# RESPONSE OF THE OFFICE OF CHIEF COUNSEL

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

7 OCT 1994

.p; Bli
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT
--

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..

Our Ref. No. 94-457-CC
Murray Johnstone
Holdings Limited;
Murray Johnstone
Limited;
Murray Johnstone
International
Limited
File No. 801-34926

_.­

In your letter dated July 21, 1994, you request assurances
that the staff would not recommend enforcement action to the
Commission if Murray Johnstone International Limited (IfMJI"), an
adviser that is organized under the laws of Scotland and is
registered with the Commission under the Investment Advisers Act
of 1940 (the "Advisers Act"), advises foreign clients without
complying with the Advisers Act as specified in your letter. You
further request assurances that the staff would not recommend
enforcement action to the Commission if certain entities within
the Murray Johnstone Group (as defined below) provide investment
advisory services to u.S. clients without registering under the
Advisers Act. 1/
Murray Johnstone Holdings Limited ("~:'I Holdings") and its
controlled affiliates, including its wholl l ' owned subsidiaries
MJI and Murray Johnstone Limited ("Murray Johnstone"), comprise
the Murray Johnstone Group. MJ Holdings is a wholly owned
subsidiary of United Asset Management Corporation ("UAM"). MJ
Holdings, through Murray Johnstone, holds 50% or more of twelve
additional affiliates, including wholly owned Murray Johnstone
Buyout Management (Jersey) LTD ·(the "MJL Jersey Subsidiary") .
Murray Johnstone has headquarters ir. Glasgow and offices in
London, Manchester and Paris. MJI has he,adquarters in Glasgow
and an office in Chicago. Murray Johnstcne and MJI are regulated
in the United Kingdom by the Investment ~anagement Regulatory
Organisation, the U.K. self-regulatory oI'ganization that
regulates persons engaged in the investme·nt management business.
MJI was formed to provide investment advisory services to U.S.
clients. No member of the Murray Johnstone Group other than MJI
is registered with the Commission under the Advisers Act.
The Murray Johnstone Group proposes that certain entities
provide investment advice to U.S. clients through MJI either
directly or by having their personnel participate in MJI's U.S.
investment advisory business (the "Parti·c ipating Affiliates") .
Consistent with this proposal, Participating Affiliates and MJI
"

1./

~

.­

In a telephone conversation on September 30, 1994 with
Alison Baur, Robert Stemmons, counsel to MJI, clarified
certain points and agreed to several changes from the
language in the no-action request. We have noted these
changes in our response.

---

may communicate with each other about advice given to MJI's
clients or prospective clients before that advice is
disseminated. They also may share personnel (including
directors, officers and employees), office space, records,
telephone lines, and other facilities~ As described in further
detail below, the Commission will be able to monitor the
activities of any affiliate involved in, or having access to,
MJI's U.S. advisory activities.
---- Section 203 (a) . of the Advisers Act- requires any investment
adviser, whether domestic or foreign, that uses U.S.
jurisdictional means in connection with its business as an
investment adviser to register with the Commission, unless the
adviser is exempt from registration. The Division has determined
that the substantive provisions of the Advisers Act generally
should not govern the relationship between an investment adviser
located outside the U.S. and its foreign clients, even though the
adviser is registered under the Advisers Act. Z/ To enable the
Commission to monitor and enforce a registered foreign adviser's
performance of its obligations to its U.S. clients and to ensure
the integrity of U.S. markets, a registered foreign adviser must
comply with certain Advisers Act recordkeeping requirements and
provide the Commis~ion with accef::s to foreign personnel with
respect to all its activities. ~/
The Division also believes that affiliates of registered
foreign advisers do not have to register under the Advisers Act
if they are separately organized (i.e., two distinct entities);
the registered entity is staffed with personnel (whether
physically located in the U.S. or abroad) who are capable of
providing investment advice; all persons that provide advice to
U.S. clients or have access to any information concerning which
securities are recommended to U.S. clients prior to the effective
dissemination of the recommendations are deemed to be "associated
persons" of the registrant; ~/ and the Commission has access to
trading and other records of affiliates involved in, or having

ZI

See Mercury Asset Management pIc (pub. avail. Apr. 16, 1993)
("Mercury Asset Management"); The National Mutual Group
(pub. avail. Mar. 8, 1993) ("National Mutual"); Uniao de
Bancos de Brasileiros S.A. (pub. avail. July 28, 1992)
( "Unibanco") .

~/

See Mercury Asset Management, National Mutual, Unibanco
supra.

~/

See Kleinwort Benson Investment Management Limited (pub.
avail. Dec. 15, 1993) ("KIleinwort Benson"). A registered
adviser is obligated to monitor the activities of associated
persons. See,~, Sections 203(e) (5) and 204A of the
Advisers Act.
- 2 ­

access to, U.S. advisory activities, and to the affiliates'
personnel, to the extent necessary to monitor and police conduct
that may harm U.S. clients or markets. a/
On the basis of the facts and representations in your
letter, and without necessarily agreeing with your legal
analysis, we would not recommend that the Commission take any
enforcement action if MJI does not comply with the following
provisions of the Advisers Act and rules thereunder with respect
to its foreign clients: ~/
(i)
subparagraphs (3) and (7) of paragraph (a) of Rule 204-2
with respect to transactions involving foreign clients that do
not relate to advisory services performed by it on behalf of U.S.
clients or to related securities transactions; 7/
(ii)
subparagraphs (8), (9), (10), (11), (14), (15), and (16)
of paragraph (a) of Rule 204-2 and all of paragraph (b) of Rule
204-2 with respect to transactions involving, or representations
or disclosures made to, foreign clients;
(iii)

Sections 205,

20(~ (3),

and 215 (b); and

(iv)

Rules 204-3, 206(L.)-1, 206(4)-2, 206(4)-3, and 206(4)-4.

Furthermore, to the extent that the acts or omissions of MJI
involve no conduct, or have no effects, in the U.S., or have no
effects on U.S. clients of MJI, we would not recommend
enforcement action to the Commission against MJI for failing to
enforce any policies or procedures required by or established
pursuant to Section 204A, or for acts or omissions that violate
subparagraphs (1), (2), or (4) of Section 206.

a/

See Kleinwort BensJn, supra.

~/

You define the term "foreign client" as meaning a person who
is not a U.S. client. The staff looks to the definition of
U.S. person in paragraph 902(0) of Regulation S under the
Securities Act of 1933 for guidance in interpreting the
meaning of U.S. client in this no-action response. For the
purposes of this r;sponse, U.S. client includes members of
identifiable group.:; of U. S. citizens abroad, such as members
of the U.S. armed :orces serving overseas. Of course,
investment advice:>rovided in the U.S., whether to U.S.
residents or foreiln residents, must be provided in
accordance with the Advis~rs Act.

2/

The Division interprets the term "related securities
transaction" broadly.
- 3 ­

We further would not recommend that the Commission take any
enforcement action if the Participating Affiliates provide
investment advice to U.S. persons through MJI as described in
your letter without registering under the Advisers Act. Our
position is based on the facts and representations in your
letter, which because of their importance are restated below.
MJI:
MJI represents that:
1.
it will comply in all respects with all the
requirements of the Advisers Act with respect to its U.S.
clients;
2.
it will maintain all books and records in accordance
with Rule 204-2 under the Advisers Act with respect to its
foreign clients, except as specifically stated above;
3.
it will promptly provide to the Commission or the staff
upon receipt of an administrative subpoena, demand, or request
for voluntary cJoperation made during a routine or special
inspection or olherwise, any and all books and records undertaken
in the request t,) be kept, and those required to be kept by
foreign law; ~/
4.
it will promptly make available for testimony before,
or other questioning by, the Commission or the staff, upon
receipt of an administrative subpoena, demand, or a request for
voluntary cooperation'made during a routine or special inspection
or otherwise, any and all of its personnel, with the exception of,
clerical or ministerial personnel;
5.
it will list on its Form ADV all directors of MJI and
each investment manager of MJI (whether or not also a director of
MJI) who provides advice to U.S. clients, and the names of all
individuals and Participating Affiliates involved in generating
investment advice to be used for or on behalf of U.S. clients and
the required biographical and ownership information for all such
individuals and Participating Affiliates;
6.
it will not hold itself out to foreign clients as being
registered under the Advisers Act. Where communications are sent
to both U.S. and foreign clients, (i) separate communications
will be sent, (ii) references to MJI's registration under the
Advisers Act will be deleted in communications with foreign
clients; or (iii) the communication with foreign clients will
make clear that MJI will be complying with the Advisers Act only
with respect to U.S. clients;
...
~/

