The Securities and Exchange Commission proposed a package on September 30 that could widen retail access to private equity, private credit, real estate and venture-capital strategies. The proposal is not a final rule, and it does not erase the structural differences between public and private assets.
The finance question is therefore broader than access. If more individuals can buy private-market exposure through regulated funds, who is responsible for explaining the valuation lag, redemption limits, layered fees and conflicts that become visible only when markets are stressed?
The judgment
- Implication: The SEC’s proposal could expand the distribution of private assets, but it would not make those assets liquid, continuously priced or simple. Retail suitability will depend on matching product structure to investor time horizon and cash needs.
- What would change the conclusion: Strong standardized disclosures, conservative valuation controls and fund liquidity that performs as described through a downturn would reduce the risk. Final rules materially weaker or stronger than the proposal could also change the assessment.
- Management action: Investment committees and advisers should compare promised access with actual redemption terms, valuation frequency, fee waterfalls and conflict controls before treating a regulated wrapper as evidence of low risk.
What the SEC actually proposed
According to the SEC’s September 30 press release, the Commission voted to propose amendments that would expand the ability of registered investment advisers to receive performance-based compensation from certain clients, including regulated funds. Related registration and reporting forms would require disclosure of that compensation.
The package would also modernize the interval-fund framework so repurchase schedules could better match portfolio liquidity, and it would replace individual exemptive orders with a rules-based framework allowing regulated closed-end funds to issue multiple share classes.
Separately, the SEC requested comment on new ways for individuals to qualify as accredited investors. The possibilities include passing a FINRA-developed exam or holding specified credentials, including a U.S. CPA license, the CFA charter, the CFP certification, a Series 79 license, or Series 86 and 87 licenses. The SEC said the comment periods will remain open for 60 days after publication in the Federal Register.
Those are reported proposal elements, not final policy. The rules can change through the comment process, and the Commission has not yet determined whether the exam or credential pathways will be adopted.
Access and suitability are different decisions
The proposal’s central idea is that wealth should not be the only proxy for financial sophistication. That is a reasonable question. A balance-sheet test does not guarantee that an investor understands capital calls, subscription lines, valuation discretion, fee offsets or redemption gates. A knowledge or credential test may identify some people who understand those features better than a wealthy but inexperienced investor.
It does not follow that knowledge makes every product suitable. An investor can understand a liquidity restriction and still be unable to absorb it. A household funding retirement withdrawals, tuition or a near-term purchase faces a different risk than a long-duration institution, even if both read the same disclosure. The relevant control is not just eligibility. It is the relationship among cash needs, redemption mechanics and the possibility that valuations are least reliable when liquidity is most valuable.
Liquidity can be scheduled, not promised
Interval funds already sit between daily-liquidity mutual funds and fully locked private partnerships. They periodically offer to repurchase a portion of outstanding shares, but investors may not be able to sell everything they want when demand exceeds the offer. Allowing repurchase timing to better match portfolio liquidity could improve structural honesty. A fund holding hard-to-sell assets should not be designed around a redemption schedule the portfolio cannot support.
But better matching is not the same as liquidity. If repurchases become less frequent or more conditional, investors need to see that tradeoff before purchase, not after a redemption request is scaled back. A useful disclosure would show the normal repurchase schedule, the minimum and maximum offer size, historical proration, borrowing used to meet redemptions, and the gap between portfolio settlement time and investor withdrawal time.
This is the same operating lesson behind our analysis of three private-credit funds repriced after an audit: liquidity, valuation and governance interact. A price is most decision-useful when the process behind it remains credible under pressure.
Performance fees raise the valuation burden
Performance fees can align managers with gains, but they can also amplify risk-taking and make valuation policy economically consequential. Reuters reported that financial advisers warned of an incentive to reach for risk when compensation depends on gains. The SEC proposal would require disclosure, but disclosure alone does not settle how gains are measured when holdings do not trade frequently.
For private assets, the control environment matters as much as the percentage charged. Investment committees should ask who sets marks, how independent valuation challenges work, whether unrealized gains create current fees, how losses are carried forward, and whether a manager can earn incentive compensation again before earlier losses are recovered. Multiple share classes add another layer: different distribution charges or service fees can create different outcomes from the same underlying portfolio.
The conflict is not hypothetical merely because a product is registered. As we wrote in An Algorithm Does Not Neutralize a Sales Conflict, a process can look standardized while economic incentives still shape the recommendation. The same discipline should apply here: trace how the adviser, fund manager, distributor and valuation process are paid.
Wider eligibility does not change the assets
The strongest case for the proposal is that regulated structures can provide diversified exposure, formal reporting and professional oversight to investors who are currently excluded by crude wealth thresholds. The strongest caution is that the wrapper may be easier to buy than the underlying assets are to value or exit.
Neither side should rely on the label “private markets” as a single asset class. Buyout equity, venture capital, private credit and real estate have different cash-flow patterns, leverage, duration and loss behavior. Even within one category, manager selection and vintage year can dominate average returns. Historical institutional results also may not translate after retail distribution costs, performance fees and different liquidity structures.
That makes scenario analysis more useful than a single expected return. The free Forecast Scenario Planner can be adapted to compare base, upside and downside cases for returns, fees, valuation lags and redemption timing. The point is not to forecast a private fund precisely. It is to show which assumptions must hold for the allocation to meet the investor’s actual cash needs.
The CFO and board takeaway
Finance leaders overseeing pension assets, foundations, endowments or corporate investment pools should not wait for the final rules to improve their diligence. The proposal highlights a broader shift: private-market products are moving closer to ordinary portfolios, while the underlying assets remain less observable than public securities.
A sound review should separate four questions. Is the investor legally eligible? Is the product operationally liquid enough? Is the valuation and fee process governable? And does the expected net return compensate for illiquidity, leverage and complexity? Passing one test does not answer the others.
The SEC is proposing wider access. The market will still have to prove that the products built around that access can withstand redemptions, valuation disputes and incentive conflicts without transferring surprises to investors. That is the judgment standard that matters.
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