SEC Permits Certain “Master-Feeder” Arrangements

The Staff of the US Securities and Exchange Commission (SEC) on March 8, 2017 issued a no-action letter (Staff Letter) in response to a request from Dechert LLP for assurance under Section 12(d)(1) of the Investment Company Act of 1940 (1940 Act).1 The Staff Letter provides no-action assurance to global investment managers and sponsors seeking to offer investment products across non-US jurisdictions using a “master-feeder” arrangement that may conflict with certain “fund of funds” restrictions under the 1940 Act. More specifically, the Staff Letter contemplates non-US feeder funds (Non-US Feeder Funds) investing in a single US open-end investment company registered under the 1940 Act (US Master Fund), in excess of the investment restrictions under Section 12(d)(1) of the 1940 Act. The Non-US Feeder Funds would also be permitted to invest in Foreign Currency Instruments (as defined below) that could, among other things, enable the shareholders of a Non-US Feeder Fund to achieve a return on their investment, as measured in the Designated Currency (as defined below), similar to that of the other shareholders of the US Master Fund, as measured in US Dollars, by reducing the impact of currency fluctuations between the Designated Currency and the US Dollar.