

    6. An ``Eligible Employee'' is (a) an individual who is a current
or former employee, officer, director, or current ``Consultant'' of
Blackstone and, except for certain individuals who manage the day-to-
day affairs of the Partnership in question (``Managing Employees'') \4\
and a limited number of other employees of Blackstone \5\
(collectively, ``Non-Accredited Investors''), meets the standards of an
accredited investor under rule 501(a)(5) or 501(a)(6) of Regulation D
under the Securities Act, or (b) an entity that is a current
``Consultant'' of Blackstone and meets the standards of an accredited
investor under rule 501(a) of Regulation D.\6\ A Partnership may not
have more than 35 Non-Accredited Investors.
---------------------------------------------------------------------------

    \4\ A Managing Employee may invest in a Partnership if he or she
meets the definition of ``knowledgeable employee'' in rule 3c-
5(a)(4) under the Act with the Partnership treated as though it were
a ``Covered Company'' for purposes of the rule.
    \5\ Such employees must meet the sophistication requirements set
forth in rule 506(b)(2)(ii) of Regulation D under the Securities Act
and may be permitted to invest his or her own funds in the
Partnership if, at the time of the employee's investment in a
Partnership, he or she (a) has a graduate degree in business, law or
accounting, (b) has a minimum of five years of consulting,
investment banking or similar business experience, and (c) has had
reportable income from all sources of at least $100,000 in each of
the two most recent years and a reasonable expectation of income
from all sources of at least $140,000 in each year in which such
person will be committed to make investments in a Partnership. In
addition, such an employee will not be permitted to invest in any
year more than 10% of his or her income from all sources for the
immediately preceding year in the aggregate in such Partnership and
in all other Partnerships in which he or she has previously
invested.
    \6\ A ``Consultant'' is a person or entity whom Blackstone has
engaged on retainer to provide services and professional expertise
on an ongoing basis as a regular consultant or as a business or
legal adviser and who shares a community of interest with Blackstone
and Blackstone employees.
---------------------------------------------------------------------------

    7. A ``Qualified Participant,'' is an individual or entity (a) that
is an Eligible Family Member or Qualified Investment Vehicle (in each
case as defined below) of an Eligible Employee, and (b) purchasing an
Interest from a Partnership (except as discussed below) and comes
within one of the categories of an ``accredited investor'' under rule
501(a) of Regulation D. An ``Eligible Family Member'' is a spouse,
parent, child, spouse of child, brother, sister, or grandchild of an
Eligible Employee, including step and adoptive relationships. A
``Qualified Investment Vehicle'' is (a) a trust of which the trustee,
grantor and/or beneficiary is an

Eligible Employee, (b) a partnership, corporation or other entity
controlled by an Eligible Employee, or (c) a trust or other entity
established solely for the benefit of Eligible Family Members of an
Eligible Employee.\7\ A Qualified Investment Vehicle that is not an
accredited investor will be counted in accordance with Regulation D
toward the 35 person limit for Non-Accredited Investors.
---------------------------------------------------------------------------

    \7\ The inclusion of partnerships, corporations, or other
entities controlled by an Eligible Employee in the definition of
``Qualified Investment Vehicle'' is intended to enable Eligible
Employees to make investments in the Partnerships through personal
investment vehicles over which they exercise investment discretion
or other investment vehicles the management or affairs of which they
otherwise control. In the case of a partnership, corporation, or
other entity controlled by a Consultant entity, individual
participants will be limited to senior level employees, members, or
partners of the Consultant who will be required to qualify as an
``accredited investor'' under rule 501(a)(5) or 501(a)(6) of
Regulation D and who will have access to the directors and officers
of the General Partner.
---------------------------------------------------------------------------

    8. The terms of a Partnership will be fully disclosed to each
Eligible Employee and, if applicable, to a Qualified Participant of the
Eligible Employee, in the offering materials, including a copy of the
partnership agreement or other organizational document (the
``Partnership Agreement''), which will be furnished prior to the time
such person or entity is admitted to the Partnership. The General
Partner of each Partnership will send its Partners audited financial
statements within 120 days after the end of its fiscal year of the
Partnership or as soon as practicable thereafter, except for any
Partnership that was formed to make a single portfolio investment (in
which case audited financial statements will be prepared for either the
Partnership or the entity that is the single portfolio investment).\8\
In addition, as soon as practicable after the end of each tax year of a
Partnership, each Partner will receive a report showing the Partner's
share of income, credits, deductions, and other tax items.
---------------------------------------------------------------------------

