SEC Staff Allows Private Fund LPs to Co-Invest with BDCs
The staff of the Division of Investment Management will allow LPs of a private fund to co-invest with a commonly-managed business development company. The Investment Company Act’s affiliate transaction prohibitions generally restrict a 5% (or more) limited partner of a private fund from engaging in transactions with a business development company under common management. If the private fund were organized as a corporation, rather than a partnership, the LP would be considered a “remote affiliate” so long as the shareholder owned less than 25%, and, therefore, could co-invest. The staff determined to treat the LP similarly to a shareholder and allow co-investment so long as the LP owns less than 25% of the private fund.
OUR TAKE: This is very helpful guidance for BDCs who may have multiple relationships with the same investors.