No-Action Letter Permits Open-End Fund Participation under Co-Investment Orders

On April 27, 2026, the staff of the SEC’s Division of Investment Management (the “Staff”) issued a no-action letter (the “Letter”) to J.P. Morgan Investment Management Inc. (“JPMIM”) confirming that it would not recommend enforcement action if an open-end fund whose primary investment adviser or sub-adviser is an “Adviser” under a co-investment exemptive order, relies on such an order as a “Regulated Fund,” subject to compliance with the order’s terms and conditions. The Letter also confirms that the Staff would not recommend enforcement action if an open-end fund, closed-end fund, or BDC relying on co-investment relief satisfies the “Required Majority” standard under conditions 2 and 6(b) of the order through a committee of the board.

Background

On April 7, 2026, the SEC issued a co-investment exemptive order (the “Order”) to JPMorgan Private Markets Fund, et al.¹ permitting business development companies (“BDCs”) and closed-end funds to participate in co-investment transactions with affiliated entities that would otherwise be prohibited by Sections 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1 thereunder. By its terms, the Order did not extend relief to open-end funds.

JPMIM submitted a letter to the Staff seeking no-action assurance on two points. First, JPMIM requested that open-end funds be permitted to rely on the Order as Regulated Funds. Additionally, JPMIM sought assurance that the “Required Majority” requirement under conditions 2 and 6(b) of the Order could be satisfied for open-end funds, BDCs and closed-end funds by a committee of the board of directors, rather than requiring a vote of both a majority of all directors who have no financial interest in the proposed transaction and a majority of all disinterested directors of a board.

The Staff’s Response – Open-End Funds

The Letter first addressed whether open-end funds may rely on co-investment exemptive orders that, by their terms, extend relief only to BDCs and registered closed-end funds.

• In its incoming request, JPMIM contended that (i) allowing open-end funds to participate as Regulated Funds would provide those funds access to transactions on potentially superior terms and expand the pool of more favorable investment opportunities available to them and (ii) participation by open-end funds in co-investment transactions under the Order would not raise novel Section 17(d) and Rule 17d-1 concerns.
• JPMIM also noted that, although open-end funds must redeem their shareholders upon demand, open-end funds are subject to a liquidity risk management program by Rule 22e-4 under the 1940 Act, which would limit an open-end fund’s investments, including co-investment transactions involving illiquid securities under the Order, to the rule’s 15% illiquid investment limit.

Based on these facts and representations, the Staff stated that it would not recommend enforcement action to the SEC under Section 17(d) and Rule 17d-1 if an open-end fund with a primary investment adviser or sub-adviser that is an Adviser relies on a co-investment exemptive order as a Regulated Fund, subject to compliance with the terms and conditions of the Order. In particular, the Staff’s no-action position was limited to orders that (i) impose conditions substantially identical to those in the Order (i.e. conditions that are substantially identical to those in FS Credit Opportunities Corp., et al.)² and (ii) published for public notice by the SEC before May 4, 2026.³

The Staff’s Response – Committee Delegation of Required Majority Responsibilities

The Letter also addressed the practical burdens of the “Required Majority” approval process. Conditions 2 and 6(b) of the Order generally require that, with certain exceptions, prior to a Regulated Fund acquiring in a co-investment transaction a security in whose issuer an affiliated entity has an existing interest, or disposing of a security acquired in a co-investment transaction, the “Required Majority” – as defined in Section 57(o) of the 1940 Act – take the steps described in Section 57(f) of the 1940 Act. 

• JPMIM contended that this standard creates significant logistical challenges for many Regulated Funds. While BDCs, to which Section 57(o) directly applies, typically have small boards, many open-end funds, registered closed-end funds, and some BDCs have larger boards. Larger boards increase the time and resources necessary to obtain approval of a majority of all disinterested directors and require lead time to schedule meetings, which may not align with transaction timelines.
• Accordingly, JPMIM requested that boards of all types of Regulated Funds, including open-end funds, be granted flexibility to delegate the Required Majority responsibilities under conditions 2 and 6(b) to a committee of the board. JPMIM represented that such a committee would (i) consist of at least three disinterested directors, and (ii) provide a report on all co-investment transactions considered – including the committee’s decision on each transaction and the information described in Section 57(f)(3) that the committee has recorded with respect to each such transaction – at the next regular meeting of the full board of directors.

Based on these facts and representations, the Staff stated that it would not recommend enforcement action under Sections 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1 if a Regulated Fund meets the “Required Majority” definition for purposes of conditions 2 and 6(b) of the Order with respect to a committee of the board consisting of at least three directors who both have no financial interest in the relevant transaction and are not interested persons of the Regulated Fund, a majority of whom vote to approve each proposed co-investment transaction.

Observations

The SEC’s expansion of co-investment relief to open-end funds is the latest in a series of steps by the SEC to facilitate the retailization of private markets.

Open-end funds relying on the Letter will need to satisfy all existing terms and conditions of the applicable exemptive order, including those designed for closed-end fund and BDC structures. These conditions include requirements that, prior to an open-end fund’s participation in a co-investment transaction under an order, the fund’s board, including a Required Majority, must (i) review the Adviser’s co-investment policies to ensure that they are reasonably designed to prevent the participating open-end funds from being disadvantaged by participation in the co-investment program, and (ii) approve policies and procedures of the open-end funds that are reasonably designed to ensure compliance with the terms of the order. Open-end funds seeking to rely on the Letter will also want to review their trade allocation procedures and valuation procedures, among other policies, to consider possible changes to facilitate reliance on the Letter.

New co-investment applications (i.e., published for public notice by the SEC beginning May 4, 2026) seeking to include open-end funds should presumably include them expressly in the application.

By permitting boards to delegate the Required Majority function to a committee of at least three qualified directors – with a reporting obligation to the full board at the next regular meeting with specific information about each transaction considered – the Staff has provided a practical mechanism to improve the responsiveness of Regulated Funds to participate in co-investment opportunities. Boards should carefully consider the composition and charter of any committee established for this purpose.

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If you would like to learn more about the developments in this Alert, please contact your usual Ropes & Gray attorney contacts.