    \8\ If applicant implements a Pretax Plan, Eligible Employees
participating in such Pretax Plan will be furnished with a copy of
the Pretax Plan, which will set forth at a minimum the same terms of
the proposed investment program as those that would have been set
forth in a Partnership Agreement for a Partnership. Blackstone will
prepare an audited informational statement with respect to the
investments deemed to be made by such Pretax Plan, including, with
respect to each investment, the name of the portfolio company and
the amount deemed invested by such Pretax Plan in the portfolio
company. Blackstone will send each participant of such Pretax Plan a
separate statement based on the audited informational statement
within 120 days after the end of the fiscal year of Blackstone or as
soon as practicable thereafter.
---------------------------------------------------------------------------

    9. Interests in a Partnership will be non-transferable except with
the prior written consent of the General Partner.\9\ No person or
entity will be admitted into a Partnership unless such person or entity
is an Eligible Employee, a Qualified Participant of an Eligible
Employee, or a Blackstone entity. No sales load will be charged in
connection with the sale of Interests.
---------------------------------------------------------------------------

    \9\ If applicant implements a Pretax Plan, an Eligible
Employee's participation rights in such Pretax Plan may not be
transferred, other than to a Qualified Participant in the event of
the Eligible Employee's death.
---------------------------------------------------------------------------

    10. An Eligible Employee's interest in a Partnership may be subject
to repurchase or cancellation in certain circumstances as described in
the offering documents related to the relevant Partnership. Upon
repurchase or cancellation, the General Partner will at a minimum pay
to the Eligible Employee the lesser of (a) the amount actually paid by
the Eligible Employee to acquire the Interest plus interest less prior
distributions, and (b) the fair market value of the Interest as
determined at the time of repurchase or cancellation by the General
Partner. The terms of any repurchase or cancellation will apply equally
to any Qualified Participant of an Eligible Employee.
    11. Subject to the terms of the applicable Partnership Agreement, a
Partnership will be permitted to enter into transactions involving (a)
a Blackstone entity, (b) a portfolio company, (c) any Partner or person
or entity affiliated with a Partner, (d) an investment fund or separate
account that is organized for the benefit of investors who are not
affiliated with Blackstone and over which a Blackstone entity will
exercise investment discretion or which is sponsored by a Blackstone
entity (``Blackstone Third Party Fund''), or (e) any person or entity
who is not affiliated with Blackstone and is a partner or other
investor in a Blackstone Third Party Fund or a ``Third Party Sponsored
Fund'' \10\ (each a ``Third Party Investor''). Prior to entering into
any of these transactions, the General Partner or board of directors
(or similar body) of the General Partner or any committee serving
similar functions of the General Partner (``Board'') must determine
that the terms are fair to the Partners.
---------------------------------------------------------------------------

    \10\ ``Third Party Sponsored Fund'' is an investment fund or
pooled investment vehicle for which entities or persons unaffiliated
with Blackstone are the sponsors or investment advisers.
---------------------------------------------------------------------------

    12. A Blackstone entity (including the General Partner) acting as
agent or broker may receive placement fees, advisory fees, or other
compensation from a Partnership or a portfolio company in connection
with a Partnership's purchase or sale of securities, provided that such
placement fees, advisory fees, or other compensation can be deemed to
be ``usual and customary.'' Such fees or other compensation will be
deemed ``usual and customary'' only if (a) the Partnership is
purchasing or selling securities (directly or indirectly) alongside
other unaffiliated third parties, including Blackstone Third Party
Funds or Third Party Investors, who are similarly purchasing or selling
securities, (b) the fees or other compensation being charged to the
Partnership (directly or indirectly) are also being charged to the
unaffiliated third parties, including Blackstone Third Party Funds or
Third Party Investors (directly or indirectly), and (c) the amount of
securities being purchased or sold by the Partnership does not exceed
50% of the total amount of securities being purchased or sold by the
Partnership and the unaffiliated third parties, including Blackstone
Third Party Funds and Third Party Investors. A Blackstone entity,
including the General Partner, also may be compensated for services to
entities in which the Partnerships invest and to entities that are
competitors of these entities, or from other unaffiliated persons or
entities.
    13. The investment objective of each Partnership will be set forth
in the offering documents relating to the specific Partnership. A
Partnership may invest directly or through investment pools (including
private funds relying on sections 3(c)(1) and 3(c)(7) of the Act) \11\
and registered investment companies sponsored or managed by Blackstone
or by third parties. A Partnership will not acquire any security issued
by a registered investment company if immediately after the acquisition
the Partnership will own more than 3% of the outstanding voting stock
of the registered investment company.
---------------------------------------------------------------------------