See supra note 1.
- 4 ­

7.
any advice given to u.s. persons from Participating
Affiliates will be given through MJI or through employees of
Participating Affiliates participating in MJI's u.s. advisory
business;
8.
it will deem as an lIassociated person n each
Participating Affiliate and each employee of the Participating
Affiliate whose functions or duties relate to the determination
and recommendations that MJI makes to its u.s. clients, or who
has access to any information concerning which securities are
being recommended to MJI's u.s. clients prior to the effective
dissemination of the recommendations (including dealing room
personnel, if trades for MJI clients are placed for execution
with any affiliate of MJI) .
Participating Affiliates:
Each Participating Affiliate represents that:
A
it will keep books and records of the type described in
Rules ~'04-2 (a) (1), (2), (4), (5), and (6) and 204-2 (c) for all
transactions. With respect to transactions involving u.s.
clients and all related transactions, the Participating
Affiliat~s also will retain records of the type described in Rule
204-2(a) (3) and (7). It also will maintain the staff trading
records required by Rule 204-2(a) (12) for all of its lIadvisory
representatives II who are involved in giving advice to u.s.
clients; ~/ All the books and records described above will be
maintained and preserved in an easily accessible place in the
country where such records are kept for a period of not less than
five yRars from the end of the fiscal year during which the last
entry Has made on such book or record. To the extent that any
boo~s and records are not kept in English, the Participating
Affilicite will cause such books and records to be translated into
Englis~l upon reaspnable advance request by the Commission or the
Commis:lion's staff;
B.
it will promptly, upon receipt of an administrative
subpoena, demand or a request for voluntary cooperation made
during a routine or special inspection or otherwise, provide to
the Commission or to the staff any and all of the books and
record:3 described in paragraph A above ,and make available for
testimJny before, or other questioning by, the Commission or the
staff any .and all personnel (other than clerical or ministerial
~/

Y,)U state that employees of the Murray Johnstone Group who
maintain or have access to MJI's records will be treated as
nadvisory representative~n of MJI. You further state that
all persons deemed to benassociated persons n of MJI also
will be treated as advisory representatives of MJI.
- 5 ­

personnel} identified by the Commission, the staff, MJI or any
Participating Affiliate, as having access to or having been
involved in giving advice to be used for or on behalf of MJI's
U.S. clients or related transactions, at such place as the
Commission may designate in the U.S. or, at the Commission's
option, in the country where the records are kept or such
personnel reside. Participating Affiliates will authorize all
personnel described in the preceding sentence to testify about
all advice to be used for or on behalf of MJI's U.S. clients and
any related transactions (except with respect to the identity of
foreign clients). Participating Affiliates will not (except with
respect to the identity of foreign clients) contest the validity
of administrative subpoenas for testimony or documents under any
laws or regulations other than those of the U.S.; 10/
C.
it (i) will submit to the jurisdiction of the U.S.
courts for actions arising under the U.S. securities laws in
connection with investment advisory activities for U.S. clients
of MJI, and (ii) will appoint an agent resident in the U.S. for
service of process upon whom may be served all process,
pleadings, or other papers in (a) any investigation or
administrative proceeding conducted by the Commission, and (b)
any civil suit or action brought against MJI and/or the
Participating Affiliate or to which MJI or the participating
Affiliate has been joined as defendant or respondent, in
connection with the investment advisory activities and related
securities activities arising out of or relating to any
investment advisory services provided to U.S. clients or any
related transaction. Each Participating Affiliate will also
appoint a successor agent if the Participating Affiliate or any
person discharges the agent or the agent is unwilling or unable
to accept service on behalf of the Participating Affiliate at any
time until six years have elapsed from the date of the last MJI
investment advisory activity. No Participating Affiliate will
have access to or provide investment advice to be used for or on
behalf of MJI's U.S. clients until documents effecting the
appointment of an agent have been filed by the Participating
Affiliate with the Commission in the form of the document
attached as Exhibit A to your letter of July 21, 1994. 11/
The proposed activities of the Participating Affiliates are
similar to activities for which the Division previously has
granted no-action relief. The Murray Johnstone Group proposes,
in addition, that the MJL Jersey Subsidiary continue to have U.S.
clients without holding itself out generally to the public in the

10/

See supra note 1.

11/

See supra note 1.
- 6 ­

u.s. as an investment adviser 12/ in reliance on the exemption
from registration under Section 203(b) (3) of the Advisers
Act. ~/ The MJL Jersey Subsidiary provides investment advisory
services to Murray Johnstone LBO Fund L.P., a limited partnership
organized under the laws of Delaware (the "LBO Fund"). You are
concerned that the MJL Jersey Subsidiary might not be able to
rely on its exemption from registration under Section 203(b) (3)
because of its relationship with certain entities within the
Murray Johnstone Group. 14/ You believe, however, that the
activities-of the MJL Jersey Subsidiary are separate and
independent from those of MJl and the Participating Affiliates so
that the MJL Jersey Subsidiary may continue to advise u.S.
clients and remain exempt from Advisers Act registration, even if
the Murray Johnstone Group proceeds with the proposal outlined in
your letter.
We would not recommend that the Commission take any
enforcement action if the MJL Jersey Subsidiary does not
integrate with MJl for purposes of Section 203(b) (3) and provides
advice directly to u.S. clients in reliance on its exemption from
registration. Our position is based on the facts and
representations in your letter, especially that the MJL Jersey

12/

See supra note 1.

13/

Under Section 203(b) (3), an investment adviser that has
fewer than fifteen clients and does not hold itself out
generally to the public as an investment adviser need not
register with the Commission under the Advisers Act. ,A
foreign adviser seeking to rely on Section 203(b) (3) need
only count its u.S. clients towards the fifteen client
limit, and may not hold itself out to the public in the U.S.
as an investment adviser. See,~, Murray Johnstone Ltd ..
(pub. avail. Apr. 17, 1987); Alexander, Holburn, Beaudin &
Lang (pub. avail. Aug. 13, 1984).

14/

You acknowledge that the MJL Jersey Subsidiary contracts for
investment advice from the "Venture Capital Team," which is
controlled and managed by Murray Johnstone Private Equity
'Limited ("Private Equity"), a wholly owned subsidiary of
Murray Johnstone. You represent that although MJl, Murray
Johnstone and Private Equity have three directors in common,
these directors will not be involved in any investment
advice given to the MJL Jersey Subsidiary, the LBO Fund or
to MJl. You further represent that Murray Johnstone and
Private Equity have four 9ther-directors in common, but that
these directors will not be involved in any investment
advice given to MJl or non-venture capital clients of Murray
Johnstone.
- 7 ­

---

Subsidiary will be operated separately and independently from the
rest of the Murray Johnstone Group. 15/
You also are concerned that the MJL Jersey Subsidiary might
not be able to rely on its exemption from registration under
Section 203(b) (3) because of its affiliation with entities
outside of the Murray Johnstone Group that are engaged in
investment management. You have requested our assurance that we
would not recommend enforcement action to the Commission if the
MJL.Jersey Subsidiary considers only the entities within the
Murray Johnstone Group as "related persons" for the purpose of
counting the number of the MJL Jersey Subsidiary's u.S. clients
under Rule 203(b) (3)-1. Under Rule 203(b) (3)-1, an adviser to a
limited partnership may count only the limited partnership,
instead of each limited partner, towards the fewer than fifteen
client limit of Section 203(b) (3). If, however, a limited
partner also is a client of a "related person," that is, a person
with whom the adviser is under common control, then the adviser
must count that limited partner as a client for purposes of the
Rule.
You state that, in addition to MJ Holdings, UAM holds 35
companies ("UAM Affiliates") engaged in institutional investment
management. You state that, although each UAM Affiliate operates
independently of UAM under its own name and under its own
management, the MJL Jersey Subsidiary would consider the UAM
Affiliates as "related persons" under the Rule. You further
state that, because the limited partners of the LBO Fund are
substantial institutional investors with a wide range of
advisers, it is very possible that they also may be advisory
clients of entities within the broad network of independent
advisers assembled by UAM. This could require the MJL Jersey
Subsidiary to count the limited partners of the LBO Fund as
clients and cause the MJL Jersey Subsidiary to lose its exemption
from registration. 16/ You believe that, because of the Murray
Johnstone Group's independence from UAM and the UAM Affiliates,
15/

See Prudential-Bache Special Situations Fund (pub. avail.
Sept. 6, 1984) - (companies affiliated with a registered
investment adviser that are not operated separately from the
registrant and use its name, should be integrated with the
registrant for Section 203(b) (3) purposes and regulated
under the Advisers Act); Davis, Skaggs & Co., Inc. (pub.
avail. Aug. 21, 1981) (affiliate of registered adviser did
not have to be integrated with the registrant for Section
203(b) (3) purposes where the affiliate was operated
separately from the registered adviser in terms of
financing, sources of inf~r.mation, and personnel) .

16/

You state, however, that the LBO Fund currently has only
twelve U.S. limited partners.
- 8 ­

Rule 203(b) (3)-J. should be applied only within the Group for
purposes of determining the number of u.s. clients of the MJL
Jersey Subsidiary.
We would not recommend that the Commission take any
enforcement action if the Murray Johnstone Group considers only
the entities within the Group as "related persons" within the
meaning of Rule 203(b) (3)-J. for the purposes of determini~g the
number of U.S. clients of the MJL Jersey Subsidiary. J.7/
Because these positions are based on the facts and
representations in your letter, you should note that any
different facts or representations may require a different
conclusion. Further, this response expresses the Division's
position on enforcement action only, and does not purport to
express any legal conclusions on the questions presented.

~~?~
Alison E. Baur
Senior Counsel

J.7/

You also ask if unregistered entities within the Murray
Johnstone Group can provide investment advice to foreign
clients solely in accordance with applicable foreign law
without being required to register under the Advisers Act
and without complying with its provisions, so long as these
activities do not involve conduct or effects in the U.S. We
note that, as a condition of this no-action relief, the
Participating Affiliates will comply with certain
recordkeeping provisions of the Advisers Act for all
transactions. Assuming that the unregistered entities'
activities with foreign cfients do not involve conduct or
effects in the U.S., they-need not- register separately under
the Advisers Act.
- 9 ­

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RES/PC/LJW0325F
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Office of Chief Counsel
Division of Investment Management
securities and Exchange Commission
450 5th street, N.W.
Washington, D.C. 20549
Re:

The Murray Johnstone Group
A.
B.

c.

