SEC IAC Endorses Registered Funds for Retail Access to Private Markets

Introduction

On September 18, 2025, the Securities and Exchange Commission Investor Advisory Committee (“IAC”) met and adopted recommendations concerning retail investor access to private markets that were set forth in a report from two of its subcommittees (the “Report”).¹

The Report endorses registered funds as the optimal way for retail investors to access private markets, citing favorably registered funds’ regulation, diversification and professional management of investor assets. The Report encourages the SEC to implement reforms – particularly for registered funds – to expand retail investor access to private markets. The Report also addresses proposals to increase investor access to private markets by modifying the accredited investor standard. The Report may influence the ongoing discussions of the SEC and the Department of Labor in responding to a recent executive order to encourage private market investments in 401(k) and other defined contribution plans.

IAC Background

Established by the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, the IAC is composed of members independent of the SEC charged with representing the interests of individual and institutional investors.² The IAC advises and consults with the SEC on regulatory priorities; issues relating to regulation of securities; trading strategies, fees and disclosures;³ and actions to protect investors, promote investor confidence and promote the integrity of the securities market.⁴ The SEC regularly cites IAC recommendations in regulatory initiatives and rulemakings.⁵

Summary of IAC Recommendations

Recognizing the robust growth of private markets and the investment opportunities they contain, the Report states that “the optimal way for retail investors to access private market assets is through registered funds, which allow retail investors to invest in broadly diversified funds that contain private market assets, often alongside public market assets.” In particular, the Report states that registered funds (e.g., closed-end investment companies (including interval funds, tender offer funds and listed closed-end funds), exchange traded funds (“ETFs”) and mutual funds) “have the benefit of [SEC] registration and regulation, diversification and professional management,” which are “crucial safeguards for retail investors given the complex, opaque, and illiquid nature of private assets.” However, the Report also states that, given the potential risks that private market investments may pose to retail investors – particularly risks related to liquidity – and retail investors’ “varying levels of financial sophistication,” it is “essential … that registered funds investing in private market assets establish robust investor protections and disclosures from the outset.”

With these considerations in mind, the IAC adopted the following recommendations set forth in the Report to the SEC with respect to creating sufficient guardrails for retail investors seeking access to private markets through registered funds:  

Provide clarity and transparency on valuations throughout the lifecycle of a fund. The Report states that, unlike publicly traded companies, there is a “lack of daily market prices” inherent in private markets that could make fund investments in private assets riskier than investments in public assets. The Report recommends that the SEC enhance registered fund disclosure so that investors can “better understand how the values of portfolio assets that do not actively trade are determined,” including disclosing: (i) “when fund sponsors reject or replace third-party appraisals”; and (ii) “requiring fund directors…to require funds they oversee to disclose more details as to how such valuations are determined, ensuring consistency across various investment vehicles.”

The Report recommends that reports to the board pursuant to Rule 2a-5 under the Investment Company Act of 1940 include any “rejections or replacements of any third-party valuations” by a valuation designee and disclosure to investors of a fund’s process for overriding such third-party valuations.

It should be observed that Rule 2a-5 already requires valuation designees to all registered funds to report to the board on valuation matters on at least a quarterly basis and promptly upon the occurrence of a matter that materially affects the fair value of the fund’s portfolio, which includes consideration of third-party valuations. The Report did not identify any specific issues to explain why the IAC believes the current reporting requirements to be inadequate.

Consider changes to SEC staff interpretations and/or rules under the 1940 Act to allow registered funds to better facilitate investing in private markets. In connection with expanding retail investor access to private markets, the Report also recommends that the SEC consider the following interpretive guidance and rule changes under the 1940 Act:

• Allow greater flexibility to invest in private funds. The IAC is supportive of the SEC staff’s recent elimination of its informal policy (which it had enforced through the registration statement review process) to prohibit closed-end funds from investing more than 15% of net assets in privately offered funds, unless the fund’s shares are available only to accredited investors who make minimum initial investments of at least $25,000.⁶
• Provide flexibility for mutual funds to engage in co-investment transactions that would otherwise be prohibited under Section 17(d) and Rule 17d-1 under the 1940 Act. The IAC noted numerous exemptive orders that permit closed-end funds to engage in co-investment transactions that would otherwise be prohibited under the 1940 Act, subject to certain conditions. The IAC encouraged the SEC to codify the relief by rulemaking and to expand the relief to mutual funds to help facilitate greater retail investor access to private assets.
• Provide monthly repurchase opportunities for investors. Rule 23c-3 under the 1940 Act permits interval funds to offer to repurchase their shares on a quarterly, semi-annual or annual basis. The Report recommends amending Rule 23c-3 under the 1940 Act to permit interval funds to repurchase their shares on a monthly basis. Such a change would codify the relief in exemptive orders that have been issued to certain interval funds permitting them to make monthly repurchase offers. The Report states that this will increase retail investor liquidity and “eliminate the costs and need for funds to apply for individual exemptive orders” to engage in monthly repurchases.
• Allow closed-end funds to offer multiple classes of shares. Similarly, the Report recommends that the SEC codify the ability of closed-end funds to issue multiple classes of shares to “eliminate the costs and need for such funds to obtain individual exemptive orders” to issue multiple classes of shares.
• Allow interval funds and tender offer funds to operate as series funds to reduce costs associated with organizing separate registrants.  The Report recommends that the SEC permit closed-end funds to operate as series funds, under a single set of organizational documents. The Report states that this would allow such funds to save the time and expense associated with organizing separate registrants. While unstated in the Report, such a change could also permit registration statements of new interval funds and tender offer funds to become automatically effective (as is currently the case for many mutual funds and ETFs).

Enhance and make liquidity disclosures more prominent. The Report states that retail funds invested in alternative assets may be subject to longer repurchase timelines and lockups. Therefore, the Report recommends that the SEC:

• Simplify risk disclosures for retail investors with an immediate view to understanding the basic features of the fund in a clear and concise manner. The IAC further recommends that the most important features of the fund should be clearly and succinctly presented, including: (1) repurchase interval; (2) what percentage can be repurchased in a given interval; (3) the potential for lockup; (4) exceptional circumstances that qualify for off-interval or additional distributions; (5) any previous lockups of the fund; and (6) valuation uncertainty;
• Encourage funds to use layered disclosure formats such as summary dashboards or visual risk indicators to make key risks more digestible; and
• Require standardized language across fund documents to reduce confusion and improve comparability.

Provide for additional investor protections specifically addressing greater participation of retail investors. The Report recommends that the SEC: (1) work with the Financial Industry Regulatory Authority and state securities regulators to provide guidelines on when investments in private markets are in an investor’s best interest; (2) ensure proper disclosure of potential conflicts arising from sales compensation, servicing fees and revenue sharing agreements; (3) continue to rigorously enforce rules and regulations governing deceptive marketing and false claims to investors; and (4) prohibit clearly conflicted transactions without the approval of a fund’s directors.

Open a request for comment process to solicit additional views and ideas and other critical issues. The IAC recommends that the SEC open a request for comment process to obtain input on various matters, including: (1) additional methods investment managers can use to effectively facilitate retail investor investments into private markets; (2) other impediments retail investors may have in safely accessing private market investments; (3) the approaches other jurisdictions have taken to facilitate retail investments in private markets; (4) how to expand retail investor access to private markets while maintaining an appropriate level of investor protection; and (5) systemic risks of the growth in the private markets.

Accredited Investor Definition

The Report also acknowledges that there are proposals to expand direct access to private markets by revising the definition of an “accredited investor” under Regulation D under the Securities Act of 1933. Notably, the IAC took no formal position on revising the definition of an “accredited investor.” However, the Report recommends that the SEC consider the following factors in connection with any expansion of Regulation D:

• Emphasize investor sophistication (i.e., rather than income or wealth) as part of any potential expansion of the accredited investor definition by allowing qualification based on third-party credentials that demonstrate “sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment” or developing the SEC’s own qualification test that would demonstrate an investor’s ability to understand the unique features and risks of private market investments;
• Limit the amount that can be invested by retail investors who do not meet sophistication or wealth criteria and index the existing income and wealth thresholds for inflation on a going-forward basis to the greater of 10% of (i) their last year’s income, (ii) their total net worth (exclusive of personal residence or automobiles), or (iii) the value of their securities investments; and/or
• Modernize Form D policy and practice to provide individual retail investors with greater access to information, including to enforce the existing Form D filing requirements and mandate the filing of a Form D amendment at closing to provide both the SEC and the issuer’s investors with reliable information about the volume of capital raised in the offering.

Conclusion

The Report endorses registered funds – especially interval and tender offer funds – as the optimal way for retail investors to access private markets and addresses proposals to expand and modify the accredited investor definition. While it remains to be seen how the SEC will respond, in remarks about the Report, SEC Chairman Paul Atkins endorsed greater retail access to private markets, saying “our markets should not be reserved for the wealthiest or for those deemed to be the most sophisticated” and in light of the recent executive order on democratizing alternative assets, noted that the SEC is already “exploring ways to facilitate the ability of individual investors to participate in the private markets.”⁷