Key takeaways

• The SEC staff has provided no-action relief from the audit and surprise examination requirements of the Custody Rule with respect to certain “principals-only funds.”
• This relief is limited to funds whose investors are, among other things, executive officers of the manager who also have a material ownership stake in the manager, along with their spouses and minor children.
• Given the restrictive definition of “principals,” the no-action relief will likely not apply to most employee or “friends-and-family” funds.