D.
E.
F.

Requests for Assurances
The Murray Johnstone Group
The Conduct and Effects Tests
Proposals and Discussion of Requests Nos. 1 and 2
Undertakings for Requests Nos. 1 and 2
Discussion of Request No. 3

Ladies and Gentlemen:
We are counsel to Murray J~hnstone Holdings Limited,
a limited liability company organized under the laws of
Scotland ("MJ Holdings"), and its wholly owned subsidiaries,
Murray Johnstone Limited ("Murray Johnstone") and Murray
. Johnstone International Limited ("MJI"), each a limited
iiability company organized under the laws of Scotland. MJI
is a registered adviser under the Investment Advisers Act of
1940, as amended (the "Advisers Act"). MJ Holdings recently
became a wholly owned sUbsidiary of United Asset Management
Corporation ("UAM"), as more fully discussed below.
A.

MAIN

1'I:LI:CO"'C": 4lil-15SH7-33·_

ONE GATEWAY CENTER. SUITE 403

TEL£co ..

"M

1'I:LI:....ON£: 49·6lil-lil7'-442·0

Requests for Assurances

On behalf of MJ Holdings and its controlled
affiliates, including Murray Johnstone and MJI and excluding
U~ and UAM's other controlled affiliates (MJ Holdings and its
controlled affiliates are l\ereirt referred to as the "Murray
Johnstone Group"), we request assurance that the staff (the
"Staff") of the Division of Investment Management (the
"Division") of the securities and EA~hange Commission (the
1

--------- ._---------­
At. LIST ~ PAA'TNERS IS AVAJLA8L.£ AT TWO THAOGMOATON AVENUI;. LONDON EC2N 20L IPRtNCJPA.L. U.K. PLACE OF BUSINESSI

'.',

Office of General Counsel
Division of Investment Management
Securities and Exchange Commission
July 21, 1994
"Commission") would not recommend enforcement action to the
Commission if, as more fully described in this letter:
1.
Entities within the Murray JOhllstone Group
other than MJI do not register under the Advi~ers Act,
notwithstanding that -­
(a) MJI provides investment advisory services
to United states clients,·
(b) such entities provide investment advisory
services to foreign clients2 solely in accordance with
applicable foreign law,
(c) such entities provide inVf:stment advisory
services to United states clients through MJI either
directly or by having personnel from such entities
participate in the U.S. investment advis(lry business of
MJI (such entities, "Participating Affiliates"), and
(d)· such entities other than Participating
Affiliates solicit or have U.S. clients independently of
MJI so long as such entities are exempt from such
registration under the Advisers Act;
2.
MJI provides investment advi~ory services to
foreign clients solely in accordance with applicable foreign
law without also complying with the provisiors of the Advisers
Act, and in particular:
(a) without complying with the following
provisions of the Advisers Act and the rules thereunder
with respect to its relationships with its foreign
clients -­
(i) subparagraphs (3) and (7) of
paragraph (a) of Rule 204-2 with respect to
I
For purposes of this request letter, the term
"united states clients" means those persons included within
the definition of "U.S. person" set forth in section 902(0) of
Regulation S under the Securities Act of 1933, as amended, and
members of identifiable groups of United states citizens
abroad such as members of the United states armed forces
serving overseas.
~

2
For purposes of this request letter, the term
"foreign clients" means those persons who are not United
states clients.

2

.,

.~

. ,.

-'.
.

,.

,.,

Office of General Counsel
Division of Investment Management
securities and Exchange Commission
July 21, 1994
transactions involving foreign clients that do not
relate to advisory services performed by it on
behalf of United states clients or to related
securities transactions,3
(ii) SUbparagraphs (8), (9), (10), (11),
(14), (15) and (16) of paragraph (a) of Rule 204-2
and all of paragraph (b) of Rule 204-2 with respect
to transactions involving, or representations or
disclosures made to, foreign clients,
(iii) Sections 205, 206(3), and 215(b) of
the Advisers Act, and
(iv) Rules 204-3, 206(4)-1, 206(4)-2,
206(4)-3, and 206(4)-4, and
(b) to the extent that the acts or omissions o~
MJI involve no conduct, or have no effects, in the unite~
States, or have no effects on United States clients of
MJI -­
(i) without enforcing any policies or
procedures required by or established pursuant to
section 204A, or
(ii) by engaging in acts or omis~ions that
violate subparagraphs (1),. (2) or (4) of section 200;
and
3.
The MJL Jersey SUbsidiary (as defined below)
does not register as an investment adviser in reliance upon
the exemption from registration set forth in Rule 203(b) (3)
under the Advisers Act, based upon the inclusion of only
entities within the Murray Johnstone Group, and not other
affiliates of UAM, among "related persons" within the meaning
of Rule 203(b) (3)-1(a) (1) and (3) under the Advisers Act.
B.

The Murray Johnstone Group

The Murray Johnstone Group is one of Scotland's
largest investment management groups. ,In addition to Murray
Johnstone and MJI, MJ Holdings has a third wholly owned
subsidiary, Murray Johnstone (General Partner) Limited, a

.

3
The Murray Johnstone Group understand "related
securities transaction" to be interpreted broadly by the
Staff.
3

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Office of General Counsel
Division of Investment Management
Securities and Exchange Commission
July 21, 1994

•

limited liability company organized under the laws of England,
and MJ Holdings, through Murray Johnstone, holds 50% or more
of twelve more affiliates, including wholly owned Murray
Johnstone Buyout Management (Jersey) LTD, a limited liability
company organized under the laws of Jersey (the "MJL Jersey
SUbsidiary") • 4 MJ Holdings may in the future have other
controlled affiliates, all of which for purposes of this
request letter will be included in the Murray Johnstone Group.
Murray Johnstone has headquarters in Glasgow and
offices in London, Manchester and Paris. MJI has headquarters
in Glasgow and an office in Chicago. As of February 28, 1994,
the Murray Johnstone Group had approximately $7.5 billion in
assets under discretionary and non-discretionary management in
six principal areas: investment trusts; uni~ trusts; pension
funds, international investment services; unquoted
investments; and United Kingdom private clients. MUl'ray
Johnstone and MJI are regulated in the united Kingdon by the
Inve-stment Management Regulatory Organisation ("IMRO".', a
self-regulatory organization sanctioned by the united
Kingdom's Financial Services Act of 1986. In addition, two
subsidiaries of Murray Johnstone are regulated by IMRO and
another sUbsidiary is regulated by IMRO and the Life Assurance

4
Seven other of such subsidiaries are wholl}' owned.
They are, with their jurisdictions of organization aIld the
areas in which they principally conduct activities: Murray
Johnstone unit Trust Management Limited, scotland, ul1it
trusts; Murray Johnstone (Jersey) Limited, Jersey, venture
capital, property and investment trust management; Murray
Johnstone Private Equity Limited, Scotland, venture capital;
Murray Johnstone Investment Trust Management Limited
Scotland, investment trusts; Murray Johnstone Asset ltanagement
Limited, Scotland, pension"funds; Murray Johnstone Ellrope
Limited, Scotland, a non-trading sUbsidiary; and BIG-{General-­
'Partner) Limited, Scotland, venture capital. The other four
of such Subsidiaries, with their jurisdictions of
organization, the areas in which they principally co~\duct
activities and their percentage ownership by Murray Johnstone,
are: Embankment Managemen~ Limited, scotland, property,
66.67'; Murray Johnstone Personal Asset Management LTD,
Scotland, united Kingdom private Clients, 60%; Murray Avenir
Finance SA, France, venture capital, 50%; and Euractions
Management Limited, Scotland, venture capital, 50%.
I

4

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Office of General Counsel
Division of Investment Management
securities and Exchange Commission
July 21, 1994

'

i!

and Unit Trust Regulatory Organisation ("LAUTRO"), a self­
regulatory organization sanctioned under the Financial
services Act of 1986. 5
­
MJI was formed to provide investment advisory
services to United states clients. No member of the Murray
Johnstone Group other than MJI is registered under the
Advisers Act. MJI obtains research from the Murray Johnstone
Group and contracts with other research providers for research
that is not available from the Murray Johnstone Group. MJI is
staffed with personnel who are capable of providing investment
advice, as disclosed in its Form ADV on file with the
­
Commission, currently consisting of six investment
professionals with a total of 44 years of service with the
Murray Johnstone Group and 53 years of experience in the
investment advisory industry.
The MJL Jersey SUbsidiary provides investment
advisory services to Murray Johnstone LBO Fm:d L.P., a limited
partnership organized under the laws of Delaw;,re (the "LBO
Fund"). The LBO Fund currently has 12 united states limited
partners. The MJL Jersey SUbsidiary is not registered as an
investment adviser under the Advisers Act in reliance upon
Section 203(b) (3) of the Advisers Act, which provides under
certain conditions an exemption from registration for advisers
with fewer than fifteen clients, and Rule 203(b) (3)-1 under
the Advisers Act, which provides a safe harbor under certain
conditions allowing a partnership, rather than each of its
limited partners, to be counted as an advisee's investment
advisory client.
The MJL Jersey Subsidiary- as general
partner of the LBO Fund, receives compensation that would be
considered a performance fee that, generally, a registered
investment adviser would be prohibited from receiving pursuant
to section 205 of the Advisers Act.

