SEC Division of Investment Management staff letter: Zenkyoren Asset Management of America Inc.

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT
June 30,2011
1M Ref. No. 2011630112
Zenkyoren Asset
Management ofAmerica Inc.
Your letter dated June 30,2011 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (the "Commission") under
section 203(a) ofthe Investment Advisers Act of 1940 ("Advisers Act") against Zenkyoren Asset
Management ofAmerica Inc. ("ZAMA") if ZAMA does not register with the Commission as an investment adviser under the Advisers Act because you assert that ZAMA is not engaged in the business of "advising others."\ Based on the facts and representations set forth in your letter, we would not recommend enforcement action to the Commission against ZAMA under section 203(a) ofthe Advisers Act ifZAMA does not register as an investment adviser under the Advisers Act. Our position is based particularly on your representations that:

• ZAMA is a wholly owned subsidiary ofNational Mutual Insurance Federation of
  Agricultural Cooperatives, a Japanese insurance federation (the "Parent"). Zama was established and has been operated for the sole purpose ofproviding investment advisory services to the Parent via the Funds (as described in your letter) in which the Parent is the only investor;
• ZAMA does not hold itself out to the public as an investment adviser, and
  provides investment advice only to the Parent via the Funds; and
• The Funds (and any funds established by the Parent in the future) are established
  and operated solely for the benefit ofthe Parent in order to enable the Parent to pool and invest its premium proceeds in order to meet short, medium and long term claim obligations and other operating costs ofits insurance business, and consist solely ofthe Parent's assets. This response expresses our view on enforcement action only and does not express any legal or interpretive position on the issues presented. Because our position is based upon all ofthe facts and representations in your letter, any different facts or representations may require a different conclusion. 2 ~~~Pkk Senior Counsel 1 Section 202(a)(11) of the Advisers Act defmes "investment adviser" to mean "any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability ofinvesting in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities." 2 In particular, this relief would not apply to a parent company, which itself is, for example, a private fund as defmed in section 202(a)(29) of the Advisers Act.

BINGHAM

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Bingham McCutchen ttP
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+,.6'7.95 1.8736 blngham.com
Roger P. Joseph
Direct Phone: 617.951.8247
Direct Fax: 617.428.6343 rogerjoseph@bingham.com June 30, 2011 VIA EMAIL AND FEDERAL EXPRESS Securities and Exchange Commission 100 F Street, N.E, Washington, D.C, 20549-0504 Attention: Douglas J. Scheidt, Esq., Associate Director and Chief Counsel Re: Request for No-Action Assurance Ladies and Gentlemen:
We are writing on behalf ofZenkyoren Asset Management of America Inc., a corporation organized under the laws of the State of New York (,'lAMA"). lAMA seeks assurance from the stafT of the Division of Investment Management (the "Staff') that it will not recommend enforcement action to the U.S. Securities and Exchange Commission (the "Commission") under Section 203(a) of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), if lAMA does not register with the Commission as an investment adviser under the Advisers Act. Based on the Staffs prior positions, we do not believe that lAMA is in the business of "advising others." Fa ctua l Background lAMA was founded in 1988 and is a wholly-owned subsidiary of National Mutual Insurance Federation of Agricultural Cooperatives, a Japanese insurance federation (the "Parent"). The Parent belongs to the Japan Agricultural Cooperative Group, a Japanese cooperative that provides its members insurance, guidance, credit, marketing and purchasing, and welfare services (the "Cooperative"). The Parent offers a wide range of insurance products and services to cater to the needs of the Cooperative's members. The Parent is subject to the supervision of the Ministry of Agriculture, Forestry and Fisheries ofJapan, the Japanese ministry that oversees the Cooperative's members' industry. lAMA has its only place of business in New York, New York and assets under management in the U.S. in excess 0[$150 million. All investment management personnel of ZAMA are seconded from the Parent. The salaries of all personnel of ZAMA are paid by ZAMA. N73626S3913