    \11\ Applicant is not requesting any exemption from any
provision of the Act or any rule thereunder that may govern a
Partnership's eligibility to invest in a Portfolio Investment
relying on section 3(c)(1) or 3(c)(7) of the Act or the Portfolio
Investment's status under the Act.
---------------------------------------------------------------------------

    14. The Partnerships may borrow from a General Partner or a
Blackstone entity. The interest rate on such loans will be no less
favorable to the Partnerships than the rate that could be obtained on
an arm's length basis. A Partnership will not borrow from any person if
the borrowing would cause any person not named in section 2(a)(13) of
the Act to own outstanding securities of the Partnership (other than
short-term paper). Any indebtedness of a Partnership will be non-
recourse to

the Limited Partners of the Partnership, except indebtedness incurred
specifically on behalf of a Limited Partner where such Limited Partner
has agreed to guarantee the loan or act as co-obligor on the loan.

Applicant's Legal Analysis

    1. Section 6(b) of the Act provides, in part, that the Commission
will exempt employees' securities companies from the provisions of the
Act to the extent that the exemption is consistent with the protection
of investors. Section 6(b) provides that the Commission will consider,
in determining the provisions of the Act from which the company should
be exempt, the company's form of organization and capital structure,
the persons owning and controlling its securities, the price of the
company's securities and the amount of any sales load, how the
company's funds are invested, and the relationship between the company
and the issuers of the securities in which it invests. Section 2(a)(13)
defines an employees' securities company, in relevant part, as any
investment company all of whose securities (other than short-term
paper) are beneficially owned (a) by current or former employees, or
persons on retainer, of one or more affiliated employers, (b) by
immediate family members of such persons, or (c) by such employer or
employers together with any of the persons in (a) or (b).
    2. Section 7 of the Act generally prohibits investment companies
that are not registered under section 8 of the Act from selling or
redeeming their securities. Section 6(e) of the Act provides that, in
connection with any order exempting an investment company from any
provision of section 7, certain provisions of the Act, as specified by
the Commission, will be applicable to the company and other persons
dealing with the company as though the company were registered under
the Act. Applicant requests an order under sections 6(b) and 6(e) of
the Act exempting applicant and any Partnerships from all provisions of
the Act, except section 9 and sections 36 through 53 of the Act, and
the rules and regulations under the Act. With respect to sections 17
and 30 of the Act, and the rules and regulations thereunder, and rule
38a-1 under the Act, the exemption is limited as set forth in the
application.
    3. Section 17(a) generally prohibits any affiliated person of a
registered investment company, or any affiliated person of an
affiliated person, acting as principal, from knowingly selling or
purchasing any security or other property to or from the company.
Applicant requests an exemption from section 17(a) to permit: (a) a
Blackstone entity or a Blackstone Third Party Fund (or any affiliated
person of the Blackstone Third Party Fund), acting as principal, to
engage in any transaction directly or indirectly with any Partnership
or any company controlled by the Partnership; (b) any Partnership to
invest in or engage in any transaction with any Blackstone entity or
Blackstone Third Party Fund, acting as principal, (i) in which the
Partnership, any company controlled by the Partnership, or any
Blackstone entity or Blackstone Third Party Fund has invested or will
invest, or (ii) with which the Partnership, any company controlled by
the Partnership, or any Blackstone entity or Blackstone Third Party
Fund is or will become affiliated; and (c) any Third Party Investor,
acting as principal, to engage in any transaction directly or
