Imagine being told your doorway to private markets is about to get wider, and then noticing that nobody is talking about the exit. That is roughly where retail investors stand after the SEC’s September 30 open meeting, where the agency advanced a package of proposals that Chairman Paul Atkins framed as the “responsible retailization” of private markets, according to a Sullivan & Cromwell client memo.
The headlines wrote themselves. More access, more choice, a seat at the table that institutions have enjoyed for decades. And some of that is fair. But a proposal is not a rule, a wider door is not a safer room, and the details tucked into these documents matter far more than the slogan.
What is actually on the table
Start with the pieces, because there are several. Three law firm memos from Sullivan & Cromwell, Gibson Dunn, and Paul Weiss describe the same core package, and they agree on the broad strokes.
The first piece concerns fees. Under the proposal, advisers to registered funds and business development companies could receive performance-based compensation of up to 20 percent of net capital gains or appreciation, subject to conditions. Gibson Dunn notes that this includes unrealized gains. The fund’s board, including a majority of independent directors, would have to make written findings that the arrangement serves the fund and its shareholders. The proposal also changes who counts as a “qualified client” for these arrangements. Today the thresholds are $1.4 million under management with the adviser or $2.7 million in net worth, excluding a primary residence. The proposal would swap those tests for the accredited investor standard.
The second piece is the interval fund. These are registered funds that hold harder to sell assets and offer to buy back a slice of shares on a set schedule instead of letting you redeem any day. The proposal would let a fund delay its first repurchase for up to two years, add monthly repurchase offers without special permission, and replace the current requirement to hold liquid assets equal to 100 percent of each repurchase offer with a principles-based liquidity standard. Notice to shareholders would shrink from 21 days to 14. Funds could also make discretionary repurchase offers every year instead of every two.
The third piece covers share classes, which would let registered closed-end funds and business development companies offer several classes with different fee structures without individual exemptive orders. Paul Weiss says the SEC would rescind most of roughly 230 multi-class orders issued since 2007, with a one-year compliance period afterward.
The fourth is the quietest and maybe the most interesting. The SEC is asking whether holding certain credentials should qualify a person as an accredited investor: a new FINRA-developed exam, a CPA license, the CFA charter, the CFP certification, and Series 79, 86, and 87 licenses. Gibson Dunn reports the exam would be open to anyone 18 or older, modeled on the Securities Industry Essentials exam, and valid for ten years.
The accredited investor question is bigger than it looks
For years, the accredited investor test has been a wealth filter. Income or net worth got you through the gate, knowledge did not. Sullivan & Cromwell points out that the SEC previously recognized the Series 7, 65, and 82 licenses in 2020. Gibson Dunn notes that adding an exam and several professional credentials would be the first expansion of that credential pathway since.
Is that a good idea? Reasonable people disagree. The case in favor says a person who has passed a serious test understands risk better than a person who simply inherited money. The case against says passing an exam about securities rules does not mean you can sit through a fund that will not let you out for two years. Knowing a thing and living through it are different experiences.
One detail from Gibson Dunn is worth noting. Accredited status is tested at the time of the investment. If you later lose a credential, an existing investment would not be unwound, though a follow-on purchase would need another basis. That is a sensible rule. It also means the test is a snapshot, and snapshots do not tell you how someone behaves when a fund tells them to wait.
Liquidity is the whole story
Here is the part I would put on a sticky note. Commissioner Mark Uyeda, quoted in Gibson Dunn’s alert, said interval fund structures “provide periodic liquidity; they are not a promise of frequent redemption.” He also said the proposals do not change the fundamental exit dynamics for illiquid private market investments.
That is a regulator describing his own agency’s package and warning you not to mistake it for something it is not. Read it twice.
Consider what the proposed changes do in practice. Allowing a first repurchase to be deferred for up to two years gives fund managers more room to build a portfolio before anyone can ask for money back. Moving to a principles-based liquidity standard, in place of a fixed 100 percent liquid-asset requirement, hands more judgment to the fund and its board. Paul Weiss describes the new standard as requiring that funds meet repurchase requests without selling investments at prices significantly off their value. That is a reasonable goal. It is also a softer yardstick than a number.
None of this is sinister. Illiquid assets cannot be turned into cash on demand without a price to pay, and a structure that admits as much may be more honest than one that implies otherwise. But the lesson for an individual investor is plain. The exit terms are part of the product. They are not fine print to be skimmed after the exciting part.
Fees deserve a hard look too
Performance fees are common in private funds, and the logic is familiar: managers get paid more when they do well. The trouble is in how “doing well” gets measured when the assets do not trade on an exchange.
Gibson Dunn reports that the SEC cautioned against valuation practices that could inflate the fee base, with the example of buying private fund interests at a discount and immediately marking them at the underlying fund’s net asset value. The agency also indicated that funds holding assets without readily available market quotations would warrant more intensive board oversight of valuation, and that performance fees would generally be hard to justify for passive index strategies.
So the regulator itself is flagging where the risks sit. When the price of an asset is an estimate, a fee computed on that estimate is only as trustworthy as the estimate. Investors reading a fund’s documents might ask who values the holdings, how often, and whether anyone independent checks the work.
A proposal has a long road ahead
It is easy to forget that nothing here is final. Sullivan & Cromwell lists comment deadlines of December 4, 2026 for the interval fund proposal and the accredited investor notices, and December 7, 2026 for the performance fee proposal. Final rules could change, shrink, or stall.
There is also a political wrinkle. Gibson Dunn reports that Commissioner Hester Peirce’s resignation took effect October 2, leaving Chairman Atkins and Commissioner Uyeda, with no nominee announced for her seat. Under the SEC’s quorum rule, the two remaining commissioners could adopt final rules. That is a procedural fact, not a prediction, but it tells you the commission is thinner than usual as this moves forward.
Paul Weiss adds that the SEC also proposed a modernized custody rule on October 1, including a new Form ADV question asking whether a private fund is a tokenized fund. Tokenization is a topic for another day, but it is a reminder that the plumbing around private markets is being rebuilt at the same time as the access rules.
What a careful reader takes from this
If you are a self-directed investor, the practical takeaway is not to rush toward or away from anything. Access to an asset class and suitability for you are separate questions, and regulation can answer only the first.
Before a private markets fund earns a place in anyone’s portfolio, the questions are old ones. How long can the money be stuck? What happens if many investors ask to leave at once? How is the portfolio valued, and by whom? What do the fees look like once performance compensation, share class costs, and any deferred sales loads are added together? Paul Weiss notes that the proposal would allow deferred sales loads to be deducted from repurchase proceeds, which means the cost of leaving may not be zero even when the door opens.
The wider door may turn out to be a good thing. More competition and better disclosure could help ordinary investors. But the person standing in the doorway should look at the way out before stepping in. Uyeda said it better than any commentator could: periodic liquidity is not a promise of frequent redemption.
This article is written for educational and informational purposes only and does not constitute financial or legal advice. The views and analytical frameworks presented draw on publicly available information and reported commentary from industry participants. Readers are encouraged to consult primary sources and form their own informed views on these complex topics.
