The SEC has announced liberalized exemptive relief conditions for co-investments made by private funds with their affiliated registered funds and business development companies (BDCs). The announcement is manifested in the SEC’s exemptive order granted to FS Credit Opportunities Corp. where the granted relief is subject to the new, liberalized conditions. The FS order was soon followed by several similar orders and notices of pending orders.
Key aspects of the liberalized relief are:
- Removal of the requirement for advance board approval for most co-investment transactions.
- Co-investments may now be made through joint ventures owned jointly by private funds and their affiliated registered funds and BDCs.
- Removal of the formal, cumbersome process for offering the co-investment opportunity to the registered fund and BDC.
- Elimination of the prohibition on co-investments by registered funds or BDCs in issuers when their affiliated private funds are already invested in the issuer.
In addition, we understand that the SEC has been accelerating the issuance of these liberalized co-investment orders – even faster than the typical expedited exemptive relief process provided for under existing SEC rules.
Takeaways
We believe the liberalized relief should not only open up more investment opportunities for registered funds and BDCs to co-invest with their affiliated private funds, it should also pave the way for new interval funds and BDCs to enter the market as pure co-investing vehicles (investing alongside their affiliated private funds) with new sources of capital.
The new liberalized approach to co-investments is consistent with the recent view articulated by SEC commissioners about empowering retail investment in private funds, which appears to be a priority of the SEC’s new administration.
As a result, private fund managers that have existing co-investment exemptive orders should reach out to counsel about amending their prior orders to obtain the liberalized relief. And private fund managers that do not yet manage an interval fund or BDC may now wish to consider setting up a co-investment-focused registered fund or BDC and apply for the liberalized relief.
If you have any questions, or would like additional information, please contact one of the attorneys on our Investment Funds team.
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