indirectly with a Partnership or any company controlled by the
Partnership.
    4. Applicant states that an exemption from section 17(a) is
consistent with the protection of investors and is necessary to promote
the purpose of each Partnership. Applicant states that the Participants
in each Partnership will be fully informed of the possible extent of
the Partnership's dealings with Blackstone. Applicant also states that,
as professionals with experience in financial services businesses,
Participants in each Partnership will be able to understand and
evaluate the attendant risks. Applicant asserts that the community of
interest among the Participants in each Partnership and Blackstone will
provide the best insurance against any risk of abuse.
    5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person of a registered investment company, or any
affiliated person of such person, acting as principal, from
participating in any joint arrangement with the company unless
authorized by the Commission. Applicant requests relief to permit
affiliated persons of each Partnership, or affiliated persons of any of
these persons, to participate in or effect any transaction in
connection with, any joint enterprise or other joint arrangement or
profit sharing plan in which the Partnership or a company controlled by
the Partnership is a participant.
    6. Applicant asserts that compliance with section 17(d) would cause
the Partnerships to forego investment opportunities simply because a
Participant or other affiliated person of the Partnerships (or any
affiliate of the affiliated person) made or is concurrently making a
similar investment. Applicant also states that because certain
attractive investment opportunities often require that each participant
make available funds in an amount substantially greater than that
available to one Partnership alone, there may be attractive
opportunities that a Partnership may be unable to take advantage of
except by co-investing with other persons, including affiliated
persons. Applicant notes that each Partnership will primarily be
organized for the benefit of the employee Participants, as an incentive
for them to remain with Blackstone and for the generation and
maintenance of goodwill. Applicant asserts that the flexibility to
structure co-investments and joint investments will not involve abuses
of the type section 17(d) and rule 17d-1 were designed to prevent.
    7. Co-investments with a Blackstone Third Party Fund, or by a
Blackstone entity pursuant to a contractual obligation to a Blackstone
Third Party Fund, will not be subject to condition 3 below. Applicant
notes that it is common for a Blackstone Third Party Fund to require
that Blackstone invest its own capital in Blackstone Third Party Fund
investments, and that Blackstone investments be subject to
substantially the same terms as those applicable to the Blackstone
Third Party Fund. Applicant believes it is important that the interests
of the Blackstone Third Party Fund take priority over the interests of
the Partnerships, and that the Blackstone Third Party Fund not be
burdened or otherwise affected by activities of the Partnerships. In
addition, applicant asserts that the relationship of a Partnership to a
Blackstone Third Party Fund is fundamentally different from a
Partnership's relationship to Blackstone. Applicant contends that the
focus of, and the rationale for, the protections contained in the
requested relief are to protect the Partnerships from any overreaching
by Blackstone in the employer/employee context, whereas the same
concerns are not present with respect to the Partnerships and a
Blackstone Third Party Fund.
    8. Section 17(e) of the Act and rule 17e-1 under the Act limit the
compensation an affiliated person may receive when acting as agent or
broker for a registered investment company. Applicant requests an
exemption from section 17(e) to permit a Blackstone entity (including
the General Partner) that acts as an agent or broker to receive
placement fees, advisory fees, or other compensation from a Partnership
in connection with the purchase or sale by the Partnership of
securities, provided that the fees or other compensation can

