SEC Proposes Changes to Interval Funds, Extension of Multi-Class Relief for CEFs and BDCs

On September 30, the Securities and Exchange Commission (SEC) released a rule proposal detailing potential areas of change for interval funds as well as extending multi-class share relief to regulated closed-end funds. This proposal, released in tandem with proposals covering performance fees and proposed changes to the accredited investor definition demonstrate the Commission’s goals for increasing retail access to private market investments. SEC Chairman Paul Atkins stated, “Investor demand for private market investment opportunities is growing, and one of my priorities for the Commission is to explore ways to facilitate the ability of individual investors to participate in private markets, while at the same time protecting those investors from bad actors and fraud.”

The Commission’s release offers several proposed changes to the interval fund structure under Rule 23c-3 of the Investment Company Act which would allow for further flexibility for these products. The Commission has proposed the following:

• Deferral of a fund’s initial repurchase request for up to two years even if the fund chooses a shorter interval cycle. Currently, an interval fund must complete its initial repurchase request no later than two intervals after the effective date of its registration statement.
• The option of a one-month repurchase period to the current requirement under Rule 23c-3 of a repurchase period of three-, six-, and twelve-months.
• Removal of the requirement that a fund hold at least 100% of the repurchase offer amount in liquid assets between the repurchase notification and the repurchase pricing date and replaces it with a more principles-based requirement.
• More frequent discretionary repurchases from the current requirement of once every two years to as frequently as once every year.

The Commission’s proposal would also amend Rule 18f-3 to extend multiple share class eligibility to all non-traded registered closed-end funds and BDCs. This codifies existing exemptive relief for multiple share class closed-end funds and BDCs. 

The Commission has requested stakeholder comments by December 4. MFDF plans to draft a comment letter responding to the Commission’s proposal in the coming weeks.

Click here to read the Commission’s proposal.

Click here to read a Dechert client alert covering the proposal.