On April 3, 2025, the SEC issued a notice of its intent to grant a new streamlined version of co-investment exemptive relief (New Relief) that would permit registered closed-end funds and business development companies (Regulated Funds), but not open-end mutual funds or ETFs, to participate in joint co-investment transactions with affiliates. The New Relief simplifies and relaxes many of the conditions that are currently required under existing co-investment relief orders that are relied upon throughout the industry (Existing Relief). The New Relief will reduce the administrative burden on fund boards, feature less onerous board reporting, and rely on a more principles-based approach anchored in an adviser’s fiduciary duties and a board’s reasonable business judgement. Unless the SEC receives a request for a hearing by April 28, 2025, the SEC will issue an order granting the New Relief.

Pre-Existing and Follow-On Investment Restrictions, and Board Approval of Transactions.  The Existing Relief requires a Regulated Fund’s disinterested directors to approve each co-investment transaction, follow-on investment, and disposition in advance, unless the transaction is allocated among the participants pro rata or consists of tradable securities. This can result in significant administrative burden for boards between regular board meetings. Furthermore, the Existing Relief does not allow a Regulated Fund to participate in a co-investment transaction if an affiliate, but not the Regulated Fund, already has an investment in the issuer (known as “propping up”). The Existing Relief also prohibits Regulated Funds and affiliates from participating in follow-on investments unless they participated in the original co-investment transaction.

The New Relief eliminates the propping up and follow-on investment restrictions and requires that disinterested directors pre-approve co-investment transactions only when a Regulated Fund’s affiliate already has an investment in the security’s issuer and the Regulated Fund either does not hold the same securities of the issuer or is not participating in the transaction with the other affiliated holders of the security on a pro rata basis. The New Relief also requires that the Regulated Fund’s board, including the disinterested directors, (i) review the adviser’s Co-Investment Policies (discussed below), to ensure they are reasonably designed to prevent the Regulated Fund from being disadvantaged by participation in the co-investment program; and (ii) approve policies and procedures of the Regulated Fund that are reasonably designed to ensure compliance with the terms of the New Relief.

Order Allocation.  The Existing Relief requires a Regulated Fund’s adviser to offer all co-investment transactions that fall within the Regulated Fund’s investment objectives and strategies and board established criteria to the Regulated Fund. The New Relief eliminates this requirement and instead requires the Regulated Fund’s adviser to adopt and implement Co-Investment Policies that are reasonably designed to ensure that (i) opportunities to participate in co-investment transactions are allocated in a manner that is fair and equitable to each Regulated Fund, and (ii) the adviser negotiating the co-investment transaction considers the interest in the transaction of any participating Regulated Fund.

Board Reporting.  The Existing Relief requires quarterly reporting to a Regulated Fund’s board that details each co-investment transaction over the relevant quarter, including co-investment opportunities declined by the Regulated Fund. The New Relief requires the Regulated Fund’s adviser and chief compliance officer to provide quarterly and annual reports containing information requested by the board and a summary of matters deemed material during the period. The quarterly reports must provide information related to the Regulated Fund’s participation in co-investment transactions and a summary of any significant matters arising under the adviser’s Co-Investment Policies and the Regulated Fund’s policies and procedures. The annual reports must provide information related to the Regulated Fund’s participation in the co-investment program and any material changes in affiliates’ participation in the co-investment program, including changes to an affiliate’s Co-Investment Policies.

Scope of Relief.  Compared to the Existing Relief, the New Relief extends co-investment opportunities to a broader list of affiliated entities, including all private funds relying on any provision of Section 3(c) of the 1940 Act (e.g., collective investment trusts), joint ventures formed by Regulated Funds, and Regulated Funds that are sub-advised by an applicant for the New Relief where the Regulated Fund’s primary investment adviser is not an applicant or affiliate of an applicant.

The application for the New Relief is available here, and the SEC’s notice of intent to grant the New Relief is available here.