Leadership1 publisher3 min readPublished
SEC weighs three ways to open private markets to retail investors
SEC Chairman Paul Atkins brought three retail-access items to a Commission meeting, on performance fees, interval funds and credential-based accreditation. Each is still a proposal or notice, so sponsors get a direction this quarter and the terms later.
The Board Room · Leadership desk
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What happened
- One proposal would expand the circumstances in which a registered investment adviser may receive performance-based compensation.
- Another would amend the rule letting regulated closed-end funds make repurchase offers to shareholders at net asset value at periodic intervals.
- The meeting also marked the close of Commissioner Hester Peirce's nearly nine years on the Commission.
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Why it matters
- decision Sponsors and wealth platforms have to choose between building retail private-market products now on the stated direction and waiting for the credential list and rule text that set the economics.
- constraint Because accreditation would come by order on named credentials, the newly eligible buyer pool is capped by the list the Commission approves, and distribution plans cannot be sized before then.
- exposure Wider performance-fee eligibility would put more individual clients into pay-for-gains arrangements, so the protection half of Atkins's agenda will be judged on clients who could not be charged that way before.
- precedent Peirce's exit removes the commissioner Atkins credited with originating the ideas now being implemented, so final votes on these items will likely come from a Commission without her.
Two of the three items are proposed rule amendments. The third uses a different tool [1]. Performance fees and interval-fund repurchases would change through rule text that applies across the advisers and funds each rule covers [2][3]. Accredited-investor status would change through five notices on whether the Commission should designate certain certifications, designations or credentials by order [4]. An order covers what it names. The pool of newly eligible buyers will be as wide as the list the Commission approves.
The items reach different parts of a private-market sale. The credential notices govern who may buy [4]. The performance-fee proposal governs when a registered investment adviser may be paid on results [2]. The interval-fund proposal touches the terms on which regulated closed-end funds offer to buy back shares at net asset value at periodic intervals [3]. Atkins gave his statement before the Commission considered the items, and it does not describe the content of either set of amendments or name the credentials under review [1]. So the record does not show whether the repurchase change loosens anything.
Atkins put the trade-off in one sentence. "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," he said [5]. He described the effort as "focused on expanding opportunities for investors' post-tax, pre-retirement dollars" [6]. That is money people have already paid tax on. The published version notes that the views are his own and do not necessarily reflect those of the Commission or its staff [10].
The org chart is changing too. The same meeting marked the end of Commissioner Hester Peirce's nearly nine years on the Commission [7]. Atkins credited her directly. "Many of the ideas that we are now putting into practice were first articulated and developed in her speeches and dissents," he said [8]. He noted that Peirce and Commissioner Uyeda both worked in his office when he was a commissioner, and said the past 17 months had brought that group back together [9]. Any final vote on these proposals is likely to come after Peirce has left [7].
For a fund sponsor or wealth platform, nothing on the agenda changes what can be sold this quarter, because each item is still a proposal or a notice [1]. A sponsor can plan distribution around the direction Atkins set out [5]. The economics depend on terms that have not been published: which credentials qualify, which new circumstances allow a performance fee, and what the amended repurchase rule requires [2][3][4]. A product built this quarter on guessed terms may need rework next quarter, once the rule text and the comment record are out.
What to watch
- Publication of the interval-fund release, showing whether and how far repurchase terms are loosened.
- The specific credentials named in the five notices, and how many people already hold them.
- The nomination of Peirce's successor, and whether her seat is filled before final votes on these items.