The Securities and Exchange Commission (SEC) has removed the 15% limit on private-fund investments by closed-end funds (CEFs). This policy change is anticipated to create new opportunities for retail investors. Asset management partner Chelsea Childs discussed the immediate impact of this change in a recent Fund Directions article. She noted that some funds have already updated their disclosures and eliminated investment minimums from certain share classes.
Chelsea Childs highlighted that this policy shift will allow fund managers to explore more innovative product designs and consider a wider range of asset types, such as private credit and secondaries, which were previously limited by the 15% cap.
However, Chelsea also mentioned potential challenges with this increased flexibility. She stressed the importance of CEF managers educating retail investors about the risks associated with investing in private funds. “Retail investors often require additional resources to service, and some funds may not want to establish the infrastructure to do so,” she said. This highlights the need for careful management and investor education to maximize the benefits of this policy change while addressing potential downsides.