Since 2002, the staff of the US Securities and Exchange Commission (SEC) consistently issued comments during the registration statement review process to closed-end funds (CEFs) registered under the Investment Company Act of 1940 (1940 Act) that required CEFs either (1) to limit investing in private funds¹ to no more than 15 percent of a CEF's net assets, or (2) restrict sales of a CEF's shares to investors who are accredited investors² and impose a minimum initial investment requirement of $25,000 per investor. As a result of this informal position, which was not based on a statute or rule, the SEC staff typically would not accelerate the effectiveness of a CEF's registration statement without a commitment by the CEF to implement these restrictions.

At the "SEC Speaks in 2025" conference held on May 19-20, 2025, SEC Chairman Paul Atkins called upon the SEC to expand retail investor access to private markets. Following on this theme, on the second day of this conference, SEC Director of Investment Management Natasha Vij Greiner indicated in her prepared remarks that the SEC staff will no longer issue these comments during the registration statement review process of CEFs. Instead, the SEC staff will focus on ensuring that appropriate disclosures around conflicts of interest, liquidity and fees are included in registration statements of CEFs.

We expect that this change will expedite the registration statement review process of CEFs and meaningfully facilitate retail investor access to private investment strategies by allowing sponsors of CEFs to invest more than 15 percent of a CEF's net assets in private funds without imposing restrictions on the investor base or the minimum investment amount. Moreover, this should expand the potential investor base for private fund managers by allowing more CEFs to invest alongside traditional institutional investors in private funds.

1 Private funds have generally been defined for this purpose as those that would be investment companies but for the exceptions provided in sections 3(c)(1) or 3(c)(7) of the 1940 Act. Thus, this did not preclude investments in underlying private issuers relying on other exemptions from investment company status, including real estate funds relying on section 3(c)(5) of the 1940 Act. Recently, the SEC staff agreed to allow certain infrastructure funds relying on section 3(c)(1) or 3(c)(7) of the 1940 Act to be excluded from this limitation.

2 As such term is defined in Regulation D's Rule 501(a) under the Securities Act of 1933.