SEC Staff Weighs in on Expanded Retail Access to Private Funds

On August 15, 2025, the Securities and Exchange Commission staff issued Accounting and Disclosure Information (“ADI”)¹ guidance applicable to closed-end funds (“CEFs”) that invest in underlying private funds.² The guidance follows a prior statement on May 20, 2025, by then-Director of the SEC’s Division of Investment Management that the SEC staff would no longer provide comments during the registration statement review process seeking to limit the ability of retail investors to invest in registered CEFs that invest more than 15% of their assets in underlying private funds. Please see our prior Dechert OnPoint for additional information.

Previously, the SEC staff had held a longstanding policy of requiring CEFs that invest more than 15% of their assets in underlying private funds to restrict sales to investors that satisfy the accredited investor standard and impose a minimum initial investment requirement of $25,000. Consistent with this policy, the SEC staff would not grant acceleration of a CEF’s registration statement without a commitment by the fund to impose these restrictions during the disclosure comment process. The ADI guidance recognizes that investors in CEFs that 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 regulatory protections include: requirements that a CEF be managed by a registered investment adviser that owes a fiduciary duty to the CEF; independent board oversight and governance; periodic disclosure obligations; liability for material omissions and misstatements; mandatory compliance programs; limits against excessive leverage and overly complex capital structures; and prohibitions against certain conflicted transactions with affiliates, which generally would preclude a CEF from investing in an affiliated private fund.

The ADI guidance focuses on two key areas: registration statement disclosure and filing requirements.

Registration Statement Disclosure

The ADI guidance highlights the following areas that the SEC staff will continue to focus on when reviewing the registration statements of CEFs that invest in underlying private funds:

• Disclosure of a CEF’s costs, strategies and risks, as well as the investment process-related due diligence practices conducted by the adviser when evaluating private fund investment opportunities (including investment, operational, legal and, as applicable, tax considerations).
• Clear and prominent disclosure of the CEF’s liquidity terms.
• With respect to fee- and cost-related disclosures:
  • a description of the various fee structures imposed by the underlying private funds (including performance‑related compensation) and how those fees could affect the underlying private funds’ returns and the CEF’s performance; and
  • a discussion of how multiple layers of direct and indirect fees will affect the returns realized by an investor in the CEF. In particular, the ADI guidance states that a CEF should consider disclosing the effect of any underlying private fund performance fees or incentive allocations on the CEF’s performance, including the possibility that certain of the underlying private funds may receive performance fees, even if other underlying private funds—or the overall performance of the CEF itself—is negative (i.e., “netting risk”).
• A full discussion in the CEF’s strategy and risk disclosures of the types of underlying private funds in which it proposes to invest and the associated risks and considerations, including (to the extent material) the private funds’ investment strategies, risks associated with more volatile or speculative investments, conflicts of interest and the liquidity of the private funds’ underlying investments.
• Disclosure stating that the underlying private funds in which the CEF invests (as compared to registered funds) are not subject to Investment Company Act restrictions on their investments and operations (e.g., with respect to leverage and transactions with affiliates).
• Disclosure stating that the underlying private funds’ investments may impact the strategies, risks and costs of and for the CEF itself. The CEF 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.
• When material, disclosure of risks relating to:
  • the legal jurisdictions in which underlying private funds are organized;
  • “liquidity terms” for the CEF’s private fund investments (such as mandatory minimum holding periods, limitations or suspensions of redemptions and the possibility of “payment in kind” distributions in response to a redemption request) and an explanation of how these terms may impact the fees, performance and liquidity of the CEF; and
  • tax considerations when investing in private funds that produce non-qualifying income and that could impact the CEF’s pass-through status as a Regulated Investment Company under Subchapter M of the Internal Revenue Code.

More generally, the ADI guidance reiterates that “registration statement disclosures should be clear, concise, and understandable, and must comply with the [SEC’s] ‘plain English’ rule.”

Filing Requirements

The ADI recognizes two categories of CEFs that could be impacted by this guidance: (1) CEFs that already operate as funds of private funds and which will no longer be subject to investor qualification and minimum investment requirements; and (2) CEFs that are broadly offered and have historically limited their investments in private funds to no more than 15% of their assets in order to avoid becoming subject to investor qualification and minimum investment requirements.

The ADI states that a CEF that currently invests (or seeks to invest) over 15% of its assets in private funds and has removed, or now seeks to remove, accredited investor and/or investment minimum shareholder requirements from its registration statement should either (i) file an amendment to its registration statement pursuant to Rule 486 under the Securities Act or (ii) file a prospectus supplement update pursuant to Rule 424 under the Securities Act, as appropriate.³

In contrast, the ADI provides that a CEF that currently limits its private fund exposure to 15% of its assets and has not imposed accredited investor and/or investment minimum shareholder requirements and that now seeks to remove the 15% limitation should incorporate that change (together with the relevant disclosure changes, as described above) in its registration statement through a post‑effective amendment filed pursuant to Rule 486(a) under the Securities Act, on the basis that the SEC believes such a change is per se material and should be subject to review by SEC staff.