SEC Allows Foreign Funds to Expand Investments in U.S. Funds
The SEC has granted no-action relief to allow a foreign fund to invest more than 5% of its assets in a U.S. registered funds so long as the foreign fund does not purchase more than 3% of the U.S. fund. The no-action relief allows a foreign fund to go outside the strictures of Investment Company Act Sections 12(d)(1)(A)(ii) and (iii), which limit investments by funds in other funds. The applicant represented that the foreign investing funds would not sell their securities to U.S. Persons. The SEC agreed with the applicant’s contention that the SEC “had no significant regulatory interest in protecting the acquiring funds and their shareholders” because they were not domiciled or sold in the U.S.
OUR TAKE: We agree with the analysis and applaud the result. We are surprised that the SEC agreed to limit its jurisdictional reach because it has generally sought to expand its jurisdiction in recent regulatory actions and litigation.