Key Takeaways
- • The SEC issued a no-action letter on April 27, 2026, permitting registered open-end funds (mutual funds) to co-invest alongside affiliated funds and accounts in negotiated investments, including private credit and private equity, under simplified exemptive orders.
- • Open-end funds can now participate in co-investment transactions previously available only to closed-end funds and business development companies (BDCs), subject to existing portfolio liquidity restrictions (15% for open-end funds).
- • This relief marks the first expansion of simplified co-investment exemptive orders ("Simplified Orders") to open-end funds after the SEC initially declined such relief despite rapid adoption among closed-end funds and BDCs since April 2025.
- • The no-action letter removes a significant regulatory barrier that had historically prohibited open-end funds from participating in joint transactions with affiliates under the Investment Company Act of 1940, enabling access to negotiated deal terms on equal footing with other regulated fund structures.
- • The expansion facilitates broader industry participation in alternative assets and addresses the regulatory gap between fund structures, allowing open-end fund managers to deploy capital alongside their affiliated vehicles in private markets.
Summary
The SEC staff issued a no-action letter on April 27, 2026, granting substantial relief to registered open-end funds by permitting them to co-invest with affiliated funds and accounts in negotiated investments. This marks a watershed moment for the industry: open-end funds can now participate in co-investment transactions under the same simplified exemptive order framework that has rapidly gained traction among closed-end funds and business development companies since April 2025.
Historically, the Investment Company Act of 1940 restricted open-end funds, closed-end funds, and BDCs from participating in certain joint transactions with affiliates. The SEC had long issued co-investment exemptive orders for closed-end funds and BDCs but consistently declined similar relief for open-end funds. This regulatory asymmetry created structural disadvantages for open-end fund managers seeking to deploy capital in private markets alongside their affiliated investment vehicles. The shift began when the SEC issued its first simplified co-investment exemptive order in April 2025, establishing a principles-based framework that streamlined the approval process for closed-end funds and BDCs. Other funds quickly sought and obtained simplified orders based on this model.
The April 27 no-action letter extends this simplified framework to open-end funds, subject to existing liquidity safeguards. Open-end funds can now invest in negotiated private credit and private equity transactions alongside affiliates, provided they maintain compliance with portfolio liquidity requirements. This relief is particularly significant because it enables open-end fund managers to access negotiated deal terms and co-investment opportunities previously restricted to closed-end structures, facilitating capital deployment in alternative assets while preserving investor protections.
The expansion represents a principles-based regulatory approach that addresses the competitive disadvantage open-end funds faced in accessing co-investment opportunities. By extending co-investment relief across all registered fund structures under uniform conditions, the SEC has removed a material barrier to participation in private markets while maintaining liquidity protections designed to safeguard retail and institutional shareholders in open-end vehicles.
Historically, the Investment Company Act of 1940 restricted open-end funds, closed-end funds, and BDCs from participating in certain joint transactions with affiliates. The SEC had long issued co-investment exemptive orders for closed-end funds and BDCs but consistently declined similar relief for open-end funds. This regulatory asymmetry created structural disadvantages for open-end fund managers seeking to deploy capital in private markets alongside their affiliated investment vehicles. The shift began when the SEC issued its first simplified co-investment exemptive order in April 2025, establishing a principles-based framework that streamlined the approval process for closed-end funds and BDCs. Other funds quickly sought and obtained simplified orders based on this model.
The April 27 no-action letter extends this simplified framework to open-end funds, subject to existing liquidity safeguards. Open-end funds can now invest in negotiated private credit and private equity transactions alongside affiliates, provided they maintain compliance with portfolio liquidity requirements. This relief is particularly significant because it enables open-end fund managers to access negotiated deal terms and co-investment opportunities previously restricted to closed-end structures, facilitating capital deployment in alternative assets while preserving investor protections.
The expansion represents a principles-based regulatory approach that addresses the competitive disadvantage open-end funds faced in accessing co-investment opportunities. By extending co-investment relief across all registered fund structures under uniform conditions, the SEC has removed a material barrier to participation in private markets while maintaining liquidity protections designed to safeguard retail and institutional shareholders in open-end vehicles.
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