SEC Imposes Significant Co-Investing Conditions
The SEC has granted exemptive relief allowing a 1940 Act registered Business Development Company to co-invest with affiliated private funds. Without exemptive relief, the co-investing transactions would violate Sections 57(a)(4) and Section 17(d) and Rule 17d-1 of the Investment Company Act. The SEC imposed several conditions on any proposed transaction including: (i) pro rata allocation of opportunities, (ii) approval by independent directors, (iii) reporting of any eligible transactions not presented to the BDC, and (iv) limitations on replacing independent directors if affiliates own more than 25% of the BDC. The initial application was filed in June 2010 and was amended five times.