be deemed ``usual and customary.'' Applicant states that for the
purposes of the application, fees or other compensation will be deemed
``usual and customary'' only if (a) the Partnership is purchasing or
selling securities alongside other unaffiliated third parties,
including Blackstone Third Party Funds or Third Party Investors, who
are similarly purchasing or selling securities, (b) the fees or other
compensation being charged to the Partnership are also being charged to
the unaffiliated third parties, including Blackstone Third Party Funds
and Third Party Investors, and (c) the amount of securities being
purchased or sold by the Partnership does not exceed 50% of the total
amount of securities being purchased or sold by the Partnership and the
unaffiliated third parties, including Blackstone Third Party Funds or
Third Party Investors. Applicant asserts that, because Blackstone does
not wish it to appear as if it is favoring the Partnerships, compliance
with section 17(e) would prevent a Partnership from participating in
transactions where the Partnership is being charged lower fees than
unaffiliated third parties. Applicant asserts that the fees or other
compensation paid by a Partnership to a Blackstone entity will be the
same as those negotiated at arm's length with unaffiliated third
parties.
    9. Rule 17e-1(b) under the Act requires that a majority of
directors who are not ``interested persons'' (as defined in section
2(a)(19) of the Act) take actions and make approvals regarding
commissions, fees, or other remuneration. Rule 17e-1(c) under the Act
requires each Partnership to comply with the fund governance standards
defined in rule 0-1(a)(7) under the Act. Applicant requests an
exemption from rule 17e-1 to the extent necessary to permit each
Partnership to comply with the rule without having a majority of the
Board who are not interested persons take actions and make
determinations as set forth in paragraph (b) of the rule, and without
having to satisfy the standards set forth in paragraph (c) of the rule.
Applicant states that because all the Board members will be affiliated
persons, without the relief requested, a Partnership could not comply
with rule 17e-1. Applicant states that each Partnership will comply
with rule 17e-1 by having a majority of the Board members take actions
and make approvals as are set forth in rule 17e-1. Applicant states
that each Partnership will comply with all other requirements of rule
17e-1.
    10. Section 17(f) of the Act designates the entities that may act
as investment company custodians, and rule 17f-1 under the Act imposes
certain requirements when the custodian is a member of a national
securities exchange. Applicant requests an exemption from section 17(f)
and rule 17f-1 to permit a Blackstone entity to act as custodian of
Partnership assets without a written contract. Applicant also requests
an exemption from the rule 17f-1(b)(4) requirement that an independent
accountant periodically verify the assets held by the custodian.
Applicant states that, because of the community of interest of all the
parties involved and the existing requirement for an independent audit,
compliance with these requirements would be unnecessary. Each
Partnership will otherwise comply with all the provisions of rule 17f-
1.
    11. Applicant also requests an exemption from rule 17f-2 to permit
the following exceptions from the requirements of rule 17f-2: (a) A
Partnership's investments may be kept in the locked files of the
General Partner (or a Blackstone entity) for purposes of paragraph (b)
of the rule; (b) for purposes of paragraph (d) of the rule, (i)
employees of the General Partner (or a Blackstone entity) will be
deemed to be employees of the Partnerships, (ii) officers or managers
of the General Partner of a Partnership (or a Blackstone entity) will
be deemed to be officers of the Partnership, and (iii) the Board will
be deemed to be the board of directors of the Partnership and (c) in
place of the verification procedure under paragraph (f) of the rule,
verification will be effected quarterly by two employees of the General
Partner (or a Blackstone entity). Applicant expects that some of the
Partnerships' investments will be evidenced only by partnership
agreements, participation agreements or similar documents, rather than
by negotiable certificates that could be misappropriated. Applicant
asserts that these instruments are most suitably kept in the files of
the General Partner (or a Blackstone entity), where they can be
referred to as necessary.
    12. Section 17(g) of the Act and rule 17g-1 under the Act generally
require the bonding of officers and employees of a registered
investment company who have access to its securities or funds. Rule
17g-1 requires that a majority of directors who are not interested
persons take certain actions and give certain approvals relating to
fidelity bonding. Applicant requests exemptive relief to permit the
Board, regardless of whether it is (or each of its members are) deemed
interested persons, to take actions and make determinations set forth
in the rule. Applicant states that, because the General Partner will be
affiliated with the Partnership, a Partnership could not comply with
rule 17g-1 without the requested relief. Applicant also states that
each Partnership will comply with all other requirements of rule 17g-1,
except that the Partnerships request an exemption from the requirements
of paragraphs (g) and (h) or rule 17g-1 relating to the filing of
copies of fidelity bonds and related information with the Commission
and relating to this provision of notices to the board of directors,
and an exemption from the requirements of paragraph (j)(3) of rule 17g-
1 that the Partnerships comply with the fund governance standards
defined in rule 0-1(a)(7).
    13. Section 17(j) of the Act and paragraph (b) of rule 17j-1 under
the Act make it unlawful for certain enumerated persons to engage in
fraudulent or deceptive practices in connection with the purchase or
sale of a security held or to be acquired by a registered investment
company. Rule 17j-1 also requires that every registered investment
company adopt a written code of ethics and that every access person of
a registered investment company report personal securities
transactions. Applicant requests an exemption from the provisions of
rule 17j-1, except for the anti-fraud provisions of paragraph (b),
because they are unnecessarily burdensome as applied to the
Partnerships.
    14. Applicant requests an exemption from the requirements in
sections 30(a), 30(b), and 30(e) of the Act, and the rules under those
sections, that registered investment companies prepare and file with
the Commission and mail to their shareholders certain periodic reports
and financial statements. Applicant contends that the forms prescribed
by the Commission for periodic reports have little relevance to a
Partnership and would entail administrative and legal costs that
outweigh any benefit to the Participants. Applicant requests exemptive
relief to the extent necessary to permit each Partnership to report
annually to its Participants. Applicant also requests an exemption from
section 30(h) of the Act to the extent necessary to exempt the General
Partner of each Partnership, directors and officers of the General
Partner and any other persons who may be deemed to be members of an
advisory board of a Partnership from filing Forms 3, 4, and 5 under
section 16(a) of the Exchange Act with respect to their ownership of
Interests in the Partnership. Applicant asserts that, because there
will be no trading market and the transfers of Interests will be
severely restricted, these filings are unnecessary for the protection
of

