Davis Polk partner Chris Healey was quoted in Ignites discussing the recent SEC guidance that allows funds to exclude collateralized loan obligation (CLO) debt from a key fund-of-funds investment limit. 

The article noted that funds do not have to count debt securities issued by CLOs toward the rule’s 10% limit on investments in other funds or private funds. 

Chris said, “The rule’s 10% limit has created trade-offs for regulated credit funds considering whether to allow other funds to invest in them.”

“Those funds have had to balance the potential fundraising benefits of accepting fund-of-funds investors with the constraint limiting how much they can invest in other vehicles,” he added. “Because the cap has applied to CLO securities and certain joint-venture structures used by credit-oriented funds, the SEC guidance could make it easier for fund-of-funds products, including target-date funds, to invest in those strategies at scale.”

“SEC Clarifies CLO Use in Fund Portfolios,” Ignites (March 10, 2026) (subscription required)

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