Bln,hlm MCCutchen LlP bln.ham.com
Securitics and Exchange Commission
June 30, 2011
The Parent dctennined that it was beneficial to form lAMA as a separate entity for tax reasons. I The Parent elected to locate lAMA in New York as it is a world financial center and because certain of lAMA's investment strategies focus primarily on U.S. bonds. lAMA does not hold itself out to the public as an investment adviser. lAMA is not listed in any phone book under "investment advisory services" or on the world wide wcb as a U.S. investment adviser, does not attend investment management conferences as a provider of investment advisory services and does not engage in any advertising or conduct any marketing activities? lAMA provides investment management services solely to four foreign funds (each, a "Fund" and collectively, the "Funds") in which the Parent is the only investor. The Parent holds 100% of the units issued by the Funds and there are no other holders of securities issued by the Funds. Each Fund is a series of a trust established under the laws of The Bahamas (the "Trust") and is designed to enable the Parent to pool and invest the premiums received from its insureds in order to meet short, medium and long tenn claim obligations and other operating costs of its insurance business.) Neither the Parent nor ZAMA has received any investment directive from any of the Parent 's insureds or any third party. ZAMA has never provided any investment advisory services to the general public. lAMA does not provide, and does not intend to provide in the future. investment advisory services to any third party. ZAMA only intends to provide investment advisory services to the Funds and any future private funds where the Parent or a wholly-owned subsidiary of the Parent is the only investor. lAMA provides discretionary investment management services to each Fund pursuant to an investment management agreement (the "Management AgreemenC') with a third party Bahamas-resident trustee of the Trust, acting on behalf of the Trust. Pursuant to the Management Agreement, ZAMA has sole discretion over the purchase, sale or other disposition of all the Funds' assets. lAMA receives a management fee from each Fund based on the percentage of assets under management. The assets of each Fund are allocated among four asset classes, with each asset class having its own breakpoint fee schedule. lAMA does not receive a performance fee for its management of the Funds. I The financial statements of the Parent and ZAMA are not reponed on a consolidated basis. 2 We nOle that ZAMA is listed under the heading "Finance - Investment, Leasing & Other Services" in the membership direclory of the Japanese Chamber of Commerce and Industry of New York , Inc. l No policy holder will be deemed a beneficial owner (as such tenn is used in the Investment Company Act of 1940, as amended) of a Fund. M3626H911

B1nrll.m McCutchen LLP blnlh.m.com
Securities and Exchange Commission
June 30, 201 1
The question whether ZAMA is an " investment adviser" has until now been of less significance, because ZAMA would have been able to rely on the "private adviser" exemption in Section 203(b)(3) of the Advisers Act, which was eliminated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of20tO effective as ofJuly 21, 2011.4 Discussion
Section 202(a)( 11 ) ofthe Advisers Act defines "investment adviser" to mean "any
person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value ofsecurities or as to the advisability of investing in, purchasing, or selling securities. or who, for compensation and as part ofa regular business. issues or promulgates analyses or reports concerning securities." This definition includes three essential elements. An "investment adviser" generally includes any person that: (1) for compensation. (2) is engaged in the business o f (3) providing advice to others or issuing reports or analyses regarding securities. A person must satisfy all three clements to fall within the definition of " investment adviser.'·5 We do not believe ZAMA satisfies the third prong of this test as it is not providing investment advice to "others" regarding securities. Rather, ZAMA provides investment managements services solely to the Parent for its assets invested in the Funds. As noted above, the Funds arc utilized by the Parent to pool and invest its premium proceeds in order to meet the future claim obligations and operating costs of its insurance business. The Staff has granted no-action relief and the Commission has granted exemptive relief in analogous situations. In Lockheed Martin Investment Managemem Co., Lockheed Martin Investment Management Company ('"LMIMCo"). a wholly￾ov.'Iled subsidiary of Lockheed Martin Corporation (,-Lockheed"), was a registered investment adviser that did not hold itself out to the publi c as an investment adviser.6 LMIMCo's sole purpose was to provide investment advisory services to various employee benefit plans and trusts of Lockheed and certain of its affiliates. 7 LMIMCo asserted that it was not in the business of providing 4 Pub. L. No. 111-203. 124 Stat. 1376 (20 10). ~ See Investtnent Advisers Act Release No. 1092 (Oct. 8. 1987). 6 See Lockheed Martin Investmellt M(lIwgemem Co., SEC Staff No-Action Leiter (Jun. 5, 2006). 7 Among other things, LMIMCo monitored Lockheed common stock held by a third pany trustee of a non-qualified trust and directed the trustee to make cenain decisions with respect to the trust. The presence orthe third pany trustee was nOI an impediment to LMIMCo's obtaining no-aClion relief. AI7:J.6265J9 ]J