S
The subsidiaries regulated by IMRO are Murray
_.. Johnstone Personal Asset-Management Limited and BIG (General
Partner) Limited. The SUbsidiary regulated by IMRO and LAUTRO
is Murray Johnstone Unit Trust Management Ltd.
6
In a no-action letter issued April 17, 1987, the
Staff assured Murray Johnstone~that~the Staff would not seek
enforcement action under section 203 if Murray Johnstone
organized the MJL Jersey SUbsidiary and the entities operated
as described in Murray Johnstone's request for such no-action
le-tter.

5

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.Office of General Counsel
Division of Investment Management
Securities and E~change Commission
July 21, 1994
The operations of Murray Johnstone and MJI are
currently structured-to follow the conditions set forth by the
Staff in Richard Ellis (pub. avail. September 17, 1981),7 in
order that Murray Johnstone not be required to register as an
investment adviser under the Advisers Act.·
On November 16, 1993, UAK acquired MJ Holdings
pursuant to a Recommended Offer conducted under United Kingd~m
law. On-that date, sUbject only to the completion of
acquisition procedures, MJ Holdings became an indirect wholly
owned sUbsidiary of UAM.

7
In Richard Ellis the Division permitted a foreign
investment adviser to avoid sUbjecting all of its -operations
to the Advisers Act by forming a separate and independent
sUbsidiary to provide advice to United States clients. Under
the Division's position in Richard Ellis, a sUbsidiary will be
"regarded as having a separate, independent existence and to
be functioning independently of its parent", thereby
_
permitting the foreign parent to raaain unregistered, only if
the sUbsidiary: (i) is adequately clpitalizedi (2) has a
buffer between the sUbsidiary' s per..~onnel and the parent, such
as a board of directors a majority ·)f whose members are
independent of the parent; (3) has ·~mployees, off icers and
directors, who, if engaged in providing advice in the day-to­
day business of the sUbsidiary entity, are not otherwise
engaged in an investment advisory business of the parenti (4)
makes the decisions as to what investment advice is to be
communicated to, or is to be used 0:1 behalf of, its clients
and has and uses sources of investm~nt information not limited
to its parent; and (5) keeps its in"lestment advice
confidential until communicated to .its clients.
I
In a no-action letter iss-ied October 3, 1980, the
Staff assured Murray Johnstone that the Staff would not seek
enforcement action if Murray Johnston~ did not register under
the Advisers Act as a result of activities conducted by a
joint venture controlled by Murray Johnstone which would_be
registered under the Advisers Act. This no action letter
became part of line of no action letters leading to Richard
Ellis.

6

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vffice of General Counsel
Division of Investment Management
securities and Exchange Commission
July 21, 1994

1­

C.

The Conduct and Effects Tests.

In May 1992 9 the Division reported on its
reexamination of its interpretation of the reach of the
Advisers Act and concluded that the policies and purposes of
the Advisers Act_and legal analyses that have been applied in
other securities law contexts, i.e., the conduct and effects
tests,10 lead to the conclusion that a more flexible
interpretation is appropriate. The Division has applied the
conduct and effects tests in Uniao de Bancos Brasileiros S.A.
("Unibanco") (pub. avail. July 28, 1992), The National Mutual
Group ("NMG") (pub. avail. March 8, 1993), Mercury Asset
Management pIc ("MAM") (pub. avail. April 16, 1993) and
Kleinwort Benson Investment Management Limited et. al
("Kleinwort") (pub. avail. December 15,1993).
In Unibanco the t'ivision reconsidered the position
taken in Richard Ellis concerning the conditions required for
a registered investment adv.i.ser to be considered SUfficiently
separate from its foreign parent to not require the foreign
parent to register under the Advisers Act. As the Division
stated in Unibanco, while the Richard Ellis conditions provide
a framework that permits foreign investment advisers to offer
advice to clients in the United states, many foreign
investment advisers find-it difficult to operate under the
Richard Ellis conditions. The Division also stated that,
9
SEC Division of ~:nvestment Management, Protecting
Investors: A Half century of Investment Company Regulation,
Chapter 5, The Reach of thH Investment Advisers Act of 1940
(May 1992).

10
Under a conduct 1:est, conduct that takes place in
United States, wholly or in substantial part, would be
sufficient to justify application of the securities laws.
See, e.g., Leasco Data Processing Equip. Corp. v. Maxwell, 463
F.2d 1326 (2d Cir. 1972); Continental Grain (Australia) Pty.
Ltd. v. Pacific oilseeds, ::nc., 592 F.2d 409, 421 (8th Cir.
1979) (misrepresentations nade in the United states for
securities transactions cOBsummated abroad). Under an effects
test, the securities laws "ould be applied to conduct outside
the territory of the Unitel} States that has or is intended to
have substantial effects w.:.thin the United states.·. See, e.g.,
Consolidated Gold Fields, ~LC v. Minorco, S.A., 871 F.2d 252
(2d Cir. 1989), Barsch v. Drexel Firestone, 519 F.2d 974, 993
(2d cir.), .cert. denied, 423 U.S. 1018 (1975); Schoenbaum v.
Firstbrook, 405 F.2d 200(2d cir.), rev'd on other grounds, 405
F.2d 216 (2d cir. 1968) (en bane), cert. denied, 395 U.S. 905
(1.969).

'~he

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-Office of General Counse1
Division of Investment Management
securities and Exchange Commission
July 21, 1994
consistent with the conduct and effects approach, the Division
will allow non-United states advisers greater flexibility than
permitted under Richard Ellis in organizing United states­
registered subsidiaries. The Division will recognize
separateness if:
(i)

the affiliated companies are separately
organized (e.g., two distinct entities);

(ii)

the registered entity is staffed with personnel
(Whether physically located in the united
states or abroad) who are capable of providing
investment advice;

(iii)

all persons involved in the United states
advisory activities are deemed "associated
per:.ons"ll of the registrant; and

(iv)

the :ommission has adequate access to trading
and ~ther records of each affiliate involved in
the United states advisory activities, and to
its personnel, to the extent necessary to
monitor and police conduct that may harm United.
states clients or markets.

In Unibanco the Division also stated that it would
not recommend enforcement action if Unibanco's U.S.-registered
SUbsidiary provide~ investment advice to its· non-U.S. clients
solely in accordan=e with the non-U.S. law that might apply to
the SUbsidiary's a=tivities with those non-U.S. Clients, so
long as they would not involve conduct or effects in the
United states.
In Unibanco the Staff was not called upon to
consider which specific provisions of the Advisers Act and the
11
Under section 202(a) (17) of the Advisers Act,
persons associated with an investment adviser include "any
partner, Officer, ~r director of such investment adviser (or
any -person performing similar functions), or--any person
directly or indirectly controlling or controlled by such
investment adviser, including any employee of such investment
adviser • • • [but not] persons • • • whose functions are
clerical or ministerial • • • .~ The Advisers Act imposes
certain obligations on a registered investment adviser with
respect to associated persons. See, e.g., sections 203(e) (5)
and 204A. MJI is obliged to monitor the activities of
associated persons. See, e.g., sections 203(e) (5) and 204A of
the'Advisers Act.

8

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Office of General Counsel
Division of Investment Management
Securities and Exchange Commission
July 21, 1994
rules thereunder need not, in light of the conduct and effects
analysis, be complied with by a U.s.-registered adviser with
respect to ,such adviser's non-U.S. clients. In NMG the Staff
was asked to consider this question with respect to certain
provisions and rules, and the Staff stated that, consistent
with the conduct and effects analysis and based on certain
conditions and undertakings, it would not recommend
enforcement action if four affiliated U.S.-registered advisers
did not comply with such provisions of the Advisers Act and
the rules thereunder with respect to their foreign clients.
Such provisions included certain record-keeping requirements.
In MAM the Staff stated that, consistent with the
conduct and effects analysis and based on certain conditions
and undertakings, (i) it would not recommend enforcement
action if the parent of a registered adviser were to register
but compl:' with the Advisers Act only with respect to its
united States clients and not with respect to foreign clients,
and (ii) if affiliates of the registered advisers (defined
therein, a.' in this request letter, as "Participating
Affiliates'" were to provide investment advice to united
states clients through the registered advisers without
registering under the Advisers Act. 12 In the area of record­
keeping, MAM took a different approach than that taken in NMG,
in that in MAM the registered adviser undertook to comply with
the record-keeping requirements of Rule 204-2 with respect to
all its clients, whereas in NMG the registered advisers did
not under~ake to comply with certain provisions of Rule 204-2
with resp2ct to its foreign clients. The Murray Johnstone
Group, while seeking assurances from the Staff based on MAM,
are, in tle area of record-keeping, making the undertakings
made in N'!G.
Similarly, in Kleinwort the Staff stated that,
consistent with the conduct and effects analysis and based on
certain conditions and undertakings, it would not recommend
enforcement action if unregistered affiliates of a registered
investment adviser (again, defined therein, as in this request
letter, a:; "Participating Affiliates") and the registered
investmenc adviser employ the same individuals (referred to as
"Dual Employees")- without the Participating Affiliates' -­
registeri~g under the Advisers Act.
In addition to making the
12
Also in NMG and MAM, the Staff stated that it would
look to Rule 902(o} of Regulation S under the Securities Act
of 1933, as amended, for guidance in interpreting "united
States person". This has led to the definitions given to
"united States client" and "foreign client" in this request
letter (see note 1).

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Office of General Counsel
Division of Investment Management
securities and Exchange Commission
July 21, 1994
undertakings made in MAM, the Murray Johnstone Group are
making certain undertakings made in Kleinwort.
'.

