On June 29, 2015, the SEC staff issued a no-action letter with respect to Sections 12(d)(1)(A) and (B) of the 1940 Act to Grant Park Multi Alternative Strategies Fund (the “Fund”), a series of Northern Lights Fund Trust (the “Trust”). The Fund invests in other series of the Trust (the “Underlying Funds”).
Under Section 12(d)(1)(A) and (B) of the 1940 Act, the Fund would be limited with respect to both its investment in any particular Underlying Fund and its aggregate investment in all of the Underlying Funds. Section 12(d)(1)(G) of the 1940 Act provides an exemption to the (A) and (B) limitations and permits the Fund to be a “fund of funds” by investing in the Underlying Funds, which are part of the same “group of investment companies” (as defined in Section 12(d)(1)(G)(ii) of the 1940 Act), as well as government securities and commercial paper. Rule 12d1-2 extends the 12(d)(1)(G) exemption by permitting the Fund also to invest in securities other than securities issued by an investment company. However, because Rule 12d1-2(a)(2) extends the reach of Rule 12d1-2 only to securities, the Fund could not invest in assets that might not be securities under the 1940 Act, such as exchange-traded futures contracts.
In the no-action letter, the SEC staff advised that it would not recommend enforcement action if the Fund observes all requirements of Section 12(d)(1)(G) and Rule 12d1-2, except for Rule 12d1-2(a)(2) to the extent that it restricts the Fund from investing in assets that might not be securities under the 1940 Act. The SEC staff noted that, in 2008, the SEC has proposed amendments to Rule 12d1-2 to permit, among other things, a fund of funds relying on Section 12(d)(1)(G) to invest in assets that might not qualify as securities under the 1940 Act. At that time, the SEC had noted that it had issued exemptive orders providing such relief and that such greater flexibility did not appear to present any additional concerns that Section 12(d)(1)(G) was intended to address. While the proposed amendments were not added to Rule 12d1-2, the staff also noted that the SEC had continued to issue exemptive orders providing the relief that would have been codified in the proposed Rule 12d1-2 amendments.
In brief, the no-action letter represents what is equivalent to blanket relief that embodies the exemptive orders that have extended Rule 12d1-2. Funds of funds relying on Section 12(d)(1)(G) now may rely on Rule 12d1-2 to invest in assets that may not qualify as securities under the 1940 Act, without having to obtain an exemptive order.