NYSE Proposal to LImit Closed-End Fund Investments in Private Funds

April 29, 2021

The NYSE’s proposed amendment effectively would prevent the initial listing of a closed-end fund if, at the time of listing, the closed-end fund invests on an aggregate basis more than 15% of its net assets in Private Funds  or invests more than 5% of its net assets in any single Private Fund. Comments to the proposed amendment are due by May 17, 2021.
The proposal includes a new definition of Private Fund, as noted below.  

The proposed amended rule would require listed closed-end funds that invest in or intend to invest in Private Funds to adopt fundamental policies providing that: (i) may not make additional investments in Private Funds if, immediately after the investment, Private Funds would represent more than 15% of a fund's net assets or the investment in an individual Private Fund would represent more than 5% of a fund's net assets; and (ii) such closed-end funds will take specified actions upon exceeding those limits, including notifying the NSYE and the fund’s board of directors. Such notice to the fund board would necessitate the provision of a report explaining the extent and causes of the occurrence and a plan to reduce the fund’s investments in Private Funds to comply with the limits noted above.  Such reports and notice must be made within one business day of the occurrence of the violation.  Inherent in the proposal is a 30 day cure period.  Thus, if a fund exceeds the investment limitations for more than 30 days, the fund’s board of directors, including a majority of independent directors, must reassess the plan presented to determine if it continues to be in the best interests in the fund.

The proposed amendment includes a new definition of “Private Fund.”  Under this definition, a Private Fund means:  (1) in the case of a U.S. domestic limited partnership, limited liability company, trust, corporation or similarly incorporated or unincorporated entity that would be an investment company under Section 3(a) of the Investment Company Act but for the exception provided from that definition by either Sections 3(c)(1) or 3(c)(7) of the Investment Company Act and (2) in the case of a foreign entity, an entity that is only permitted to offer its securities in the U.S. in a private offering that complies with Section 7(d) and either 3(c)(1) or 3(c)(7) of the Investment Company Act and the interpretations of the SEC thereunder. The proposed definition of Private Fund excludes any funds that are issuers of collateralized debt obligations or collateralized loan obligations.

SEC Notice of NYSE Proposed Amendment:  https://www.sec.gov/rules/sro/nyse/2021/34-91618.pdf