D.

Proposals and Discussion of Requests Nos. 1 and 2

The Murray Johnstone Group propose to institute, in
each case in accordance with applicable foreign law, the
structural and operational changes described below that are
intended to be consistent with Unibanco, NMG, MAM, Kleinwort
and the conduct and effects approach to the Advisers Act. The
request numbers contained in the sUbheadings below refer to
the requests for assurances set forth in section A hereof.
Request No. lea):

Reorganization of Group

Based on the Staff's position in Unibanco, the
Mvrray Johnstone Group propose to abandon their Richard Ellis
or~anizational structure with respect to Murray Johnstone and
MJI and reorganize their operations in accordance with the
criteria set forth in Unibanco. To satisfy such criteria:
(i) Murray Johnstone and MJI will continue to be separately
organized; (ii) MJI will continue to be staffed with personnel
capable of providing investment advice; (iii) all persons
involved in MJI's u.s. advisory activities will be deemed
"associated persons" of MJIi and (iv) as more fully stated in
the undertakings included herein, the Staff will have adequate
access to the records of each affiliate involved in the u.s.
advisory activities, and to its personnel. The Murray
Johnstone Group request the assurance that the Staff will not
seek enforcement action if entities within the Murray
Johnstone Group other than MJI do not register notwithstandinq
that MJI provides investment advisory services to united
states clients under this organizational structure.
Consistent with these general structural changes,
the Murray Johnstone Group want to be able to make. the
following specific changes.
Communication of Investment Advice. The Murray
Johnstone Group desire that MJI not be required, as it would
te under the Richard Ellis conditions, to keep its investment
advice to its clients confidential from other entities (or
employees thereof) within the Murray Johnstone Group until
such advice is communicated to its clients. The Murray
Johnstone Group want the Directors, officers and employees of
any entity within the Murray Johnstone Group, inclUding MJI,
to be able to communicate with the Directors, officers and
employees of any other entity within the Murray Johnstone
10

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Office of General Counsel
... Division of Investment Management
securities and Exchange Commission
July 21, -1994
Group concerning any advice to be given to MJI's clients or
prospective clients before such advice is communicated to
MJI's clients or prospective clients. Any such employee so
communicating would be deemed an "associated person" of MJI,
and the entity employing such employee would be a
Participating Affiliate. u
Constitution of MJI's Board; Sharing of Facilities.
The Murray-Johnstone Group propose that they be able to
constitute the board of directors of MJI so that any director
of MJI may be a director, officer or employee of a
Participating Affiliate!4 within the Murray Johnstone Group.
This is not allowed under the Richard Ellis conditions. In
~addition, Participating Affiliates l5 and MJI want to be able
freely to share personnel (as long as those personnel
participating in MJI's u.s. advisory business, or having
access to any information concerning which securities are
being recommended to MJI's u.s. clients prior to the effective
dissemination of the recommendations, are deemed "associated
persons" of MJI) , office space, records, telephone lines and
other facilities.
Three senior directors sit on the Boards of
•
Directors of each of MJI, Murray Johnstone and Murray
Johnstone Private Equity Limited, a wholly owned sUbsidiary of
Murray Johnstone ("Private Equity"). Such senior directors
will be prevented from being involved in any decisions for or
recommendations as to specific securities transactions to the
MJL Jersey SUbsidiary and the LBO Fund, because all
communications between Private Equity and the MJL Jersey
Subsidiary will be through a subcommittee of the Private
Equity Board of Directors that does not include any of such
senior directors. Such senior directors also will be
prevented from being involved in any decisions for or
recommendations as to specific securities transactions to MJI.
Four other directors sit on the Boards of Directors of both
Murray Johnstone and Private Equity. Such other directors
will be prevented from being involved in decisions or
recommendations as to specific securities transactions to MJI­
and non-venture capital clients of Murray Johnstone, because
13
See undertaking No.9, below, for persons who will be
deemed "associated persons" of MJI.
~

14
And Private Equity, as described in the discussion of
Request No. led), below.
And Private Equity, as described in the discussion of
Request No. led), below.
15

11

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Office of General Counsel
Division of Investment Management
Securities and Exchange Commission
July 21, 1994
of the formal "Chinese Wall" procedures described in the
discussion of Request No. l(d), below.
Request No. l(b):
Entities

Foreign Clients of Unregistered

Based on the conduct and effects analysis as stated
-in Unibanco, NMG, MAM and Kleinwort, the Murray Johnstone
Group propose that its entities other than MJI be able to
advise foreign clients solely in accordance with applicable
foreign law without being required thereby to register under
the Advisers Act and without complying with the provisions of
the Advisers Act, so long as such activities do not constitute
conduct within the territory of the united states and do not
have and are not intended to have substantial effects within
the United states. We believe this is consistent with the
conduct and effects analysis. In NMG the Staff stated that
the substantive provisions of the Advisers Act generally need
not govern the relationships between an investment adviser
located outside the united states and its foreign clients,
even though the adviser has registered under the Advisers Act,
unless the adviser's activities with foreign clients involve
conduct or effects in the United states.
Reguest No. l(c): Provision of Investment Advice by
Participating Affiliates through MJI either directly or
by having Personnel Involved in MJI's U.s. Advisory'
Business
Based on the Staff's position in MAM and the
undertakings included herein, the Murray Johnstone Group
propose that Participating Affiliates. be able to provide
investment advice to United states clients through MJI. Such
advice would be provided either directly through MJI or by the
dedication of personnel of Participating Affiliates to MJI to
thereby give united states clients access to the services of
such personnel. Thus, they want to have employees of any
Participating Affiliate, including Directors, officers,
portfolio managers, research analysts and other employees
whose functions or duties relate to the determination of
recommendations to clients, to be able to participate in MJI's
U.s. investment advisory business, without such Participating
Affiliate being required thereby ~o register under the
Advisers Act or, except to t~e extent of the Participating
Affiliates' undertakings in this letter, being sUbject to the
Advisers Act or the regulations thereunder.

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Office of General Counsel
Division of Investment Management
Securities and Exchange Commission
July 21, 1994

I

.

Such participation would include investment advisory
activities within the territory of the United States and
activities.outside of the united States that may.have, or that
may be intended to have, substantial effects within the united
States; on investors or markets. It would include any
investm~nt advice rendered to MJI's clients and it might
include activities that range from employment byMJI to formal
or info-~al secondment to MJI to communicating to MJI's
clients from the Participating Affiliate's offices or
elsewhere. In any event, all such personnel so participating
in MJI's U.S. advisory business, or having access to any
information concerning which securities are being recommended
to MJI's U.S. clients prior to the effective dissemination of
the rec.)mmendations, while they may not be directors, officers
or empl·,yees of MJI, will be deemed to be "a~sociated persons"
of MJI Eor purposes of. the Advisers Act. MJI will maintain
its own personnel who are capable of providing investment
advice.

~.

Request No. led): united states Clients of Entities
Within Group other than MJI and Participating Affiliates
so long as Exemption from Registration is Available
In Unibanco no·affiliate of Unibanco other than its
U.S.-registered SUbsidiary was engaged in the investment
manag~ment business, and Unibanco represented that its did not
currently provide advisory services to united States clients
(as that term is used therein) and would not solicit United
States advisory clients in the future. This is not the
situation with the Murray Johnstone Group. The MJL Jersey
SUbsidiary has a United States advisory client (the LBO Fund)
but is exempt from registration under the Advisers Act.
The MJL Jersey SUbsi~iary is independent from MJI
and all Murray Johnstone Group entities that will be
Participating Affiliates, with the exception of a contract for
investment advice between the MJL Jersey SUbsidiary and Murray
Johnstone, as described below. The MJL Jersey SUbsidiary is a
separately organized Jersey company with paid-in capital of
50,000 shares of $1.00 each,-all of which are owned by Murray--­
Johnstone. At December 31, 1993 the MJL Jersey SUbsidiary had
a net worth of £615,000.
The LBO Fund is fully invested and will make no new
investments. It was organiz~d on January 21, 1988 and under
its constituent documents will terminate on January 21, 1998.
It is in the divestment stage of its existence although it has
about ~ of 1% of its original funds available for the
refinancing of existing portfolio inv~stments•