investors and burdensome to those required to make them.
    15. Rule 38a-1 requires investment companies to adopt, implement
and periodically review written policies reasonably designed to prevent
violation of the Federal securities law and to appoint a chief
compliance officer. Each Partnership will comply with rule 38a-1(a),
(c) and (d), except that (a) because the Partnership does not have a
board of directors, the board of directors or other governing body of
the General Partner will fulfill the responsibilities assigned to the
Partnership's board of directors under the rule, (b) since the board of
directors or other governing body of the General Partner does not have
any disinterested members, approval by a majority of the disinterested
board members required by rule 38a-1 will not be obtained, and (c)
since the board of directors or other governing body of the General
Partner does not have any independent directors, the Partnerships will
comply with the requirement in rule 38a-1(a)(4)(iv) that the chief
compliance officer meet with the independent directors by having the
chief compliance officer meet with the board of directors or other
governing body of the General Partner as constituted.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will
be subject to the following conditions:
    1. Each proposed transaction otherwise prohibited by section 17(a)
or section 17(d) and rule 17d-1 to which a Partnership is a party (the
``Section 17 Transactions'') will be effected only if the Board
determines that:
    (a) The terms of the Section 17 Transaction, including the
consideration to be paid or received, are fair and reasonable to the
Partners of the participating Partnership and do not involve
overreaching of such Partnership or its Partners on the part of any
person concerned; and
    (b) The Section 17 Transaction is consistent with the interests of
the Partners of the participating Partnership, such Partnership's
organizational documents and such Partnership's reports to its
Partners.
    In addition, the Board will record and will preserve a description
of all Section 17 Transactions, the Board's findings and the
information or materials upon which the Board's findings are based and
the basis for the findings. All such records will be maintained for the
life of the Partnership and at least six years thereafter, and will be
subject to examination by the Commission and its staff. Each
Partnership will preserve the accounts, books and other documents
required to be maintained in an easily accessible place for the first
two years.
    2. The Board will adopt, and periodically review and update,
procedures designed to ensure that reasonable inquiry is made, prior to
the consummation of any Section 17 Transaction, with respect to the
possible involvement in the transaction of any affiliated person or
promoter of or principal underwriter for such Partnership, or any
affiliated person of such a person, promoter or principal underwriter.
    3. The General Partner will not make on behalf of a Partnership any
investment in which a ``Co-Investor'' with respect to any Partnership
(as defined below) has acquired or proposes to acquire the same class
of securities of the same issuer, where the investment involves a joint
enterprise or other joint arrangement within the meaning of rule 17d-1
in which such Partnership and the Co-Investor are participants, unless
any such Co-Investor, prior to disposing of all or part of its
investment, (a) gives such General Partner sufficient, but not less
than one day's notice of its intent to dispose of its investment; and
(b) refrains from disposing of its investment unless the participating
Partnership holding such investment has the opportunity to dispose of
its investment prior to or concurrently with, on the same terms as, and
on a pro rata basis with the Co-Investor. The term ``Co-Investor'' with
respect to any Partnership means any person who is: (a) An ``affiliated
person'' (as defined in section 2(a)(3) of the Act) of such Partnership
(other than a Blackstone Third Party Fund); (b) a Blackstone entity;
(c) an officer, director or partner of a Blackstone entity; or (d) an
entity (other than a Blackstone Third Party Fund) in which the Company
or an Affiliate acts as a general partner or has a similar capacity to
control the sale or other disposition of the entity's securities. The
restrictions contained in this condition, however, shall not be deemed
to limit or prevent the disposition of an investment by a Co-Investor:
(a) To its direct or indirect wholly-owned subsidiary, to any company
(a ``Parent'') of which such Co-Investor is a direct or indirect
wholly-owned subsidiary, or to a direct or indirect wholly-owned
subsidiary of its Parent; (b) to immediate family members of such Co-
Investor, including step and adoptive relationships, or to a trust or
other investment vehicle established for any such immediate family
member; (c) when the investment is comprised of securities that are
listed on any exchange registered as a national securities exchange
under section 6 of the Exchange Act; (d) when the investment is
comprised of securities that are NMS securities pursuant to section
11A(a)(2) of the Exchange Act and rule 600(a) of Regulation NMS
thereunder; (e) when the investment is comprised of securities that are
listed on or traded on any foreign securities exchange or board of
trade that satisfies regulatory requirements under the law of the
jurisdiction in which such foreign securities exchange or board of
trade is organized similar to those that apply to a national securities
exchange or a national market system for securities; or (f) when the
investment is comprised of securities that are government securities as
defined in section 2(a)(16) of the Act.
    4. Each Partnership and its General Partner will maintain and
preserve, for the life of such Partnership and at least six years
thereafter, such accounts, books, and other documents as constitute the
record forming the basis for the audited financial statements that are
to be provided to the Participants in such Partnership, and each annual
report of such Partnership required to be sent to such Participants,
and agree that all such records will be subject to examination by the
Commission and its staff. Each Partnership will preserve the accounts,
books and other documents required to be maintained in an easily
accessible place for the first two years.
    5. The General Partner of each Partnership will send to each
Participant in that Partnership, at any time during the fiscal year
then ended, Partnership financial statements audited by such
Partnership's independent accountants, except under certain
circumstances in the case of a Partnership formed to make a single
Portfolio Investment. In such cases, the Partnership may send unaudited
financial statements, but each Participant will receive financial
statements of the single Portfolio Investment audited by such entity's
independent accountants. At the end of each fiscal year, the General
Partner will make a valuation or have a valuation made of all of the
assets of the Partnership as of such fiscal year end in a manner
consistent with customary practice with respect to the valuation of
assets of the kind held by the Partnership. In addition, within 120
days after the end of each fiscal year of each Partnership or as soon
as practicable thereafter, the General Partner will send a report to
each person who was a Participant at any time during the fiscal year
then ended, setting forth such tax information as shall be necessary
for the preparation by the Participant of his, her or its U.S.

