In a no-action letter issued to the Managed Funds Association on February 6, 2014, the SEC staff provided guidance on the definition of “knowledgeable employee” under the 1940 Act. Generally, Rule 3c-5 under the1940 Act (the “Rule”) permits a knowledgeable employee of a private fund, or a knowledgeable employee of an affiliated person that manages the investment activities of the private fund, to invest in the fund without being counted for purposes of the 100-person limit applicable to a fund claiming exemption from  registration under Section 3(c)(1) of the 1940 Act. The Rule also permits a knowledgeable employee to invest in a fund claiming exemption from registration under Section 3(c)(7) of the 1940 Act regardless of whether the knowledgeable employee would be a “qualified purchaser” for purposes of that exemption. The no-action letter generally expands the pool of possible knowledgeable employees who are eligible to invest in private funds. This no-action letter will be discussed in further detail in our upcoming Ropes & Gray Private Investment Fund Update.

Other Developments

Since the last issue of our IM Update, we have also published the following separate Alerts of interest to the investment management industry:

SEC Compliance Outreach Program National Seminar – Summary of Panel Discussions