Key Takeaways

  • On Tuesday, the SEC issued the first simplified co-investment relief, representing the most significant update to these exemptive orders in nearly a decade.
  • The simplified relief eases some of the most onerous requirements of the previous orders.
  • Although the final relief leaves out open-end mutual funds, today’s order is a major step forward and signals a renewed focus from the SEC and its staff on facilitating capital formation while maintaining investor protections.

On April 29, 2025, the SEC granted an order to FS Credit Opportunities Corp. et al. (“FS Investments”) permitting certain business development companies (“BDCs”) and closed-end management investment companies (“CEFs”) to participate in co-investment transactions with affiliated funds and accounts that could otherwise be prohibited by Section 17(d) and 57(a)(4) of the Investment Company Act of 1940 and Rule 17d-1 thereunder (the “New Co-Investment Relief”).1

As we previously reported, the New Co-Investment Relief is based on an updated version of the so-called “simplified” co-investment exemptive relief application that was first filed with the SEC staff in 2019. The first filing of the most recent crop of further simplified co-invest exemptive relief applications was made by FS Investments, a Dechert client, on February 20, 2025, with other applicants making similar filings in rapid succession thereafter.2

This order, which adopts a more principles-based co-investment framework, will greatly simplify and modernize the co-investment process for CEFs and BDCs, as discussed in more detail in a recent Dechert OnPoint (“Good News Coming Out of the SEC for BDCs (and Hopefully More to Come)”). Among other things, the new line of applications modernize the requirements of standard existing co-investment exemptive orders by substantially reducing board approval requirements, expanding permissible co-investment entities, streamlining investment allocation decisions for co-investment transactions and permitting BDCs to invest in issuers in which an affiliate of the BDC, but not the BDC itself, is an existing investor, subject to certain conditions.

Footnotes

  1. FS Credit Opportunities Corp., et al., SEC Rel. No. IC-35561 (April 29, 2025) (order).
  2. FS Credit Opportunities Corp., et al., File No. 812-15706 (April 3, 2025) (application); FS Credit Opportunities Corp., et al., SEC Rel. No. IC-35520 (April 3, 2025) (notice).