The Securities and Exchange Commission (SEC) has proposed amendments that seek to facilitate capital formation in the public and private markets.
The rule changes would do this by expanding retail investor choice and promoting innovation in regulated fund structures.
“Investor demand for private market investment opportunities is growing, and one of my priorities for the Commission is to explore ways to facilitate the ability of individual investors to participate in private markets, while at the same time protecting those investors from bad actors and fraud,” SEC Chairman Paul Atkins stated.
The SEC’s proposals would:
- Expand the ability of registered investment advisers to receive performance-based compensation from certain categories of clients, including regulated funds, that is calculated on the basis of capital gains or capital appreciation.
- Amend certain fund registration and reporting forms to require disclosure of performance-based compensation.
- Modernize the interval fund framework, including by allowing the scheduling of repurchases at certain times that better match the liquidity profile of the portfolio.
- Replace existing exemptive orders with an exemptive rules-based framework for regulated closed-end funds to issue multiple share classes.
Performance-based compensation has long been a defining characteristic of investment strategies that are associated with private funds, such as hedge fund, private equity, and venture capital strategies. Because performance‑based arrangements have traditionally been associated with private funds, access to these strategies has been limited to a narrow group of eligible investors. By permitting similar incentives to, for example, advisers to regulated funds, such advisers may be more likely to offer private market strategies to regulated funds.
The SEC said these proposed amendments would offer expanded retail access to diversified investment opportunities, while promoting transparency and aligning incentives across the advisory ecosystem.
The SEC is also requesting public comment as it considers providing individual investors with additional ways to qualify as an accredited investor by holding in good standing certain professional certifications, designations, or credentials.