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Fund of Funds get No-Action Relief on Investment Restrictions

The Division of Investment Management issued a no-action letter recently waiving investment restrictions for a fund of funds applicant. While funds are generally limited with respect to the percentage of assets they are able to invest in other funds, funds of funds rely on an exemption that allows investments in affiliated products, but by its narrow terms restricts the fund of funds’ investments to securities. Under the terms of the letter, funds of funds may now invest in other assets “such as real estate, futures contracts, and other financial instruments, that might not qualify as securities under the 1940 Act.”

The letter follows amendments proposed in 2008 that would have codified the relief granted and that remains on the regulatory agenda as a potential re-proposal. The letter noted that the Commission has previously issued exemptive orders granting the same relief. Accordingly, the letter means that fund of funds will no longer need to seek exemptive orders to invest in non-securities. John Baker provided a summary of the letter on his FundLaw newsgroup.