SEC Proposes Broader Retail Access to Private Markets
The Securities and Exchange Commission has proposed a package of rule changes aimed at widening individual investors’ access to private-market strategies through regulated investment vehicles.
The proposals are part of the SEC’s effort to promote what Chairman Paul Atkins called the “responsible retailization” of private markets. The agency said demand for private market investments is growing and that expanded access should be paired with protections against fraud and inappropriate products.
A central proposal would broaden the circumstances in which investment advisors may charge performance-based fees. Those arrangements, common in private funds, generally have been limited to “qualified clients” who meet asset or net-worth tests. The SEC is considering changes that would allow performance fees in certain registered funds, subject to governance, disclosure and fee limitations. A related proposal would align qualified-client eligibility more closely with the accredited investor standard.
The SEC also proposed reforms intended to modernize registered closed-end funds and interval funds. The changes would permit monthly repurchase offers for interval funds and revise multishare-class rules for closed-end funds and business development companies, potentially making such structures more practical for retail exposure to less-liquid private assets.
Separately, the commission requested comment on additional pathways for individuals to qualify as accredited investors, a designation that opens access to many private offerings. The SEC is considering a Financial Industry Regulatory Authority-developed exam as a nonwealth-based means of demonstrating investment sophistication.
It also is considering whether holders in good standing of credentials, including a U.S. CPA license, Chartered Financial Analyst charter, Certified Financial Planner certification, FINRA Series 79 investment-banking license and FINRA Series 86 and 87 research-analyst licenses, should qualify.
The SEC will accept public comments for 60 days after the proposals and notices are published in the Federal Register.