SEC provides guidance regarding knowledgeable employees investing in private funds

In a long-anticipated letter, the staff (Staff) of the Securities and Exchange Commission recently published important new guidance on the term "knowledgeable employee" as that term is used in Rule 3c-5 under the Investment Company Act of 1940 (the 1940 Act). The term is integral to the exemptions on which hedge funds, private equity funds and other private funds typically rely from the 1940 Act's definition of "investment company". The letter, which responded to a request from the Managed Funds Association (MFA) represents the first time in almost 15 years that the Staff has publicly set out interpretations of the term and generally reflects an expansion of the concept of knowledgeable employee. The Staffs new guidance in the MFA Letter broadens the scope of persons that the Staff considers to be knowledgeable employees and should provide advisers to private hinds with a higher level of certainty and confidence in making determinations.