On April 27, 2026, the staff of the SEC’s Division of Investment Management issued a no-action letter that (1) expanded the applicability of the streamlined co-investment relief process previously granted to closed-end funds and business development companies to also apply to open-end funds, and (2) streamlined the process for the boards of registered funds, including open-end funds, closed-end funds and BDCs, to approve co-investments.
The no-action letter allows open-end funds to invest alongside affiliated funds and other affiliated accounts in negotiated investments, subject to the existing 15% limitation on investments in illiquid securities. The no-action letter also permits a fund’s board to delegate its responsibilities for approving co-investment transactions to a board committee.
The April 27, 2026 no-action letter automatically extends to existing “simplified” co-investment exemptive orders, as discussed below.
Extending Relief to Open-End Funds
The April 27, 2026 no-action letter continues the SEC’s recent trend toward expanding retail investor access to alternative investments, which are generally less liquid than traditional asset classes. The Investment Company Act of 1940 generally prohibits registered open-end funds, closed-end funds and BDCs from participating in certain joint transactions, including co-investment transactions, with affiliates unless the SEC has issued an exemptive order allowing the transactions. The SEC generally has declined to issue exemptive orders providing co-investment relief to open-end funds.
On April 29, 2025, the SEC began issuing exemptive orders providing a more streamlined form of co-investment exemptive relief, referred to as “simplified” orders. The simplified orders have relaxed the administrative burdens applicable to the co-investment process for closed-end funds and BDCs, making it easier for alternative asset managers to manage portfolios in registered vehicles. The April 27, 2026 no-action letter extends the applicability of the simplified orders to open-end funds, allowing those funds to co-invest alongside affiliated fund and non-fund accounts.
Streamlining the Co-Investment Approval Process
The simplified orders require that certain co-investment transactions be pre-approved by a majority of a fund’s directors who have no financial interest in the transaction, plan or arrangement and by a majority of the independent directors, which the relief refers to as a “required majority.”
Under the April 27, 2026 no-action letter, the required majority approval requirement may be met by delegating the board’s responsibilities to a board committee. The committee must consist of at least three independent directors who have no financial interest in the relevant transaction. The committee also must provide to the full board at each regular meeting a report on all co-investment transactions approved by the committee between regular board meetings.
Scope of Relief
The April 27, 2026 no-action letter automatically extends to open-end funds co-investment relief granted under simplified orders noticed by the SEC before May 4, 2026. Applicants currently seeking a simplified order that has not yet been noticed, or those applying in the future, should consider including language in their applications to refer to the expanded relief contemplated by the April 27, 2026 no-action letter.
The April 27, 2026 no-action letter is available here.
