[co-author: Hema Gharia]
On August 15, 2025, the Staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “SEC”) issued guidance in the form of new Accounting and Disclosure Information (“ADI”), “ADI 2025-16 – Registered Closed-End Funds of Private Funds.” In the past, Staff comments often prompted closed-end funds that invest in private funds (“CE-FOPFs”) to limit their investments or limit the offerees. The Staff announced that given the evolution of oversight and other changes, the Staff will no longer provide comments requesting the registrant either (i) limit offers to accredited investors and impose minimum investment requirements or (ii) limit its private fund investments to 15% of its assets. In this ADI the Staff also provides guidance regarding registration statement disclosures.
Filings
CE-FOPFs that would like to make changes based on this new approach should do one of the following based on which limitation they previously had in place:
CE-FOPFs that limit investments to accredited investors and/or impose investment minimums AND invest or seek to invest 15%+ of assets in private funds: CE-FOPFs that want to remove accredited investor and/or investment minimum limits from their registrations statements should file amendments to their registration statements through Rule 486(a)-(b) under the Securities Act of 1933 (the “1933 Act”) or file prospectus supplement updates through Rule 424 under the 1933 Act. If the changes made are material, these will require review by the Staff under Rule 486(a) of the 1933 Act.
CE-FOPFs that limit private fund exposure to 15% of assets AND had no accredited investor and/or investment minimum shareholder limitations: CE-FOPFs that now want to remove the 15% limitation from their registration statements should make that change in a post-effective amendment filing under Rule 486(a) under the 1933 Act. This is a material change and will need to be reviewed by the Staff.
Disclosures
The Staff provided disclosure recommendations including the following:
- Complying with the SEC’s “plain English” rule and ensuring disclosures are clear, concise, and understandable
- Disclosing all information required by Form N-2, including full disclosure of costs, strategies, risks, and investment process-related due diligence practices conducted by the adviser when evaluating private fund investment opportunities
- Disclosing liquidity terms clearly and prominently
- Describing the various fee structures imposed by the underlying private funds, including discussions of how those fees could affect the underlying private fund returns and the CE-FOPF’s performance
- Disclosing how multiple layers of direct and indirect fees will affect the returns realized by an investor
- Disclosing that the underlying private funds that they invest in are not limited by the Investment Company Act of 1940 (the “1940 Act”) in how they invest their assets
- Disclosing that the underlying private funds’ investments may impact the strategies, risks, and costs of and for the CE-FOPF
- Disclosing that shareholders may have limited information about the underlying private funds in which the CE-FOPF is investing, including with respect to holdings, liquidity, and valuation
Consider also disclosing:
- The effect of any underlying private fund performance fees or incentive allocations on performance, including the possibility that an underlying performance fund could receive fees even if the performance of the CE-FOPF itself is negative overall
- Information about the underlying private funds, including discussion of the types of funds they propose investing in and any associated risks and considerations
- Risks relating to the legal jurisdictions of the underlying private funds; “liquidity terms” for private fund investments and explanations of how these terms may impact the fees, performance, and liquidity of the CE-FOPF; and tax considerations that could impact the CE-FOPF’s pass-through status as a Regulated Investment Company
Regulatory Protections
The Staff also noted that investors in CE-FOPFs have different regulatory protections than direct investors in private funds. These include requirements that the CE-FOPF be managed by a registered investment adviser, have a board of directors, make certain periodic disclosures, and bear liability for material omissions and misstatements. The 1940 Act also applies to CE-FOPFs and sets out additional requirements to protect investors.
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