SEC expands co-investment relief to open-end funds

Open-End Funds May Rely on Co-Investment Orders

In the no-action letter, the Staff stated that it would not recommend enforcement action under Sections 17(d) and 57(a)(4) of the Investment Company Act of 1940 (1940 Act) and Rule 17d-1 thereunder if an open-end investment fund registered under the 1940 Act with a primary investment adviser or sub-adviser that is an “Adviser” under a co-investment exemptive order relies on such order as a Regulated Fund, provided that the fund complies with the terms and conditions of the order.

The no-action relief comes in response to JPMIM’s request that open-end funds be allowed to rely on a co-investment exemptive order that the SEC previously issued to JPMorgan Private Markets Fund, et al, which permitted business development companies (BDCs) and closed-end funds to participate in co-investment transactions, but which did not extend to open-end funds. The latest no-action letter confirms that open-end investment funds also may rely on such exemptive orders. The expansion of co-investment relief exemptive orders to open-end funds could allow platforms to invest across a wider array of funds. Advisers may need to expand existing policies and procedures to take this into account. Open-end registered funds relying on such exemptive orders still face limitations on liquidity. This, along with the new relief, expands the utility of the relief for platforms that have open- and closed-end funds.

Board Committee May Satisfy “Required Majority”

The Staff also provided assurance that it would not recommend enforcement action under Sections 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1 thereunder if a Regulated Fund meets the requirements of a “Required Majority” for a co-investment exemptive order only with respect to a committee of the board consisting of at least three directors who both have no financial interest in the relevant transaction and are not interested persons of the Regulated Fund, a majority of whom vote to approve each proposed co-investment transaction. The flexibility to have a board committee provide such approvals will be especially helpful for funds with large boards.

The no-action letter states that any platform that has an order based on the newer model of co-investment relief or has a notice that was issued before May 4, 2026, can rely on the no-action letter. The Staff has indicated that it will work with applicants who are in the process of applying for an order based on the new model to include language in the application to address these changes.

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