To gain access to highly sought-after retail investors, some fund sponsors are opting to convert their existing private funds to funds registered as closed-end investment companies under the Investment Company Act of 1940. Although there are appealing benefits to operating as a regulated investment company (RIC), that status also comes with stringent tax and regulatory requirements with which sponsors must adhere. An added complication, however, is that certain aspects of private fund investing (e.g., funds of funds) are somewhat incongruent with maintaining RIC compliance, which can create unique challenges for sponsors to navigate. This second article in a two-part guest series by Faegre Drinker partner Leila E. Vaughan analyzes the benefits of RIC tax treatment; the requirements to qualify as a RIC; the consequences of failing to meet those requirements; and the types of assets that may pose problems – with suggested solutions – for RIC compliance. The first article focused on the mechanics of private fund conversions to RICs; the immediate tax consequences of the conversion; the requirements for the conversion to qualify as a non-taxable transaction; and special issues as to certain owners of the converting private fund. See our two-part series on converting a private fund into a regulatory fund: “Trend, Drivers and Time Frame” (Mar. 5, 2026); and “Investor Relations, Track Record and Board of Directors Issues” (Mar. 19, 2026).