SEC Division of Investment Management staff letter: Richard Ellis, Inc.

KING & SPALDING

21500.TRUST GOi,\PANY TOWER
ATL.ANTA. GEORGIA 30303
404/572-4600 1800 M STREET. N. w.
WASHINGTON. D. G~ 200:36
202/466-764 14arch 18, 1981
',' .,.'....,'~t."'.,'~ ",.~ ',1,." r:::':-E1-AiO LSection ~l) 1(J) d h ,.,.Llei ~~ ~ i Mr. Gerar Hug es ;p--;-- S7c';7 ties an Exc ange Commiss iO~vailnb i1 it y . . . d h .. 1- ublic r/17/fl. Division of Investment Management-. - . ---~. : ",~:",':';.'~',;,"";,~~,:.~.;'; .;"':;';'~'~r.'j~t(i't~'¡;".. -.6.\ .;!~:
Office of Chief Counsel

500 N. Capitol Street

Washington, DC 20549

Re: Richard Ellis, Inc.
Dear Mr. Hughes:

In accordance with our earlier conversation

regarding Richard Ellis, Inc., we enclose an original and

three copies of a request that the staff of the Securities

take a no action position with respect

to the matters described in the enclosed letter. An additional

copy has -been enclosed which is marked to indicate all material

changes from the draft of the letter previously submitted.

and Exchange Commission

If you have any questions or require further

information, please contact the undersigned or Scott J. Arnold

of this firm.

Thank you very much.

,
,
JAR/j't
Enclosures cc: Mr. Scott J. Arnold

Mr. Bradley A. Olsen lO Mr. Donald H. - Bodel TELEX: n."~017 TRLECOPIl:n: -w.i/O:'O-.¡OU6 CAIlLE: TER.'\UNUS

. . ~

KING & SP.ALDING

21\00 TRUST GOi\PANY TOWER
..TLAi~TA, GEORGIA 30303
40/572-4600 1600 ~i STREET. N. w.

WASHINGTON. D. G. 20030
202/466-7ß.
March 19, 1981

Securities and Exchange Commission

500 North Capitol Street

Washington, D. C. 20549

Attention: Office of Chief Counsel

Division of Investment Management

Investment Advisers Act of 1940 - Sections 203

and 208 (d)
Re: Richard Ellis
Gentlemen:
This is to request your confirmation that the Staff of

the Division of Investment Management will not recommend that the

Securities and Exchange Commission take any enforcement action

against Richard Ellis, a partnership organized under the laws of

the United Kingdom ("Richard Ellis"), or R. E. Holdings Limited,

a Delaware corporation the stock of which is held primarily by

the partners of Richard El Ii s ( "Hol ding s" ), if Richard Ellis,

Inc.,' a Delaware corporation the stock of which is held by

Holdings, conducts the activities described below and if Rich~rd

Ellis and Holdings do not register under the Investment Advisers

Act of 1940 (the "Act") ~
Background and Business Activities of Richard Ellis and REI

Richard Ellis provides comprehensive commercial. and

industrial real estate services primarily in the United Kingdom,

Europe, North America, South Africa and Asia. Richard Ellis is

currently composed of nineteen voting partners. The firm is

centrally managed through a Senior Partner, the members of the

Managernent Committee and the members of the Executive Committee

(collecti~ely, the "Management Positions").

Holdings was organized in 1976 as a holding company for

subsidiaries formed to provide real estate services in North

America. Prior to October 1, 1980, Holdings had three wholly

owned subsidiaries, Richard Ellis (Midwest), Inc., Richard Ellis

..'1'1 NY- llAl-..Oo.l"J T'RT.Pt"I"D1' P-O. An.d/I'P\O..d!'A

Securities and Exchange Commission

,March 19, 1981

Page 2.
(Southeast), Inc. and Richard Ellis (Western), Inc. (collec￾tively, thè "U.S. Subsidiaries"). Effective October 1, 1980

Richard Ellis caused Richard Ellis (Southeast), Inc. and Richard

Ellis (Western), Inc. to be merged with Richard Ellis (Midwest),

Inc. which was renamed Richard Ellis, Inc. ("REI"). All refer￾ences herein to activities of REI prior to the effective date of-

the merger refer to the U.S. Subsidiaries. Holdings does not

conduct any business activities other than acting as a holding

company, although it may acquire or organize other subsidiarLes

that may engage in other businesses, and it is not contemplated

that Holdings will ever act other than as a holding company.

