What Are Knowledgeable Employees?

The SEC's Division of Investment Management issued updated guidance regarding the definition of "knowledgeable employees" under Rule 3c-5 of the Investment Company Act of 1940.  See Managed Funds Ass'n, SEC No-Action Letter, avail. 2/6/14, https://www.managedfunds.org/wp-content/uploads/2014/02/Staff-Response-to-MFA-3c-5-Letter-Final-Outgoing-2-6-14-no-sigs.pdf

The SEC staff explained that "private funds" include private equity funds, hedge funds, and other pooled investment vehicles, excluded from the definition of an "investment company."  Investment Company Act Rule 3c-5 permits a knowledgeable employee of a private fund – "covered fund"- or a knowledgeable employee of an affiliated person managing the investments of a covered fund – "affiliated management person"- to invest in a covered fund, without being subject to certain conditions under Investment Company Act Section 3 that otherwise apply.