New SEC Co-Investment Relief Framework: Increased Flexibility for Business Development Companies and Closed-End Funds

In recent months, the SEC has engaged in efforts to modernize and expand joint transactions and improve retail investor access to alternative investments and private markets. By removing several restrictive requirements, the SEC's new exemptive relief streamlines the co-investment process and offers sponsors greater flexibility in determining how best to structure co-investment opportunities with regulated funds. 

Some of the key aspects of the new co-investment framework include reduced frequency in board approval, elimination of specific allocation requirements, no prohibition on co-investments where a related party has a pre-existing investment, expanded access to follow-on investments, inclusion of joint ventures, and a reduction in board reporting requirements. 

Although the SEC's new exemptive relief is considered a welcome change for the industry, some critical issues remain unresolved for regulated funds. These unaddressed issues include the requirement that affiliates must invest on the same terms and in the same classes of securities; affiliates must continue to share transaction fees on a pro rata basis; and there remains limited relief for principal transactions, making it difficult for a typical private equity strategy to function properly in a regulated fund. 

In light of the new exemptive relief framework, private fund managers should consider amending existing co-investment orders or applying for new relief. Also, platforms may want to consider changes to their processes for co-investing among one or more regulated funds and affiliated funds, including updating their allocation and co-investment policies.

Listen as our expert panel reviews the SEC's new model of co-investment relief and provides guidance for funds wanting to take advantage of this more flexible co-investment framework.

I. Background on the new co-investment framework

II. Key changes and simplifications to co-investment procedures

III. How the new co-investment relief compares with the prior co-investment framework

IV. Practical implications

V. Unresolved issues

VI. Next steps for private fund managers that have existing co-investment exemptive orders or funds that hope to file for an exemptive order

VII. Practitioner pointers and key takeaways

The panel will discuss these and other key considerations:

• What is the background regarding the SEC's new co-investment relief framework?
• How does the new co-investment relief framework differ from the prior framework?
• Does the new exemptive relief framework provide managers of BDCs and closed-end investment companies greater flexibility to engage in co-investment opportunities and enhance retail investor access to private markets?
• What are some key issues that were not addressed in the new relief model?
• What are key considerations and next steps for funds that want to take advantage of the new flexible co-investment framework?