REI presently provides real estate investment services,

including research and advice regarding United States real estate

investments and project development and management services,

directly to clients of Richard Ellis located outside of the

United States and their United States subsidiaries, and REI is

compensated directly by these clients. REI's relationships with

Richard Ellis i foreign clients have been maintained primarily

through Christopher D. Budden, a Vice President and Director of

Holdings and of REI and an investment partner of Richard Ellis in

its London office. Mr. Budden does not hold any Management

Position with Richard Ellis and does not possess the power to

exercise a controlling influence over the management or policies

of Richard Ellis.

Proposed Activities and Organizational Strudture

REI has begun to offer its real estate advisory ser￾vices to institutional clients (primarily pension trusts) located

in the United States and believes that the investment policies

and objectives of these clients will make it desirable for REI to

give advice to such clients with respect to real estate invest￾ments that may involve securities within the meaning of the Act.

Therefore, prior to rendering advice with respect to real estate

securities, REI intends to register under the Act.

In addition to advising such domestic clients, REI may

provide advice to Richard El lis' foreign clients or to their U. s.

subsidiaries with respect to real estate investments that may

involve securities, and REI will be compensated directly by these

clients. REI also may render advice to Richard Ellis with

respect to real estate investments that may involve securities,

and will be compensated directly by Richard Ellis in such

instances. If REI renders advice with respect to real estate

investments that may involve securities to Richard Ellis, Richard

El lis will independently evaluate such advice and will retain and exercise discretion with respect to whether such advice is pro￾vided to clients of Richard Ellis. .

securitie.s anC1Excnange commission

March 19, 1980

'Page 3

The Board of Directors of Holdings consists of Messrs.

Andrew J. M. Huntley, D. A. Sizer, Christopher D. Budden arid

Donald H. Bedel, and these same individuals serve on the Board of

Directors of REI. Mr. Bodel is President of Holdings and of REI

and owns common stock of Holding representing less than 5% of Holdings' outstanding shares. Mr. Budden is Vice President- Secretary of Holdings and of REI. Messrs.' Huntley, Sizer and,. Budden are partners of Richard Ellis in London. Mr. Bodel is not

a partner, director, officer or employee of Richard Ellis or any

affiliated person of Richard El lis other than Holdings ana REI.

In connection with the merger referred to above, three additional

persons, all of whom are employees of REI but none of whom is a

partner, director, officer or employee of Richard Ellis or any other affiliated person of Richard Ellis, were added to the Board

of Directors of REI. Accordingly, a majority of the directors of

REI is composed of persons who are not directors, officers, em￾ployees or partners of' Richard Ellis or any affiliated person of

Richard Ellis (except REI'and in the case of Mr. Bodel, Holdings)

(collectively the "Unaffiliated Directors") and all compensation

pãid to the Unaffiliated Directors for their services to REI will

be paid.

• • • _.. _.
      by REI.' -- .---- '
      ,----- The Unaffiliated Directors of REI have determined that

the capital, independent of controlling persons and affiliates of

controlling persons, of REI is sufficient to provide it with

financial responsibility for the conduct of its advisory busi￾ness,-'inc-luding -'provisions .for the means and facilities to carry

out its adyisory responsibilities for its' clients, as well as

provisi.ons for, meeting all of its liabilities. Richard Ellis

will enter' into an agreement with REI sUbordinating to the claims

of o'thers all liabilities of REI to Richard Ellis and to any

affiliated. person controlled by Richard Ellis. -' .' - "

.;~;~.~~_:~:=tlith tiie"exceptións .of Mr.:' .Budden, whose relationships a-re~-.aìscussed. . below, and the relationships of Hr. - Bodell to il"lâÜíg"ff/ none oftne officè'rs,' Pemployees 'or advisory represent￾atives employed by REI is a partner, director, officer or em￾ployee of °Richard Ellis or any, affiliated person of Richard

Ellis, and all compensation to all officers, employees .and advi￾sory representatives of REI is paid by REI. However, a number of

employees of REI are former employees of Richard Ellis, and it is

C:õñtemplated 'that .from time' to, tlme, employees of Richard Ellis DJãý: terminate their. employment and become 'employed by REI and êìñployëés of REI may tèrminate their employment and become em￾plöýees of Richard El lis. At or about the time of registration of REI under the Act r-1r. Budden -will move his residence to the United States and will become a full-time employee of REI.

Mr. Budden will receive a salary and profit share interest from

REI that will compensate him for all his services to REI. Mr.

