The Securities and Exchange Commission should adjust its co-investment regulatory framework for fund managers to allow more retail investors to access private markets, according to the Investment Company Institute.
There are complex hurdles for retail investors to participate in private markets, meaning they have limited opportunity to participate in any gains realized outside the public markets, ICI said in in a March 4 letter to the agency, adding that it supports FS Credit Opportunities Corp.’s co-investment application now before the commission.
The current co-investment framework is inflexible and outdated, ICI said.
Co-investment relief, which the SEC issues on a case-by-case basis, has become a virtual necessity for managers of regulated funds investing in privately placed assets, as managers of such regulated funds frequently also manage private funds with overlapping investment strategies, the ICI noted.
The terms of originated investments to be allocated across the regulated funds and private funds are typically negotiated pursuant to co-investment orders because they would otherwise run afoul of the Investment Company Act of 1940.
“The existing co-investment regime is a body of highly technical exemptive applications and orders that has resulted in the development of more than a dozen required conditions and sub-conditions to be satisfied for any particular transaction,” ICI said.
Now, ICI is calling on the SEC to approve a principles-based co-investment framework that would provide more flexibility for retail investment products.
“This relief would be an important move toward expanding retail access to private market investment opportunities while maintaining the underlying protections of the Investment Company Act,” ICI President and CEO Eric Pan said in a statement. “It’s a great first step toward modernizing the regulatory framework around private investments and removing barriers to everyday Americans’ participation.”