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Office of General Counsel
Division of Investment Management
Securities and Exchange Commission
July 21, 1994
The MJL Jersey SUbsidiary is the General Partner of
the LBO Fund and as such is responsible for the investment,
divestment 'and refinancing decisions of the LBO Fund. The MJL
Jersey SUbsidiary has a Board of Directors all of whom are
independent from the Murray Johnstone Group. The Directors
are professionals experienced in the investment business and
capable of rendering investment advice to the LBO Fund.
Because the LBO Fund is nearing its termination the only work
remaining for the MJL Jersey SUbsidiary is to maintain the
present portfolio and short-term investments, to refinance
existing investments and to complete divestments of portfol~o
investments before termination of the LBO Fund. The MJL
Jersey SUbsidiary contracts out and delegates all of its
administrative functions to an independent Jersey company that
is affiliated with an international accounting firm and which
specializes in fund administration (the "Fund Administrator").
All of the MJL Jersey SUbsidiary's and the LBO Fund's books
and records are kept by the Fund Administrator in Jersey and
are audited by an unrelated prominent accounting firm.
Similarly, their bank accounts are maintained with a Jersey
financial institution. All of the MJL Jersey Subsidiary's
operations are located in Jersey and are physically separated
from the rest of the Murray Johnstone Group. Meetings of the
Directors of the MJL Jersey Subsidiary are held in Jersey on a
regular quarterly basis and whenever an investment, divestment
or refinancing of the LBO Fund is being considered. All
documents and instructions required to complete an investment,
divestment or refinancing transaction are executed in Jersey
by Directors of the MJL Jersey SUbsidiary. The Directors of
the MJL Jersey SUbsidiary review and approve reports that are
sent from Jersey to the LBO Fund's investors.
The Directors of the MJL Jersey SUbsidiary are
responsible for and actually make the investment decisions for
the LBO Fund. Neither the Venture Capital Team (referred to
below), Private Equity nor any other person or group within
the Murray Johnstone Group has authority to make decisions on
behalf of the MJL Jersey SUbsidiary or the LBO Fund •. As the
Directors conduct all of the activities of the MJL Jersey
SUbsidiary that are not delegated to the Fund Administrator,
----the MJL Jersey SUbsidiary has no full-time employees.- Under
its contracts with the Fund Administrator and Murray
Johnstone, the MJL Jersey SUbsidiary pays each of Murray
Johnstone and the Fund Administrator a fee and can terminate
the contract for either of the Fund Administrator's or Murray
Johnstone's services. The Di~ectors of the MJL Jersey
SUbsidiary can use information in their investment decision­
making process other than information supplied by Murray
Johnstone.
14
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Office of General Counsel
Division of Investment Management
securities and Exchange Commission
July 21, 1994
The MJL Jersey SUbsidiary contracts for investment
advice from the venture capital team (the "Venture Capital
Team") within Murray Johnstone. The Venture Capital Team is
controlled and managed b~' Private Equity. Private Equity is
the vehicle responsible tor the venture capital operations
within the Murray Johnstone Group. The Venture Capital Team
reports to the Board of Directors of Private Equity and is
sUbject to Private Equit:"s management and control. The Board
of Directors of Private Equity is comprised of 12 people, nine
of whom are members of the Venture capital Team and three of
whom are senior directors of Murray Johnstone. The Board of
Private Equity meets quarterly, although each investment
proposal is circulated afl it comes up to all directors.
Investment recommendatio!1s absent a Board meeting may be
approved by a subcommittne of the Board of Private Equity
consisting of two directors from the Venture capital Team and
one director who is a senior director of Murray Johnstone.
That subcommittee meets as required.
The activities of the Venture Capital Team and
Private Equity are separated from the remainder of Murray
Johnstone and the rest of the Murray Johnstone Group through
formal "Chinese wall" procedures. These procedures are in
effect to prevent the possibility that privileged or price­
sensitive information knoWn to members of the Venture Capital
Team become known to those within the Murray Johnstone Group
responsible for managing quoted investment portfolios. The
Venture Capital Team is the only part of the Murray Johnstone
Group that advises on venture capital investments. Because
MJI has only quoted inve~;tment advisory operations and no
venture capital advisory operations, there is a Chinese wall
in place between the Venture capital Team and MJI. Although
the three Murray Johnstone senior directors mentioned above
are on the MJI Board there are no members of the Venture
Capital Team on the MJI Board. Four directors of Private
Equity who are members of the Venture Capital Team are also
directors of Murray Johnstone. Other than the three senior
directors of Murray Johnstone mentioned above who sit on the
Board of Private Equity, no employee of the Murray Johnstone
Group outside of the Venture capital Team has knowledge of the
Venture Capital Team's advice before it is rendered to its
clients, including to the MJL Jersey Subsidiary. There is one
safety mechanism in the Chinese wall procedures that for
regulatory compliance allows the Venture Capital Team to
order, without giving specific details, other sectors of the
Murray Johnstone Group to noe trade in particular securities
because-of activities that the Venture Capital Team is
recommending or contemplating if there is a risk that anyone
in the Murray Johnstone Group outside the Venture Capital Team
could benefit by suc~ trading. Because of the nature of
15­

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Office of General Counsel
Division of Investment Management
securities and Exchange Commission
July 21, 1994
venture capital, the investments of the Venture Capital
Team -- which are illiquid and non-public in nature -- are
not availaqle to others in the Murray Johnstone Group or their
clients.
The Murray Johnstone Group propose that the MJL
Jersey Subsidiary continue to be the General Partner of the
LBO Fund under its current terms ~ithout registering as an
investment adviser (continuing to rely on the- exemption from
registration set forth in section 203(b) (3) of the Advisers
Act or on another exemption from registration) or being deemed
a Participating Affiliate of MJI. In addition, the Murray
Johnstone Group propose that any other entity within the
Murray Johnstone Group other than MJI and Participating
Affiliates be able to solicit and have u.s. clients so long as
an exemption from registration unier the Advisers Act is
available to it and as long as such entity is operated
separately from MJI and the Participating Affiliates. 16 Each
such entity soliciting or having u.s. clients would register
under the Advisers Act if an exemption from such registration
were not available and would register under the Advisers Act
or become a Participating Affiliate if it were not operated
separately from MJI and the other Participating Affiliates.
Any such member that does so register would be treated as MJI
is treated in this request letter. For example, the MJL
Jersey SUbsidiary would continue to be able to provide
investment advisory services to its client fund so long as it
can rely on the exemption from rt"!gistration set forth .~.n
section 203 (b) (3) of the Advisers Act or on another eXf:mption
from registration.
We hope the Staff will agree that the fact tJ lat the
operations of the Murray Johnstone Group may be organi::ed as
described in this letter and in reliance on no-action
assurances of the type given in Unibanco, NMG, MAM and
Kleinwort should not preclude entities within the Murray
Johnstone Group other than MJI and Participating Affiliates
from availing themselves of exemptions from the requirp.ments
of the Advisers Act that are available to other persom.. The
anomalous effect of this preclusion would be to close c.
foreign adviser's access to the u.S. market -- access
available to other foreign advisers -- simply because i.t has
an affiliate that is a U.S.-registered adviser.

16
Such entity would be operated separately in accordance
with the Staff's position in Prudential Bache Special situation
FUnd (pub. a~ail. Oct 8, 1984).

16

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

Office of General Counsel
Division of Investment Management
securities and Exchange Commission
July 21, 1994
Request No.2:

Foreign Clients of MJI

Based on the Staff's position i~ NMG·, the Murray
Johnstone Group propose that MJI be able to advise foreign
clients solely in accordance with foreign law without
complying with the provisions of the Advisers Act, and in
particular without complying with the record-keeping and other
provisions .specified in Request No.2, so long as such
activities do not constitute conduct within the territory of
the united states and do not have and are not intended to have
substantial effects within the United states. We believe this
is consistent with the conduct and effects analysis. As
stated in the discussion of Request No. l(b) above, in NMG the
'Staff stated that the substantive provisie,ns of the Advisers
Act generally need not govern the relatioI.ships between an
investment adviser located outside the united states and its
foreign clients, even though the adviser has ragistered under
the Advisers Act, unless the adviser's activit.::es with foreign
clients involve conduct or effects in the unite1 states.
E.

Undertakings for Requests Nos. 1 and 2

As part of Requests Nos. 1 and 2 set forth in this
request letter, MJ Holdings, Murray Johnstone and MJI hereby
make the undertakings stated below.
1.

MJI will comply in all respects with all the requirements
of the Advisers Act with respect to its united states
clients.

2.

MJI will maintain all books and records in accordance
with Rule 204-2 under the Advisers Act with respect to
foreign clients except as specifically stated in this
letter.

3.

MJI will promptly provide to the Commission or the Staff
upon receipt of an administrative sUbpoena, demand, or
request for voluntary cooperation made during a routine
or special inspection or otherwise, any and all books and
records undertaken to be kept herein.

4.

MJI will promptly make available for testimony before, or
other questioning by, the Commission or the Staff, upon
receipt of an administr,tive~ubpoena, demand, or a
request for voluntary cooperation made during a routine
or special inspection or otherwise, any and all of its
personnel, with the exception of clerical or ministerial
personnel.
17

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Office of General Counsel
Division of Investment Management
securities and Exchange Commission
July 21, 1994
5.

MJI will list on its Form ADV (a) all directors of MJI
and each investment manager of MJI (whether or not also a
director of MJI) who provides advice to united states
clients, and (b) the names of all individuals and
Participating Affiliates involved in generating
investment advice to be used for or on behalf of united
states clients and the required biographical and
ownership information for all such individual; and
Participating Affiliates.

6.

MJI will not hold itself out to foreign clients as being
registered under the Advisers Act. Where communications
are sent to both United states and foreign clients, (i)
separate communications will be sent, (ii) reEerences to
MJI's registration under the Advisers Act will be deleted
in communications with foreign clients, or (iii) the
communication with foreign clien:s will make clear that
MJI will be complying with the Advisers Act only with
respect to united states clients.

7.

Any advice given to United states ~ersons from
Participating Affiliates will be given through MJI or
through employees of such Participating Affiliates
participating in MJI's U.s. advisory business.

8.

Unregistered entities within the Murray Johnstone Group
other than Participating· Affiliates will have United
states clients only if such enticies are exempt from
registration under the Advisers .~ct.

9.

MJI will deem as an "associated ·,erson" each
Participating Affiliate and eac~'employee of the
Participating Affiliate, includi~g research analysts,
whose functions or duties relate to the determination and
recommendations that MJI makes to its United states
clients, or who has access to any information concerning
which securities are being recommended to MJI's United
states clients prior to the effe·::tive dissemination of
the recommendations (inclUding d~aling room personnel, if
trades for MJI clients are place,i for execution with any
affiliate of MJI).

