SEC May Permit Mutual Funds and ETFs to Make Some Private Investments (Presumably up to 15%)

Graber, S., Nowakowski, J. J., Edwards, A. L., & O'Brien, J. J. (2026, May 19). SEC Staff Permits Mutual Fund and ETF Joint Transactions. Morgan Lewis. https://www.morganlewis.com/pubs/2026/05/sec-staff-permits-mutual-fund-and-etf-joint-transactions

• The SEC Staff issued a transformative no-action letter on April 27, 2026, that expands exempt relief for closed-end fund private asset transactions to now include open-end mutual funds and ETFs.

• This regulatory relief reverses historical prohibitions under the Investment Company Act of 1940.

• By broadening the exemption, this action provides retail investors in Mutual Funds and ETFs with some access to alternative investment strategies previously restricted to closed-end funds.

• Fund governance is modernized by allowing a designated committee of at least three disinterested directors to authorize such transactions, rather than requiring approval from the full board.

• Despite this expanded flexibility, open-end funds must still strictly adhere to existing liquidity mandates, including the rule limiting illiquid investments to a maximum of 15% of total assets.

• Moving forward, advisers filing new exemptive applications or amendments after May 4, 2026, must explicitly name any open-end funds intending to rely on the regulatory order.

Knote: Mutual Funds and ETFs will still be limited to only 15% in illiquid assets, but it plays along the same theme of the SEC softening its stance on private investments, presumably because they see some value there, or at least utility -- a key driver of the Alts2Wealth thesis.