Registered Closed-End Funds of Private Funds

SEC Guidance

Chris Johnson, Adrian Schrock, Sheila Stout

Discover what changed under SEC ADI 2025-16 for CE-FOPFs. Are your financial statement disclosures ready?

In under a minute

On a recurring basis, the Securities and Exchange Commission (SEC) issues Accounting and Disclosure Information (ADI) publications that summarize the SEC staff’s views regarding various requirements of the federal securities laws. On Aug. 15, 2025, the SEC’s Division of Investment Management published ADI 2025-16, “Registered Closed-End Funds of Private Funds” (CE-FOPFs), which changes prior informal limits on CE-FOPF investments.
ADI 2025-16 also provides disclosure guidance that might prompt management to evaluate key disclosure topics, including fair value measurement, schedule of investments, fee and expense layering, liquidity restrictions, tax considerations, and risk factors.

ADI 2025-16: What changed ... and what did not

ADI 2025-16 removed the SEC staff’s long-standing 15% cap on private fund investments by CE-FOPFs, permitting greater allocations to private funds, which was recommended by SEC Chair Paul Atkins. Previously, CE-FOPFs that invested 15% or more of their assets in private funds limited their offerings to accredited investors under Regulation D of the Securities Act of 1933 and required a minimum initial investment of $25,000.

Crowe observation: The SEC Investor Advisory Committee’s draft recommendations from its Sept. 18, 2025, meeting state, “We support the recent change in Staff position as recommended by Chair Atkins who urged that this long-time Staff position be reconsidered. Decisions to make investments in private funds should be determined by a fund’s Board of Directors and a fund’s investment adviser. This change would provide investors the opportunity to obtain exposure to investments otherwise available to affluent investors.”

However, the ADI emphasizes that Investment Company Act of 1940 investor protections remain unchanged. Independent board oversight, fiduciary obligations of advisers, limits on leverage and affiliated transactions, and clear, plain English disclosures continue to be required. As CE-FOPFs expand into private funds, these protections – particularly related to valuation, fees, liquidity, and risks – take on greater importance.

Crowe observation: In remarks at the Sept. 18 Investor Advisory Committee meeting, Atkins said, “There is investor demand for these products. But, we also must have appropriate guardrails to guide proper investment of retirement and other funds into these private vehicles. We must address the important issues and potential pitfalls inherent to this genre of investments, including liquidity, valuation, diversification, and strategy, terms, and conditions of investment such as investment priority and relative investment seniority in the capital stack. These sorts of questions cannot be left to chance, and fiduciaries who have a long-term retail clientele must understand their duties and investor expectations.”

Considerations for CE-FOPFs

ADI 2025-16 did not change GAAP or SEC accounting guidance for fair value measurement, financial statement presentation, and prospectus disclosures. However, CE-FOPFs planning to hold larger allocations of private funds should reevaluate the transparency and usefulness of disclosures related to private fund holdings.

Considerations	Potential disclosure evaluation
Fair value measurement	CE-FOPFs are permitted, as a practical expedient, to estimate the value of an investment using the net asset value (NAV) of the investment. Accounting Standards Codification (ASC) 820-10-35-59 through 35-62, 820-10-35-54B, and 820-10-50-6A provide guidance. Examples of ASC 820 required disclosures include the investment fair value measurement at the reporting date, unfunded commitments, a description of the significant investment strategies, and a description of the timing of liquidation or redemption. Crowe observation: CE-FOPFs commonly measure investments in underlying private funds at fair value using the NAV practical expedient under ASC 820. Because private funds might report NAV on a date different from the CE-FOPF reporting date, management should assess whether events (such as capital contributions, distributions or redemptions, material changes in the underlying value of the private fund’s investments, changes in market conditions or other economic events, or changes in the composition of investments) occurring after the NAV date but before the reporting date could materially affect fair value and require adjustment. Even if no adjustment is needed, Rule 2a-5 under the Investment Company Act of 1940 emphasizes that the board, through its valuation designee, is responsible for determining fair value in good faith and overseeing the related controls and reporting. For investments where the NAV practical expedient is not applied, the fair value measurement and disclosure requirements of ASC 820 would apply.
Schedule of investments (SOI)	While the removal of the 15% staff cap does not change existing requirements, management might review the presentation and disclosure of the CE-FOPF’s SOI for compliance with Regulation S-X Rule 12-12. For example, Rule 12-12 provides specific requirements for the SOI, including these: Disclosure should be categorized by type of investment and related industry, country, or geographic region. Restricted securities shall not be combined with unrestricted securities of the same issuer. Non-income producing securities require identification. Securities whose values were determined using significant unobservable inputs should be indicated.
Fund of funds	Management might need to monitor the significance of investments to comply with Regulation S-X Rules 3-09 and 4-08(g) and ASC 946-210-45-7, providing summarized financial information or separate audited financial statements of an investee when required. For an investment company, Regulation S-X Rules 3-09 and 4-08(g) require additional financial disclosure when an unconsolidated investment is significant, based on the investment and income tests prescribed in Regulation S-X 1-02(w)(2). Specifically, separate audited financial statements of the investee are required if significance exceeds 20%, or summarized financial information of the investee must be included in the notes to the investor’s financial statements if significance exceeds 10% but does not exceed 20%. A CE-FOPF bears its own expenses and indirectly incurs the fees and expenses of the underlying private funds, both of which reduce overall returns of the CE-FOPF. Management might consider whether disclosures about multiple expense layers are sufficiently transparent.
Liquidity and redemption restrictions	Private funds might have minimum holding periods, limit or suspend redemptions, or make in-kind distributions. Management might consider whether these liquidity terms affect the CE-FOPF’s disclosures, fees, valuation, or overall liquidity and whether additional disclosures are needed.
Risk considerations	Management might need to evaluate the CE-FOPF’s risk disclosures for compliance with ASC 275 and ASC 946. For example, the types of private funds held by a CE-FOPF can vary widely, and those differences can affect the fund’s overall risk profile. Some key considerations include: Investment strategies: Private funds may pursue speculative or leveraged strategies because underlying private funds are not limited by the Investment Company Act of 1940, allowing greater use of leverage and affiliated transactions. Affiliated transactions: Certain funds may engage in related-party investments that introduce conflicts of interest. Jurisdictional risks: Some private funds operate in foreign jurisdictions with different investor protections and regulatory standards. Liquidity and valuation: Investments may be illiquid or hard to value, increasing uncertainty. For example, liquidity gates, which are common in private funds, restrict when and how much investors can redeem, limiting the timing and speed of access to capital. Tax implications: Income from private funds could include nonqualifying income that affects regulated investment company (RIC) status Crowe observation: The strategy mix of the underlying private funds drives the risk mix of the CE-FOPFs. That’s why both GAAP (ASC 275 and ASC 946) and SEC guidance in ADI 2025-16 expect the CE-FOPF to explain what types of private funds it invests in and how those strategies influence the nature of its risks.

