Staff Allows Registered Fund to Own RIA for Broader Market Exposure
The SEC staff has granted no-action relief to allow an internally-managed registered closed-end fund to wholly-own a registered investment adviser. The structure will allow investors to benefit from investment options (initially, Luxembourg funds) managed by the adviser that would be less attractive if the fund invested directly. The adviser will be structured as an LLC to insure limited liability but will pay entity-level tax so as not to affect the fund’s RIC status. The SEC has indicated that other firms may not rely on the letter without their own relief because of the unique facts and circumstances.
OUR TAKE: This is a very creative structure that allows broader market exposure in a 1940 Act registered product. It may also have tax benefits (although we will leave that to the tax pros).