Federal and State income tax returns and a report of the investment
activities of the Partnership during that fiscal year.
    6. If a Partnership makes purchases or sales from or to an entity
affiliated with the Partnership by reason of an officer, director or
employee of Blackstone (a) serving as an officer, director, general
partner or investment adviser of the entity, or (b) having a 5% or more
investment in the entity, such individual will not participate in the
Partnership's determination of whether or not to effect the purchase or
sale.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-19854 Filed 8-11-10; 8:45 am]
BILLING CODE 8010-01-P


       MEMORANDUM              To: 		Docket EPA-HQ-OAR-2015-0199              From:		U.S. Environmental Protection Agency, Office of Air and Radiation              Date:		August 2015        Subject:	Renewable Energy (RE) Set-aside Technical Support Document (TSD)

This memorandum provides additional information regarding the RE set-aside that is proposed as part of the allowance allocation in the mass-based implementation approach of the proposed federal plan and model trading rules. As detailed in section V.D.3.b of the preamble to the proposed federal plan and model trading rules, the RE set-aside is proposed primarily in order to address leakage, along with set-asides for output-based allocation.    This memorandum specifically provides the analysis supporting the proposed proportional size of the RE set-aside. A separate memorandum, titled "Allowance Allocation Technical Support Document," details other aspects of the proposed allowance allocation approach.

This memorandum is organized as follows:

      1.0	Introduction       2.0	Analytical Framework       3.0	Results

INTRODUCTION The EPA is proposing that it would create a unique RE set-aside (in addition to the output-based allocation and Clean Energy Incentive Program (CEIP) set-asides) for each state covered by a mass-based federal plan. For each vintage year, the set-aside would be composed of allowances reserved from that year's state-specific mass budget prior to allocation of allowances to affected electric generating units (EGUs). The EPA is proposing that the amount reserved from the state's allocation be equal to 5% of total allowances. As stated in the proposal, we are also taking comment on a percentage of allowances to be reserved ranging from 1% to 10% of total allowances in each state.

As stated in the preamble to the proposed federal plan and model trading rules, the proposed percentage has been determined to provide a meaningful additional incentive for RE activities in each state, while the vast majority of allowances are allocated to affected EGUs. The following sections of this memorandum describe the analysis that supports that determination. The EPA made this conclusion based upon determining an appropriate volume of set-aside allowances that, at a range of possible allowance prices, are projected to mitigate emissions leakage to new natural gas combined cycle (NGCC) units under a mass-based Clean Power Plan (CPP) policy.

Analytical Framework The RE set-aside is proposed to reserve a set-aside of allowances based on a standard percentage of total allowances in each state budget. This national-level analysis estimates the $/MWh incentive that the RE set-aside would support across a range of whole number percentages between 1% and 10%, assessed at four different potential national average allowance prices.   The $/MWh incentive under these various set-aside and allowance price levels is compared to the projected difference in the levelized cost of energy (LCOE) between a representative NGCC unit and onshore utility-scale wind and solar photovoltaic (PV) technologies (projected to comprise the bulk of new RE capacity), in order to evaluate whether it is reasonable to expect that a given incentive level is sufficient to mitigate emissions leakage to new NGCC sources under a mass-based CPP policy.    The steps for this analysis are described below and the calculations are provided in Appendix 1.

