Exemptive Application Seeks Permission for Multi-Class Closed-End Fund
The sponsor of a closed-end fund structured to invest in distressed securities has filed an exemptive application with the SEC to allow the fund to issue three classes of securities: one with a front-end sales charge and a distribution fee, a second with a 100 basis point combined distribution and service fee, and a third with no sales charge or distribution fee. The sponsor has requested the relief to apply to any closed-end fund that would qualify as an interval fund under Rule 23c-3 or offer periodic tenders under Rule 13a-4. Without exemptive relief, a closed end fund may not issue multiple classes without violating Section 18 of the Investment Company Act. The application undertakes to comply with Rules 12b-1, 18f-3, 17d-3, and 22d-1 to the same extent as if the fund were a registered open-end fund.
OUR TAKE: If granted, this relief would allow closed-end funds to create a distribution structure similar to open-end funds. This would allow sponsors, who wish to invest in illiquid securities not eligible for open-end funds, to create pooled vehicles with some shareholder liquidity and still compensate their distribution partners.