Budden will continue to be a partner of Richard Ellis ana to

share in the profits and losses of Richard El lis in accordance

with his interest therein. Howe~er, Mr. Budden's annual partIler

~ecuri~ies ana ~xcnange ~ommission

March 19, 1980

ship earnings will be reduced by his compensation from REI and in

the event his partnership earnings are less than the amount

received from REI, he will be required to contribute the differ￾ence to Richard El lis. Recommendations and decisions regarding investments by clients of REI in investments that may involve a security vlithin , the meaning of the Act will be made without consultation with any

partner, officer, director or employee of Richard Ellis or any

affiliated person of Richard Ellis, except to the extent that

Mr. Budden may be deemed to be an affiliated person of Richard.

Ellis. REI wil 1 be solely responsible for the conduct of its

investment advisory businesses, including the development. of its

own investment views and rendering of independent investment

advice regarding investments in real estate that may involve

securities. The .staff of REI will have the capability and

responsibility for conducting its own investment research and for

locating investment opportunities and will base its advice upon

the information so developed as well as upon its knowledge of its

clients'. individual needs and information.

REI will' receive information and advice that may affect its investment advisory businesses from Messrs. Huntley and Sizer

and others at Richard Ellis with respect to statistical and

factual matters and general economic and investment trends in various world markets. Such persons will not furnish advice or recommendations regarding investments that involve a security.

• The offices of REI are located in the United States and

are separate and apart from the offices of Richard Ellis. Repre￾sentatives of Richard Ellis will, from time to time, visit the

United States and meet in and make use of facilities of REI in

the United States. REI will be responsible for complying with

recordkeeping requirements to which it will be subject, for

maintaining its properties and assets and for compensating its employees. Conclusion We are of the view that the proposed activities of REI

and its relationships with Richard El lis and Holdings do' not

require Richard El lis or Holdings to register under the Act by

reason of the applicability of Section 208 (d) of the Act. The

Commission has stated in Investment Advisers Act Release No. 353

(December 18, 1972) that Section 208(d) is intended to require

regi stratian where

all or substantially all of the duties and

functions related to the rendering of invest￾ment advice undertaken to be performed by a

l

Securities and
Exchange Commission

March 19, 1981

registered investment adviser are in fact

performed by the person controlling the

registered adviser or an affiliate of such

controlling person, or key advisory personnel

of the registered investme~t adviser are also

personnel of the control ling person or aff il￾iate of such controlling person.

As described above, the operations of REI will be

conducted independently by REI personnel, without assistance from

Richard Ellis or any of its affiliates (except to the extent that,

Mr. Budden, who will continue as a partner of Richard Ellis, may be deemed to be an affiliated person of Richard Ellis, and ignoring Mr. Bodel and Mr. Budden's relationships with Holdings,

which is not an operating company). Accordingly, in no event

will Richard Ellis or Holdings, or any affiliated person of

,Richard Ellis or Holdings (except as noted) do indirectly any act

that it would be unlawful under the Act for such persons to do

directly. Therefore, neither Richard Ellis nor Holdings would be

:required to register under the Act if they engaged in the activi￾ties described herein.

..
, ' ,We believe that our conclusions are supported by for ,merly proposed Rule 202-2 and by a series of no-action letters

,invol ving similar relationships. See Morgan Grenfell Investment

'Services, Limited (available April 13, 1977), BA Investment Man￾agement Corp. (available April 27, 1978), Robert Fleming Invest￾ment Management Limited (available May 4, 1979), and Reliance

Group Inc. (available December 14, 1979). Al though the relation￾ship of Mr. Budden may be deemed to be inconsistent with the

te~s of formerly proposed Rule 202-2 because he may be deemed to

be an affiliated person of Richard Ellis within the meaning of
Section 2(a) (3) of the Investment Company Act of 1940 (which
,definition is incorporated into the Act in .section 202(a) (12)),

:,'le believe that it is., significant that Mr.' Budden will be., a ..full-time employee of REI, will not serve as an employee of Richard Ellis, and will not serve in a Management Position or ~therwise exercise a controlling influence over the' management or -policies of Richard Ellis. Accordingly, Mr. Budden will not exercise control over Richard Ellis' within the meaning of
Section 202(a) (12) of the Act. Further, to the extent that Mr.
Budden and Mr. Bodel's relationships with Holdings may result in ::the proposed relationship between Holdings and REI being deemed

to be inconsistent with formerly proposed Rule 202-2, we believe

that because Holdings conducts no active business and serves the

sole purpose of holding the stock of REI and any other subsidi￾aries that may be formed in the future (for other than investment.

advisory purposes), no purpose would be served in requiring the

registration of Holdings under the Act.

