On March 4, 2025, the Investment Company Institute (ICI) wrote to the Securities and Exchange Commission (SEC) to express its support of a request for co-investment exemptive relief by an applicant and urge that the SEC grant similar class relief on a go-forward basis. In brief, Section 17(d) of the Investment Company Act of 1940, as amended (the “1940 Act”), makes it unlawful for affiliates of a fund to effect transactions in which the fund is a participant. In its letter, the ICI stated that because of the way originated investments are negotiated and allocated across regulated funds and private funds, co-investment relief “has become a virtual necessity for managers of regulated funds investing in privately placed assets” where Section 17(d) of the 1940 Act and Rule 17d-1 could otherwise be deemed to prevent such transactions.
The ICI argues that “co-investment opportunities present significant benefits to the ability of investors to participate in diversified investments,” and the existing “cumbersome exemptive relief interferes with these benefits.” The ICI letter states that, while granting exemptive relief to the subject applicant is a significant step in the right direction, the existing co-investment order regime is highly technical and prohibits common transactions “without any corresponding investor protection benefit,” and that modernization of the co-investment framework more broadly is long overdue. In the related press release, the ICI notes that a principles-based co-investment framework would “provide more flexibility for retail investment products” and “remove unnecessary barriers and allow everyday Americans to better access to private markets.” For more information, see ICI’s letter here and the related press release here. Broader retail access to the private markets through registered funds was recently discussed during a House Financial Services Committee hearing on capital formation. SEC Acting Chair Uyeda also noted that “consideration should also be given to changes under the 1940 Act that would permit more retail investors to invest through private funds” in a recent speech.