10.

Employees of the Murray Johnstona Group who maintain or
have access to MJI's records will be treated as "advisory
representatives" of MJI. All.. persons deemed to be
"associated persons" of'lfJI in accordance with
Undertaking No. 9 will also be treated as "advisory
representatives" of MJI.

L

.,

18

I.·.

Office of General Counsel
Division of Investment Management
securities and Exchange Commission
July 21, 1994
11.

The Participating Affiliates will keep books and records
of the type described in Rules 204-2(a) (1), (2), (4), (5)
and (6,) of 204-2 (c) for all transactions. With respect
to transactions involving United states clients and all
related transactions, the Participating Affiliates also
will- retain-records of the type described in Rule 204­
2(a)(3) and (7). Participating Affiliates will also
maintain the staff trading records required by Rule 2(4­
2(12) for all "advisory representatives" (as defined in.
Rule 204-2(a) (12) (A» of the Participating Affiliates who
are involved in giving advice to United states clients.
All books and records described above will be maintained
and preserved in an easily accessible place in the
country where such records are kept for a period of nc;t
less than five years from the end of the fiscal year
during which the last entry was made on such book or
record. To the extent that any books and records are not
kept in English, the Pazticipating Affiliate will cause
. such books and records t1 be translated into English upon
reasonable advance reque~t by the Commission or the
Commission's staff.
.

12.

The Participating Affiliate will promptly, upon receipt
of an administrative SUbpoena, demand or a request for
voluntary cooperation made during a routine or special
inspection or otherwise, provide to the Commission or to
the Staff any and all of the books and records described
in paragraph 10 above, ~nd make available for testimony
before, or other questi(ming by, the Commission or the
Staff any and all personnel (other than clerical or
ministerial personnel) :~dentified by the Commission, the
Staff, MJI or any Parti~:ipating Affiliate as having been
involved in giving advil::e to united states clients or
related transactions, a': such place as the Commission may
designate in the United states or, at the Commission's
option, in the country where the records are kept or such
personnel reside. Participating Affiliates will
authorize all personnel described in the precedi~g
sentence to testify abO',lt all advice given to United
states clients and any >:-elated transactions (except with
respect to the identity,of foreign clients).
_
_
Participating Affiliate; will not (except with respect to
the identity of foreign clients) contest the validity of
administrative subpoena; for testimony or documents under
any laws or regulations other than those of the United
states.
..
..

13.

Each Participating Affiliate (i) will submit to the
jurisdiction of the United states courts for actions
arising under the United states securities laws in

Office of General Counsel
Division of Investment Management
Se~rities and Exchange Commission
July 21, 1994
connection with investment advisory activities for United
states clients of MJI, and (ii) will appoint an agent for
servic~ of process upon whom may be served all process,
pleadings, or other papers in (a) any investigation or
administrative proceeding conducted by the Commission,
and (b) any civil suit or action brought against MJI
and/or the Participating Affiliate or to which MJI or the
Participating Affiliate has been joined as defendant or
respondent, in connection with the investment advisory
activities and related securities activities arising out
of or relating to any investment advisory services
provided to United states clients or any related
transaction. Each Participating Affiliate will also
appoint a successor agent if the Participating Affiliate
or any person discharges the agent or the agent is
unwilling or unable to accept service on behalf of the
Participating A~filiate at any time until six years have
elapsed from th.~ date of the last MJI investment advisory
activity. No Participating Affiliate will provide
investment advic~~ to United states clients through MJI
until documents effecting the appointment of an agent
have been filed by the Participating Affiliate with the
Commission SUbstantially in the form attached hereto as
Exhibit A.
F.

Discussion of Request No.3
Request No.3: "Related Persons" under the Rule
203(b) (3) Exemktion

As stated above, the MJL Jersey Subsidiary relies on
the "private advisel:" exemption from registration under the
Advisers Act under section 203(b) (3) of the Advisers Act and
Rule 203(b) (3)-1 thereunder.
Upon UAM's acquisition of MJ Holdings, under Rule
203(b) (3)-1(a) (1) U~M, each of UAM's 35 other Affiliates and
each entity controlled by each Affiliate became a "related
person" of the MJL Jersey Subsidiary, - such that, under a - ­
strict application cf Rule 203(b) (3)-1(a) (3), any limited
partner in the LBO Fund that is also an investment advisory
.client of any of thE:se "related persons" would have to be
counted separately to determine whether the MJL Jersey
SUbsidiary has fewer than 15 ~lien~s in order to qualify for
the 'private adviser exemption. It is very possible that a
limited partner of the LBO Fund is also an investment advisory
client of some entity within the broad network of independent
advisers assembled by UAM, in that such limited partners are
20

Office of General Counsel
Division of Investment Management·
Securities and Exchange commission
July 21, 1994
substantial institutional investors with a wide range of
advisers.
\

. causes the MJL Jersey Subsidiary to face the

Th~s

possibility of inadvertently having, by attribution, 15 or
more advisory clients, causing it to lose the private adviser
exemption. We believe that, because of the independence given
to UAM's subsidiaries under its business plan as described
below, such a strict application of Rule 203(b) (3)-1(a) (3) is
not warranted. 17
1.

UAM

The following information is quoted from a letter to
MJ Holdings shareholders from the Chairman of the Board of
Directors of MJ Holdings (the "Board") contained in the
document en' :itled "Recommended Offer", dated September 21,
1993 (the "Offer Document"), pursuant to which UAM acquired MJ
Holdings:

,
;

UAM is a successful investment management
group, based in Boston, Massachusetts, and listed on the
New York Stock Exchange. It specialises in acquiring and
holding companies engaged in institutional investment
management. Currently UAM holds 35 such companies (known
as "Affiliates") located mainly throughout the United
States. [MJ Holdings] would be the largest Affiliate of
UAM ou~side the United States. Each Affiliate operates
indepe:ldently under its own name and under its own
manag~nent.
UAM's philosophy is not to involve itself
directly in the operational management of any Affiliate.
The BOird considers that if [MJ Holdings] were to become
an Affiliate of UAM it would continue to enjoy the
freedo: n of an independent investment management company,
headquartered in Glasgow, maintaining autonomy in its
operations.
T~e following information was contained in the Offer
Document ani was extracted from UAM's Annual Report on Form
10K filed with the Commission for the fiscal year ended
December 31, 1992 and UAM's second quarter 1993 report on Form
lOQ ("UAM's Public Reports"):

UAM is a holding company organized in December,
1980 to acquire and to own firms engaged primarily in
17
Based on the nature of this -independence,· we believe
that the. acquisition of MJ Holdings by UAM does not affect
Requests Nos. land 2 set forth in this letter.

21

Office of General Counsel
Division of Investment Management
Securities and Exchan~e Commission
July 21, 1994
institutional investment management. UAK seeks to
achieve diversity by acquiring investment management
firms naving different investment philosophies and
strategies and specializing in different asset classes.
UAK intends to grow both through the growth of the
.
present Affiliates and through the acquisition or
organization of additional firms in the future.
Once acquired, .each Affiliate continues to
operate under its own name, with its own leadership and
individual investment philosophy and approach. UAM seeks
to preserve each Affiliate's autonomy by allowing its key
employees to retain control of investment decisions and
day-to-day operations. Where the Affiliate is acquired
from its employee stockholders, the former stockholders
receive the added benefits of a more diversified company
by virtue of their equity ownership in UAM.
Each of the Affiliates conducts its own
investment analysis, portfolio selection, research,
~arketing, and client relations.
During any given
period, investment results may vary among firms. Each
firm competes independently and sets its client fees
based on its own jUdgment concerning the market for the
services it renders. Each firm is separately registered
under the Investment Advisers Act of 1940 and applicable
state advisers acts. Each of the Affiliates may compete
with the other Affiliates for clients.
UAK has established revenue sharing agreements
which provide for UAM to derive increased or decreased
income from each Affiliate, based on a percentage of
change in each Affiliates's revenues from year to year,
starting from a base amount agreed upon in the year of
acquisition. These arrangements allow each Affiliate to
set its own operating expense budget and compensation
practices, limited by the share of the Affiliate's
revenue available to it.
Each Affiliate's directors and officers are
responsible for reviews of their respective firm's
results, plans and bUdgets. UAM also has a Management
Council composed of senior executives from each of the
Affiliates and from UAK. The Management Council reviews
overall business results and serves as a forum for
sharing business information.~
UAK itself does not manage portfolio
investments for clients and does not provide any
investment advisory services to Affiliates and therefore
22

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Office of General Counsel
Division of Investment Management
Securities and Exchange Commission
July 21, 1994
is not registered as an adviser under federal or state
laws. UAK respects the individual character of each
Affiliate and seeks to preserve an environment in which
each firm may continue to provide investment management
services which are intended to meet the particular needs
of each Affiliate's clients. UAK's name does not appear
on the office doors of any Affiliate. UAK provides
assistance to the Affiliates in connection with the
preparation of consolidated financial statements,
consolidated tax matters, insurance and maintenance of a
company-wide profit sharing retirement plan.
UAM believes that the professional independence
of the Affiliates and the continuing diversification of
investment philosophies and approaches within UAM's group
are necessary ingredients of UAK's success and that of
Affiliates. The key employees of each Affiliate at the
time of acquisition by UAK have continued with their firm
in each acquisition, have remained on their firm's board
of directors, and have continued to serve as its
executive officers. UAM intends to continue the method
of operation described above as it acquires or organizes
additional firms.
2.

