SEC Issues New Guidance for Closed-End Funds Investing in Private Funds

September 5, 2025

In response to a significant increase in the number of registered closed-end funds that invest in private funds (CE-FOPF), as well as the evolution of the SEC’s oversight of both registered funds and private fund advisers, the SEC announced in Accounting and Disclosure Information (ADI) stating that its staff will no longer provide comments requesting the registrant either (i) include accredited investor status and minimum investment requirements, or (ii) limit its private fund investments to 15 percent of its assets.  

According to the SEC announcement, investors in CE-FOPFs who indirectly invest in private funds have regulatory protections under the federal securities laws that differ from the safeguards afforded to direct investors in private funds. These protections include requirements that: 

• the CE-FOPF be managed by a registered investment adviser, which owes a fiduciary duty to the fund; 
• a board of directors, which also owes a fiduciary duty to the fund, exercises oversight of the CE-FOPF; and 
• the CE-FOPF makes certain periodic disclosures and bears liability for material omissions and misstatements.

The ADI also included guidance and areas that staff will continue to focus on when reviewing CE-FOPF registration statements: 

• Registration statement disclosures should be clear, concise, and understandable, and comply with the SEC’s “plain English” rule. 
• A closed-end fund’s registration statement must disclose all of the information required by Form N-2. 
• For the fee-and cost-related disclosures in its registration statement, a CE-FOPF should describe the various fee structures imposed by the underlying private funds (including performance-related compensation) and discuss how those fees could affect the underlying private funds’ returns and the CE-FOPF’s performance. 
• CE-FOPFs should consider making sufficient disclosures about the underlying private funds themselves.  
• CE-FOPFs should also disclose that: 
  • the underlying private funds in which they invest (as compared to registered funds) are not limited by the 1940 Act in how they invest their assets (e.g., leverage and transactions with affiliates); and 
  • the underlying private funds’ investments may impact the strategies, risks, and costs of and for the CE-FOPF itself. The CE-FOPF should disclose that shareholders may have limited information about the underlying private funds in which it is investing, including with respect to the underlying private funds’ holdings, liquidity, and valuation. 

CE-FOPFs investing or planning to invest more than 15% of their assets in private funds and have removed or are seeking to remove accredited investor and/or investment minimum shareholder limitations from their registration statements should: 

• (i) File amendments to their registration statements through Rule 486(a) or 486(b) under the 1933 Act or  
• (ii) File prospectus supplement updates through Rule 424 under the 1933 Act, as appropriate.  

These CE-FOPFs should consider whether these changes are material, which would require the staff’s review under rule 486(a). 

Registrants currently limiting private fund exposure to 15% of assets and never including accredited investor and/or investment minimum shareholder limitations in their registration statements and now seeking to remove the 15% limitation, should file a post-effective amendment filing under Rule 486(a), as such a change is material and should be reviewed by staff. 

For additional guidance and to read the full ADI, click here. 

Questions? Our regulatory experts are available to answer any questions you may have.