The SEC has granted no-action relief allowing a registered fund to invest in foreign funds in excess of the fund-of-funds investment limitations.  Section 12(d)(1)(A) of the Investment Company Act restricts a registered fund from investing in other funds by limiting investment to 3% of the acquiring fund's total assets, 5% of any acquired fund, and 10% in the aggregate.  In this case, the acquired funds are organized outside the U.S. and many do not rely on Sections 3(c)(1) or 3(c)(7), making them investment companies potentially subject to the Rule.  The SEC granted no-action relief because it "has no significant regulatory interest in protecting" the foreign funds.  Also, the Board of the acquiring fund would ensure no excess layering of fees.

OUR TAKE: It makes sense to exclude the acquisition of foreign funds from the Investment Company Act.  It is also consistent with structures that allow unlimited purchases of 3(c)(1) and 3(c)(7) funds, which are not investment companies for purposes of the Rule.  Nevertheless, we are surprised that the Staff granted no-action relief because the SEC has become more expansive in its jurisdictional reach over the years.