The United Asset No-Action Letter

In a 1981 letter to the Staff (the "UAM Request
Letter"), UAM, soon after its organization, requested a no­
action letter based on its business plan. In the ensuing no­
action letter, United Asset Management corporation (pub.
avail. November 2, 1981) ("United Asset"), the Staff gave its
assurance that, inter alia, it would not recommend enforcement
action to the Commission if UAK proceeds with its organization
and implementation of its business plan without registering
under the Advisers Act in reliance upon an opinion of counsel
that UAM would not be doing indirectly through its affiliates
what it could not do directly without registering under the
Advisers Act.
In the UAM Request Letter UAK described its business
plan as follows:
[T]he goal of UAK is to create the first large,
diversified pUblic holding company engaged through its
Affiliates [as defined a~ove] in the institutional
investment management business. In this way, UAK expects
to permit investors to participate in this rapidly
growing industry and will enable proprietors of existing
smaller, non-diversified, private firms to capitaliz~ on
23

Office of General Counsel
Division of Investment Management
Securities and Exchange Commission
July 21, 1994
the growth and success which they have achieved. Except
for meeting certain profitability and growth objectives,
the individual firms will operate independently as
creative, people-oriented, service businesses.

[O]ay to day operating responsibility and
decision making must remain with the individual firm.
UAM believes that the establishment of centralized
control of day to day operation is undesirable in the
investment management business and this is not called for
in the plan.

[T]he principals of the firm should.plan to
remain active and in control of their organization. If
and when they plan to retire, orderly succession must be
established from within each firm. Each firm must
determine its own investment policy and strategy and
retain its individual identity with its clients. This is
essential if it is to do a good investment job and create
the basis for future growth.
As described in UAM's Public Reports, UAM's
activities since its organization have been substantially in
accordance with the business plan with respect to which no­
action relief was granted in United Asset.
We believe that the Staff's underlying reasoning in
granting no-action relief to UAM was that, based on the facts,
the portfolio investment management firms would be
sufficiently independent from the unregistered parent, UAM, to
conclude that the unregistered parent was not attempting to
use its portfolio investment management firms to do indirectly
what it, as an unregistered entity, could not do directly
under the Advisers Act.
3.

Effect of the Acquisition of MJ Holdings by UAM in
light of United Asset

UAK has advised us that as the parent company of MJ
Holdings it will allow the Murray ~ohnstone Group to operate
as its own investment management group independent of the
other investment managers in UAM's portfolio in accordance
with UAM's operations as described in UAM's Public Reports,
and that UAK will not be attempting to use the Murray

•
24

Office of General Counsel
.
Division of Investment Management
securities and Exchange Commission
July 21, 1994
Johnstone Group to do indirectly what UAM can not do directly
under the Advisers Act.
We believe that a strict application of Rule
203(b) (3)-1(a) (1) and (3) to the Murray Johnstone Group is not
warrailted because of the independence" of the Murray Johnstone
Group from UAM and UAM's other portfolio firms. The purpose
of t~ase subsections of the Rule is to prevent investment
advis~rs who rely upon the private issuer exemption from
aggregating existing clients in a limited partnership and then
advising the limited partnership in order to have such
aggregated clients be counted as only one client (i.e., the
limit.~d partnership), which would thereby maintain the private
issue: exemption for the adviser. In this case the UAM group
is no: a single investment advisory group with a single set of
clien-:s, and it is not trying to manipulate clients in order
to qualify for an exemption from registration. Rather, the
UAM group other than the Murray Johnstone Group consists of 35
independent investment advisers, each with its own Clients,
its own management and its own investment advice. There is no
danger that UAM is seeking improperly to obtain the private
issuer exemption, or that UAM is otherwise seeking to do
indirectly through the Murray Johnstone Group what it can not
do directly. Nor is there any danger that the Murray
Johnstone Group is organizing its own acquisition in order to
im~~operly maintain the private issuer exemption.
Because of the nature of the Murray Johnstone
Group's independence from UAM and UAM's other portfolio firms,
we believe that in determining Whether the MJL Jersey
SUbsidiary have fewer than 15 clients the definition of
"related person" under Rule 203 (b) (3) -1 should be applied only
within the Murray Johnstone Group itself. We therefore
.request assurance that the Staff would not recommend
enforcement action to the Commission if the MJL Jersey
Subsidiary does not register as an investment adviser in
reliance on the Rule 2q3(b) (3) exemption, based upon the
inclusion of only entities within the Murray Johnstone Group
among "related persons" within the meaning of Rule 203{b){3)­
lea) (1) and (3).

*

*

*

For the reasons set forth above, we respectfully
request your assurances as sbated in the first paragraph of
this request letter.

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_.

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25

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Office of General Counsel
Division of Investment Management
Securities and Exchange Commission
July 21, 1994
If you have any questions regarding this request for
assurance, please contact Albert Francke at (212) 696-6010 or
Robert E. Ste~mons at (011-44-71) 638-7957.
Very t j yours,

(fi(f

Albert Fr
Attachment

_

....•

__

26

-_._._-- - - _

_

-

_.. __

_.~-

. L~

EXHIBIT A

IJW02E3D
STIPULATION AND AGREEMENT
OF
PARTICIPATING AFFILIATES

(Complete Name of Participating Affiliate) (the
"Affiliate"), a corporntion incorporated under the laws of
(Name of 'Jurisdiction under whose laws Affiliate was
organized), and having its principal place of business at
(Complete Address.

inc~uding Country.

Telephone No. and

Telecopier No.), hereb1-' stipulates and agrees as follows:
1.
The addressees) of the Affiliate (including
country, telephone no. and telecopier no.), if different from
the address of its principal place of business indicated
above, is (are):
2.
The name under which the Affiliate conducts
business, if different from above, is:
3.
The Affiliate is a Participating Affiliate of
Murray Johnstone International Limited (ltMJI") within the
meaning of the Letter Ref. No. [
] issued by the Division
of Investment Management on
[datel
(the
ItNo~Action Letter"), and an associated person of MJI within
the meaning of Section 202(a) (17) of the Investment Advisers
Act of 1940, and agrees to submit to the jurisdiction of
United States courts for actions arising under the United
States securities laws in connection with investment advisory
activities for united States clients of MJI, as further
described in the
No-Action Letter, and designates and appoints, without power
of revocation, [name of united States person serving as agent]
located at [complete address, including telephone and
.
telecopier number, of agent in the united States] as agent
(ItAgent") of the Affiliate upon whom may be served all
process, pleadings, or other papers in: "
(a)

.

~

any investigation or administrative proceeding
conducted by the Securities and Exchange Commi~sion
(the "commission"), and

(b) any civil suit or action brought against MJI and/or
,- . - - , ~·the-Affiliate or to·which-MJI or the Affiliate has,
been joined as defendant or respondent, in any .

~

;.

.

-,

appropriate court in any place sUbject to the
jurisdiction of any state or of the United states or
any of its territories or possessions or of the
District of Columbia,

in connection with the investment advisory activities and
related securities activities arising out of or relating to
any investment advisory services provided by the Affiliate
through MJ~ to United states clients or any related
transaction' (collectively, "MJI Investment Advisory
Activities").
4.
Any such civil ~lit or action or administrative
proceeding may be commenced by ·:he service of process upon,
and service of an administrativp- SUbpoena shall be effective
by service upon, the Agent, and the service as aforesaid shall
be taken and held in all courts and administrative tribunals
to be valid and binding as if personal service thereof had
been made.
.
.
5.
To appoint a suc'::essor Agent and file an
'amended Stipulation and Agreemelt if the Affiliate or any
person discharges the Agent or ~e Agent is unwilling or
unable to accept service on behalf of the Affiliate at ary
time until six years have elapsed from the date of the la~t
MJI Investment Advisory Activity. The Affiliate further
undertakes to advise the Commission promptly of any change to
the Agent's name or address during the applicable period by
amendment of this stipulation and Agreement.
(Title of Officer)
IN WITNESS WHEREOF, the
of the Affiliate has executed this stipulation and Agreement
(City, Country)
for and on behalf of the Affiliate at
this
day of
199_.

i

[NAME OF AFFILIATE]
By
Name:
Title:

i

_._----_.- ._._-­

-,

'f

_.,
.

(County. Province or state) of ---------)
) ss.
country of - - - - - - - - - - - - - - - )
I,
(Name),
(Official Position
of Person Administering Acknowledgment)
, in and for the
(County, Pr~vince or state) aforesaid, ~o hereby certify that
(Name of Officer)
personally appec.red before me this
day, stated that (s)he is the
(Title)
of said
__
(Name of Affiliate)
, that (s)he is the same person named in
the foregoing instrument as the
(Title)
of said
corporation, that (s)he has been duly a\.',thorized to execute
said instrument for the corporation, and that (s)he sigGed
said instrument for and on behalf of the said corporation as
its free and voluntary act for the uses and purposes therein
set forth.
day of

Given under my hand and seal t.his

_ _ _ _ _ _ _ _ , 199_0

(Name of Offi~ial)

(Official Position)

•..

My commission (or office)
expires:
(Date)
[The form of acknowledgment will be in the foregoing form or
such other form as may be prescribed by the law of the
jurisdiction in which the instrument is executed.]

".

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A6d0f5df2fb5ff132. Public record. Not legal advice.