Step 1: Estimating the amount of new NGCC generation associated with emissions leakage under a projected mass-based approach

As the basis for estimating the amount of new NGCC generation associated with emissions leakage under mass-based approach, the EPA compared projected new NGCC generation levels between the rate- and mass-based CPP approaches using the EPA's Integrated Planning Model (IPM).  The mass-based CPP model run without an RE set-aside was projected to have approximately 164 TWh more nationwide generation from new NGCC units than the rate-based approach in 2030; however, not all of that difference in generation is associated with emissions leakage.  An important factor to consider is that the mass-based model run projects more than 12 GW of coal-fired EGU retirements additional to what is projected in the rate-based model run.  If these incremental coal retirements are replaced by new NGCC units, this action represents the replacement of higher CO2 emissions-intensive sources (e.g., coal-fired EGUs) with less CO2 emissions-intensive sources (natural gas-fired EGUs).  This outcome, which reduces overall utility power sector CO2 emissions, is not consistent with how the EPA has defined emissions leakage and is therefore subtracted from the difference between projected mass- and rate-based new NGCC generation to produce the EPA's estimate of new NGCC generation associated with emissions leakage under a mass-based approach.

Step 2: Calculating the RE generation level consistent with mitigating emissions leakage to new NGCC units under a projected mass-based approach

The RE generation level that is consistent with mitigating emissions leakage to new NGCC units is simply the sum of the RE generation already projected to occur under the mass-based approach in 2030 (approximately 259 TWh) and the amount of new NGCC generation associated with emissions leakage in 2030 (approximately 72 TWh) that the RE set-aside is seeking to replace with new RE (approximately 331 TWh).

Step 3: Calculating the incentive available through the RE set-aside, assuming total RE generation consistent with mitigating emissions leakage ($/MWh)

First, to determine the number of allowances at each of the considered percentage options, the total number of available allowances in each year (equal to the combined total of all of that year's state mass budgets) was multiplied by each whole number percentage between 1% and 10%.

Second, the number of allowances reserved in the set-aside at various percentages, calculated in step 1, are multiplied by a range of four possible national average allowance prices: $5, $10, $15, and $20. This yields a range of total potential funds that may be available to RE providers after receiving RE set-aside allowances at each percentage level. These funds are obtained in practice when recipients of these set-aside allowances sell those allowances in the marketplace to interested buyers, including affected EGUs subject to a requirement to hold such allowances to cover their emissions.

Third, the total potential funds for each combination of set-aside percentage and allowance price is converted into a $/MWh incentive available to RE providers under the assumption that the RE set-aside is designed to support an RE generation level consistent with the RE generation level calculated in step 2 (331 TWh).

Step 4: Quantifying the LCOE difference between new NGCC and RE technologies in 2030 ($/MWh)

In this step, we calculate an illustrative incentive range at which new RE projects may become more economical than new NGCC projects, from an LCOE perspective.  The cost and performance assumptions used in this step to calculate LCOE represent base estimates for advanced NGCC compared to onshore wind and utility-scale solar PV (the technologies projected by IPM to comprise the bulk of new RE capacity).  The base cost and performance estimates are based on broadly representative technological assumptions across a host of factors (geography, resource class, cost step, etc.) and are therefore only indicative of an illustrative difference of cost at an average, national level; in practice, site-specific LCOE comparisons of new NGCC and new RE would vary and could already yield economic parity between those options in certain locations.  In 2030, the calculated LCOE for onshore wind in Appendix 1 is $2.72/MWh higher than advanced NGCC; the LCOE for utility-scale solar PV is $9.80/MWh higher than advanced NGCC.

Results This section summarizes the results tables that are provided in Appendix 1 and describes how the results inform our proposal for the percentage of allowances included in the RE set-aside.

The methodology described above is designed to identify two results  -  a reasonable RE set-aside level that is consistent with mitigating emissions leakage to new NGCC, as well as a reasonable maximum RE set-aside level beyond which it is unlikely that the amount of new RE incentivized will be directly responsive to mitigating emissions leakage.  To establish the first result of a reasonable RE set-aside level, the EPA relied upon onshore wind as the benchmark technology due to its lower LCOE.  Assuming a national average allowance price consistent with the mass-based CPP model run of $13/ton, the greatest set-aside levels consistent with an incentive of $2.72/MWh is 5%.  Consequently, the EPA believes that 5% represents a reasonable RE set-aside level commensurate with the objective of mitigating emissions leakage to new NGCC units.  To establish a reasonable maximum RE set-aside level, the EPA relied on utility-scale solar PV as the benchmark technology due to its higher LCOE.  An incentive level of $9.80/MWh can be achieved with an RE set-aside of 10% at a national average allowance price of $15 - $20/ton.  Consequently, the EPA believes it is unlikely that a set-aside greater than 10% would be necessary to mitigate emissions leakage to new NGCC units.  For complete results and associated calculations, refer to Appendix 1.