In an April 27, 2026 no-action letter, the Securities and Exchange Commission (SEC) staff granted relief permitting open-end (mutual) funds to participate in affiliated co-investment transactions in reliance on existing co-investment exemptive orders. Before this relief, open-end funds were not permitted to co-invest with affiliated funds—even when affiliates, including affiliated closed-end funds and business development companies (BDCs), had received exemptive relief permitting these transactions.
The relief reflects another step by the SEC to support the Administration’s efforts to expand retail access to private investments. With this relief, many mutual fund shareholders may gain increased exposure to private investments sourced by the mutual fund’s investment manager—investments that, until now, could not be allocated to affiliated mutual funds. The relief does not eliminate the need for mutual funds to continue to adhere to portfolio liquidity requirements. However, it will allow mutual funds to use their permitted 15% illiquid bucket for co-investment opportunities.
Mutual funds would be able to rely on their affiliate’s co-investment relief to the same extent (i.e., subject to the same conditions) as if the mutual fund were a closed-end fund.
SEC Staff Reasoning
Section 17(d) of the Investment Company Act and Rule 17d‑1 are designed to prevent affiliated persons from participating with registered investment companies in joint transactions on terms that are different from, or less advantageous than, those of the affiliated persons. The staff’s analysis reflects the view that these concerns are adequately mitigated when open‑end funds participate in co‑investment transactions in compliance with the terms and conditions of an existing exemptive order, rather than being categorically excluded.
The staff also emphasized that open‑end fund liquidity risks are addressed by Rule 22e‑4, which caps illiquid investments at 15% of net assets and imposes a comprehensive liquidity risk management framework. The staff expressly noted that open‑end funds may not rely on the relief when participation in a co‑investment transaction would cause then to exceed that threshold.
As additional relief, the staff permits both closed-end funds (including BDCs) and open-end funds to satisfy the “required majority” (defined in Section 57(o) of the 1940 Act) board approval requirement through a committee (at least three individuals) of disinterested directors, consistent with existing exemptive order frameworks and subject to appropriate reporting to the full board.
Compliance and Risk-Mitigation Steps
Rebuild allocation workflows
Allocation determinations should be made through a documented process that identifies eligible vehicles, now including affiliated open-end funds, screens investment objectives and liquidity profiles, establishes allocation methodologies across vehicles before final pricing, and records exclusions or deviations.
Enhance supervision and surveillance
Compliance teams should assess whether open-end funds receive fair treatment relative to affiliated private funds, closed-end funds, BDCs, and separate accounts, including allocation size, price, fees, expenses, follow-on rights, information rights, and exit opportunities.
Looking Ahead
While the staff’s position may increase structuring flexibility and expand access to private‑market opportunities for mutual funds, it does not reduce enforcement risk. As open‑end funds increasingly engage in affiliated private‑market transactions, SEC staff scrutiny is likely to remain focused on valuation, allocation fairness, preferential treatment, liquidity support, board reporting, and the robustness of conflicts documentation.
Advisers considering reliance on this relief should be prepared to demonstrate that registered-fund shareholders are treated no less favorably than affiliated private funds and other clients.
Your Alston & Bird Investment Funds Group is ready to help with any questions concerning the SEC’s recent no-action letter.
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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