Effective date and transition

The effective date of the ADI was Aug. 15, 2025.
CE-FOPFs with private fund allocations already over 15% and that have removed or now plan to remove accredited investor and/or minimum investment limitations should file one of the following, as appropriate:
- Registration statement amendments under Rule 486(a)-(b) of the Securities Act of 1933
- Prospectus supplement updates under Rule 424 of the Securities Act of 1933
If the CE-FOPF makes changes beyond removing the accredited investor and investment minimum limitations, management should assess whether those changes are material, as material changes must be reviewed by the SEC staff under Rule 486(a).
CE-FOPFs currently capped at 15% with no accredited investor or minimum investment restrictions in place that are now seeking to remove the 15% limit should file a post-effective amendment under Rule 486(a). This is considered a material change and will be subject to staff review.

Crowe observation: The SEC’s Division of Investment Management has emphasized the importance of proactive engagement by CE-FOPFs with SEC staff. This reflects the SEC’s expectation that funds confirm that their disclosures and filings meet regulatory requirements – including the plain English rule – to ensure compliance and investor protection.

Near-term considerations for management and those charged with governance

CE-FOPF management and those responsible for oversight should consider the following topics and questions:

Governance. Has the board considered whether current oversight practices adequately address increased exposure to private funds? Has the board established processes to effectively oversee the adviser (or valuation designee), including reviewing quarterly and annual reports on valuation risks, methodologies, conflicts, and pricing service oversight? Does the board have the expertise and reporting needed to evaluate valuation methodologies, layered fees, and liquidity risks associated with private investments? Has the board evaluated whether the valuation designee has sufficient resources – staff, systems, and expertise – dedicated to fair value determinations? Has the board considered whether additional training or external expertise is needed to oversee a fund with significant private allocations? Given that private funds often provide less frequent or less detailed financial and valuation information, boards should ensure oversight processes are robust enough to address these data limitations and to challenge management’s judgments where transparency is reduced. Management also should monitor near-term tax implications – including the character of income from private funds and potential impacts on the funds’ qualifications as a RIC – as part of ongoing governance and oversight responsibilities.
Controls and procedures. Are disclosure controls and procedures sufficient to verify that disclosures on fees, liquidity, and valuation are accurate, transparent, and consistent across financial reports and regulatory filings? Are processes in place to ensure compliance with Regulation S-X Rules 3-09 and 4-08(g) if private fund investments are significant and trigger disclosures under the SEC rules?
Content. How will management gather and verify information from underlying private funds (for example, valuation inputs, fee structures, and redemption terms) needed for CE-FOPFs’ financial statements and prospectuses? Has management identified gaps where underlying private funds might need to enhance their own reporting to support registered fund disclosure? What processes are in place to ensure risk disclosures reflect the unique risks of private markets (such as illiquidity, leverage, and valuation uncertainty)?
Transition. Are compliance, audit, and finance teams aligned on how to implement ADI 2025-16 in upcoming filings (for example, has the fund considered whether they need to file a post-effective amendment under Rule 486(a) if the 15% limit is removed or if other material changes are made that will necessitate a staff review)? Has the fund considered whether additional investor education or communication is appropriate given the shift toward private market exposure? Does management have a plan for evaluating financial statement disclosures as private allocations increase (for example, more robust fair value reporting in compliance with ASC 820)? Has management prepared draft plain English disclosures for board review before SEC filings?