Davis Polk partner Chris Healey was quoted in BoardIQ speaking about the SEC’s indication that it will expand co-investment relief for closed-end funds to accommodate private equity.

“Although the SEC’s expedited co-investment relief does not explicitly apply only to private credit, the framework works for only this asset class because those strategies avoid the affiliate and principal-transaction restrictions that complicate equity investing under the Investment Company Act,” Chris noted. “Private equity co-investments remain functionally blocked unless the SEC expands the relief to address those structural issues.”

He added, “The current co-investment relief only addresses joint transactions where you and your affiliate sit on the same side of the table. But private equity also involves principal transactions, and the relief today does not touch that.”

The article noted that in private equity deals, registered funds typically acquire voting securities, which makes the portfolio company an affiliate and triggers a separate set of affiliated-transaction prohibitions.

“You can get into a private equity deal under the FS template, but you can’t really operate it,” Chris said. “That’s why you don’t see PE strategies in ‘40 Act funds.”

Chris pointed out, “Though [SEC Commissioner Mark] Uyeda acknowledged that considerations about expanding co-investment relief beyond private credit are alive within the SEC, regulators will have to prioritize the pending applications before considering expanding the relief.”

“SEC Could Clear CEFs’ Path to Private Equity – And Drag Boards In,” BoardIQ (December 9, 2025) (subscription required)

Copy link to share post