ICI Urges SEC to Expand "Co-Investment Relief" to Open-End Funds

The Investment Company Institute ("ICI") urged the SEC to allow open end funds to participate in co-investment transactions under the same conditions provided under relief granted to closed-end funds and business development companies.

In a letter to the SEC, the ICI argued that co-investment allows funds to access "attractive deal flow," share transaction costs, and improve diversification. The ICI asserted that there is "no persuasive policy reason" to exclude these funds, particularly as they are primary options for defined contribution plans.

The ICI recommended that the regulator issue a class order or no-action relief rather than requiring amendments to individual applications. The association pointed out that over 170 applications have been filed since April 2025, and amending each one would impose "enormous time and costs" on both the industry and regulatory staff.

The ICI also argued that exclusion based on liquidity risks is misplaced because open-end funds are already separately regulated under the Liquidity Risk Management Rule. The ICI stated that because funds are prohibited from holding more than 15% of net assets in illiquid investments, liquidity is not a valid justification for denying the relief.

Finally, the association noted that expanding access would align with a recent Executive Order focused on "democratizing access to alternative assets for 401(k) investors." The ICI also suggested allowing board committees to approve these transactions to accommodate the larger board structures typical of open-end funds.