SEC Lifts 15% Limit on Private-Asset Holdings for Registered Closed-End Funds that Invest in Private Funds

Who may be interested: Registered Closed-End Funds, Registered Investment Advisers, Compliance Staff, Boards of Directors, Broker-Dealers, Private Fund Managers

Quick Take: The Securities and Exchange Commission (the “SEC”) staff will no longer require registered closed-end funds that invest in private funds (“CE-FOPFs”) and allocate 15 percent or more of their assets to private funds to (a) limit their offers to investors who qualify as “accredited investors” under Regulation D under the Securities Act and (b) require minimum initial investments of $25,000.

On August 15, 2025, the SEC’s Division of Investment Management issued guidance in Accounting and Disclosure Information (ADI) 2025-16. According to ADI 2025-16, when reviewing CE‑FOPF registration statements, the SEC staff will no longer provide comments requesting registrants to either (i) include accredited investor status and minimum investment requirements or (ii) limit private fund investments to 15 percent of a fund’s assets. This latest guidance marks a pivotal shift in how CE-FOPFs have been treated since 2002 during registration reviews.

ADI 2025-16 notes that since the first CE-FOPF registration statement became effective in 2002, these funds have grown in number and the regulatory structure has significantly evolved. With the release of ADI 2025-16, the SEC has formally acknowledged the evolution of the private fund market and lifted longstanding staff positions that limited retail access to CE-FOPFs. This change aligns with the SEC’s broader regulatory approach and recognizes the important layers of investor protection that are now inherent in CE-FOPF structures.

CE-FOPFs must still provide meaningful disclosure and maintain robust governance frameworks. ADI 2025-16 contains the following SEC staff disclosure comments concerning CE-FOPFs and their Form N-2 registration statements:

Continued Disclosure Focus for CE-FOPF Registration Statements

• Disclosures must be clear, concise, and in plain English, in line with regulatory requirements.
• Registration statements must meet all Form N-2 requirements, including disclosures on fees, strategies, risks, and adviser due diligence practices (investment, operational, legal, tax).
• Liquidity terms should be disclosed clearly and prominently.

Fees and Costs

• Underlying fund fees, including performance fees, and their potential impact on underlying private funds’ returns and a CE-FOPF’s performance must be clearly disclosed.
• Multiple layers of fees that could affect CE-FOPF performance need to be explained. In particular, “netting risk,” where performance fees may be paid despite overall fund underperformance need to be addressed.

Underlying Private Funds

• The types of private funds held by a CE-FOPF and associated risks must be described (e.g., volatility, conflicts of interest, liquidity).
• The fact that underlying funds are not limited by the 1940 Act (e.g., limits on leverage or affiliate transactions) must be explained.
• Disclosures must include that investments in these private funds can directly influence the strategy, risk profile, and costs of a CE-FOPF.
• Disclosures must include that investors may have limited information about underlying private funds’ holdings, liquidity, or valuation.

Additional Risk Disclosures (Where Material)

Risks tied to:

• Legal jurisdictions of the underlying private funds;
• Liquidity restrictions (e.g., lockups, suspended redemptions, payment in kind); and
• Tax implications related to non-qualifying income from private funds, which could impact a CE-FOPF’s ability to maintain its status as a Regulated Investment Company (RIC) under Subchapter M of the Internal Revenue Code.

ADI 2025-16 also details the appropriate filing process for CE-FOPFs seeking to adjust investor limits or asset exposure thresholds. Depending on the nature of the proposed changes, CE-FOPFs should (i) file amendments to their registration statements pursuant to Rule 486(a)-(b) under the Securities Act, or (ii) file prospectus supplement updates pursuant to Rule 424 under the Securities Act, as appropriate. ADI 2025-16 encouraged CE-FOPFs to review the materiality of the amendments and updates to their registration statement. ADI 2025-16 noted that the changes deemed material will require SEC staff review under Rule 486(a).

The ADI 2025-16 - Registered Closed-End Funds of Private Funds can be found here.