SEC Issues No-Action Letter to Allow Co-Investments by Open-End Funds, Expanding Retail Access

Overview of the No-Action Letter

On April 27, 2026, the staff of the SEC’s Division of Investment Management issued a no-action letter (the “No-Action Letter”) to J.P. Morgan Investment Management Inc. (“JPMIM”) stating that it would not recommend enforcement action under Sections 17(d) and 57(a)(4) of the Investment Company Act of 1940 and Rule 17d-1 thereunder if certain open-end investment companies (“open-end funds”) participate in co-investment transactions in reliance on an existing exemptive order recently issued to JPMIM.[1] That exemptive order is one in a series of recently issued exemptive orders providing co-investment relief (the “Co-Investment Orders”) that permit certain closed-end registered investment companies and business development companies to participate in affiliated co-investment transactions otherwise prohibited by the Investment Company Act of 1940, subject to specified conditions.[2] The No-Action Letter now allows open-end funds, including mutual funds and ETFs, to rely on the exemptive relief to the same extent as closed-end registered investment companies and business development companies.

The exemptive order requires the boards of directors of regulated funds to approve certain co-investment transactions with the potential to present heightened conflicts of interest, including transactions involving issuers in which affiliated entities already hold pre-existing positions, and certain dispositions. The No-Action Letter now permits regulated funds, including open-end funds, to satisfy those board approval requirements through a committee of at least three independent directors, rather than the full board.

Sullivan & Cromwell LLP represented JPMIM in seeking the No-Action Letter.

Implications of the No-Action Letter

Before the No-Action Letter, open-end funds whose investment objectives and strategies permit them to invest in similar opportunities were prohibited from participating with an affiliated entity, thereby limiting their access to such opportunities. By allowing open-end funds to rely on the Co-Investment Orders, the No-Action Letter expands access to co-investment opportunities for retail investors, who primarily access the capital markets through open-end funds. The expanded relief allows open-end funds to participate in transactions where potentially superior terms are offered, given the more favorable economics that can be achieved with a larger investing group, expanding the pool of more favorable investment opportunities available to open-end funds and their investors. The relief will also enhance sponsors’ flexibility to allocate investments across affiliated investment products. More broadly, this development may accelerate the integration of private credit and private equity strategies into open-end fund structures, particularly as sponsors and investors seek to expand retail access to private market investment opportunities.

Unlike closed-end funds and business development companies, open-end funds must redeem their shareholders upon demand, which must be accounted for when making illiquid private investments. Open-end funds continue to be subject to the SEC’s liquidity rule, which would limit them from participating in co-investment transactions involving illiquid securities if such participation would cause the fund to exceed the 15% illiquid investment threshold in the rule.

Finally, allowing board committees to provide needed approvals is particularly helpful as the Co-Investment Orders are extended to open-end funds, which often have larger boards than closed-end funds or business development companies, and so face scheduling and other logistical challenges to approve transactions on tight timelines.