In an effort to expand retail investors’ access to private markets, the U.S. Securities and Exchange Commission (SEC) is proposing a series of reforms that aim to enable regulated investment funds to extend their offerings into more private assets.
Among other things, the SEC is proposing reforms to allow regulated funds to adopt performance-based compensation structures, which are currently typically used by hedge funds, private equity and other alternative strategies.
The regulator’s expectation is that by enabling regulated funds to use these structures they will be more willing to operate vehicles that focus on alternative asset classes.
Additionally, the regulator is proposing reforms that aim to modernize funds’ repurchase rules to accommodate liquidity issues in private markets, and to introduce a new framework for regulated funds to issue multiple share classes.
“Together, these proposed amendments would offer expanded retail access to diversified investment opportunities, while promoting transparency and aligning incentives across the advisory ecosystem,” the SEC said in a release accompanying the proposals.
At the same time, the SEC is seeking comment on the use of an accredited investor exam that’s being developed by the Financial Industry Regulatory Authority (FINRA) to provide a new way for investors to qualify as accredited investors, instead of relying solely on financial metrics.
It’s also proposing to recognize certain industry designations — such as certified public accountant (CPA), chartered financial analyst (CFA) and certified financial planner (CFP) accreditations — as proxies for accredited investor status.
“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,” said SEC chairman, Paul Atkins, in a statement.
The proposals will be open for public comment for 60 days after being published in the Federal Register.