SEC Proposes Amendments to Expand Responsible Retailization of Private Markets

The Securities and Exchange Commission today voted to propose rule amendments that would facilitate capital formation in the public and private markets by expanding retail investor choice and promoting innovation in regulated fund structures while preserving appropriate investor protections and safeguards.

The Commission is separately 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.

“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. The Commission’s efforts in this regard — focused on expanding opportunities for investors’ post-tax, pre-retirement dollars — complement efforts undertaken pursuant to President Trump’s Executive Order on Democratizing Access to Alternative Assets for 401(k) Investors,” said SEC Chairman Paul S. Atkins in a statement. 

The use of performance-based compensation has long been a common and 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, as a practical matter, 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.