".;ç,-u..L-..-'~ Q,U," '¡A'-.11C;'U,J.'jv ",V1UUl-lww-lV.¡' , ,March 19, 1981

Based upon the foregoing, we request your confi:mation

that the staff of the Division of Investment Management. will not

recommend 'that the Commission take any enf?rcement action. under

the Act against Richard El lis or Holdings if REI engages in the

activi ties proposed above.

I f you require additional information or have any, , questions in co~nection with this r.eque,st, please telephone the undersigned or Scott J. Arnold of this firm.

Yours very truly,

l:Rf
JAR; sk
~ ~I 0"1 ~.~. lte~ AUG 1~~t

.: . '.. l _ p,.,"'~u~ l ",,;,'i~.,'" ,ie" '* . ,~, 'U~)J , OU Ref. No. 80-401-CC

Richard Ellis
REICSE OF THE OFFiæ OF mIFF COSEL R. E. Hold ings Limited DlVSIÇN" OF. nmSTm)T. MAAGEM . . '. . " File. NQ.~ 132-3. ' .., . ~ "
Section 202(a)(1l) of
th Investment Advisers Act of 1940 ("Act") defines an investmnt adviser to mean, in general, any person who, for c:pensation, engages in the business of

advisin: others either directly or through publications or

writings, as to the value of securities or as to the advisa￾bilityof investin: in, purchasing, or selling securities, Or'

M1, for ca¡:nsation an as part of a regular business, issues or pranulgates analyses or reports concerning securities.

Setion 203 (a') of the Act rnes it unlawful for any investmnt adviser, unless reistered uner th Act, to mak use of th mails or any means or instni

mental ity ortnterstate ccrce in connection with his or its business as an

investmnt adviser.
'Ius, an unregistered foreign capany engaged in investmnt advisory business which doe not make use of jurisdictional means in connecticn with its

investmnt advisory business is not in violation of section 203(a) of the Act.

The foreign entity may create a subsidiary entity to make use of juris . dictional means in connection with the investmnt advisory business of the sub sidiary with the intentic: that th subsidi.ary, but not th parent, be registered .er the Act.

~ _i_f

Setion 208(d) of the Act maes it tmlawful for any person inirectly,

or through or by any other person, to do any act or thing which it would be

unlawful for such person to do directly under the provisions of the Act or any

role or regulation thereuner.
'! question that is presented therefore, when an unregistered foreign

canpany creates a registered subsidiary to provide investment advice to United

States persons, is whether the ¡:rent capany is doing indirectly through the

subsidiary what it could not do directly withut registering under th Act.

If .it is, it \tuld be in violation of section 208 (d) of the Act.

If th subsidiary has an existence independent of th parent am functions

inependently of the ¡:rent, the mere fact of creation an continued ownership

by the parent would not constitute a violation of section 208 (d).

A subsidiary entity may be rearded as having a separate, inde¡:ndent

existence am to be functioning independently of its pare~t if it (1) is ade￾quately capitalized, (2) has a buffer, such as a board of directors a majority

of whse rnerbers are independent of th parent, between the subsidiar's per￾sonnel and the parent, (3) 'has employees, officers, and directors, who if engaged

in providiIl advice in th day-toay business of th subsidiary entity, are not otherwise engaged in an investmnt advisory business of the parerit, (4) itself maes the decisions as to what inve~tmnt advice is to be ccunicated

to, or is to be used on behalf of, its clients arr has an uses sources of in

vestmrit inforoation not limited to its parent, and (5) keeps its investmnt

advice confidential until ccITunicated to its clients. Cf. Investment Advi￾sers Act of 1940 Release No. 353, tecemr 18, 1972. Richai: Ellis ("Ellis") is a United Kinqdan partership which provides ncaprehensive corcial and industrial real estate services." R.E. Holdings Limi ted ( "Holdings") is a Delaware Corpration which is held primrily by th

partners of Ellis. It \Imollv-C'1fs Richard Ellis, Inc. ("REI"), a copany

which intends to offer institutional clients located in th United States

advice with respect to real estate investmnts that may involve securities an,

therefore, intends to register under th Act.

Baed on the facts an representations contained in your letter, we would

not recarp enforcemnt actic: to th Comission if Ellis, Holdings, an REI

proced as describe without Ellis or Holdings ~istering under the Act in

reliance up your opini.on as counsel that they are not indirectly doing through

REI "!at they could not do directly without reistering under the Act.

~72~
Stanley B. J. "'l

Deputy Chief ~nsel
Hughes/jlw
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