Binghlm McCutchen LLP blnlhlm.com
Securities and Exchange Commission
June 30. 20 II investment advice to others concerning securities. LMIMCo sought and received assurance that the Staff would not recommend an enforcement action under
Section 203(a) of the Advisers Act as a result of LMIMCo withdrawing its
registration as an investment adviser under the Advisers Act.
In an earlier lener, BankAmerica Capiwl Corp., BankAmerica Capital Corporation (,' BCC',) rendered venture capital investment advice to its parent and certain wholly-owned subsidiaries ofthc parent (together, the "Affiliates") and acted as investment adviser to a private venture capital fund structured as a limited partnership.s The private venture capi tal fund's limited partners consisted ofa restricted number of sophisticated individual and institutional investors of substantial net worth, including one or more of the Affiliates. BeC relied on the "private adviser" exemption in Section 203(b)(3) of the Advisers Act. BCC contended that the Affiliates should not be counted as "clients" of Bee for purposes of Section 203(b)(3) and argued that, in the context of the statutory definition, it was not acting as an investment adviser within the meaning of
Section 202(a)(II) of the Advisers Act with respect to the Affiliates because Bce
was not "advising others." BeC sought and received confinnation from the Staff that it would not recommend an enforcement action against Bee if, so long as the venture capital fund had fewer than fifteen limited partners, Bee aeted as investment adviser to the venture capital fund and the Afliliates without registering as an investment adviser under the Advisers Act, provided that BeC proceeded in reliance on the opi nion of counsel that the private adviser exemption was available to BeC. In CSX Financial Managemenllnc., CSX Financial Management Inc. ("CSX Financial"), an indirect wholly-owned subsidiary ofCSX Corporation ("CSX"), was a registered investment adviser and existed solely to provide investment advisory services to CSX and certain of its subsidiaries.9 CSX Financial did not hold itself out to the public as an investment adviser. CSX Financial submitted that its advisory services to CSX and its subsidiaries should not be considered services to "others" regarding securities. CSX Financial requested and received an order under Section 202(a)(II)(F) (now Section 202(a)(II)(I-I» of the Advisers Act declaring CSX Financial to be a person not within the intent of Section 202(a)( II) of the Advisers Act. Further, we do not believe that there is any public policy basis for deeming ZAMA to be in the business of providing investment advice to others. ZAMA is a wholly-owned subsidiary of the Parent that was established and has been I See BankAmerica Capital Corp .• SEC StafT No-Action Leiter (Apr. 27, 1978). 9 See CSX Financial Management. Inc., File No. 803- [34. Release Nos. [A-[S05 (Jun. 23 , [999) (notice) and IA-ISOS (Jul. 20, [999) (order). Al73626S3913

Securities and Exchange Commission
June 30, 201 1 operated for the sole purpose of providing investment advisory services to the Parent via the Funds in which the Parent is the only in vestor. ZAMA does not hold itself out to the public as an investment adviser, and provides investment advice only to the Parent via the Funds. The Funds (and any funds established by the Parent in the future) are established and operated solely for the benefit of the Parent in ordcr to enable the Parent to pool and invest its premium proceeds in order to meet short, medium and long term claim obligations and other operating costs of its insurance business and consist solely of the Parent's assets. Conclusion Based on the above, we do not believe that ZA MA is in the business of "advising others." On behalf of ZAMA, we hereby request that the StafT give its assurance that it will not recommend that the Commission take enforcement action under
Section 203(a) of the Advisers Act against ZAMA ifZAMA does not register
with the Commission as an investment adviser undcr the Advisers Act. Sincerely yours, ~()vu?r-A- Roger P. Joseph cc: Paul B. Raymond, Esq. Binlh~m McCutchen LLP N7Jb26S3913 blnlh~m.(Om