The Securities and Exchange Commission approved proposals Wednesday to widen individual investors' access to private markets, including allowing registered investment advisers to charge performance fees of up to 20% on retail private-asset funds.
The proposals would expand the number and type of ways individuals can qualify as accredited investors, the threshold that currently gates most private equity, venture capital and hedge fund offerings to people with at least $1 million in net worth excluding their home, or $200,000 in annual income.
The 20% performance fee cap matches levels historically charged in the hedge fund and alternatives industry. The SEC said the change is intended to draw more private asset managers into the retail wealth business, where they have so far been reluctant to build products for smaller accounts.
"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," SEC Chairman Paul Atkins said in a statement.
Atkins said investor demand for private market opportunities is growing and that exposure to "one of the great engines of American enterprise" should "not be reserved for the wealthiest or for those deemed to be the most sophisticated."
The proposals follow an executive order President Donald Trump signed last August, titled "Democratizing Access to Alternative Assets for 401(k) Investors," which directed regulators to allow Americans to put more of their retirement savings into private equity and other alternative assets.
The approval lands as the private assets industry's push into retail wealth management draws closer scrutiny from regulators and consumer advocates. Private assets are harder to sell than publicly traded stocks and bonds, and their valuations are typically updated quarterly rather than priced continuously by a market.
Those traits make private funds a difficult fit for retail investors who may need to withdraw money on short notice, a concern that has been raised as firms including Blackstone, Apollo and KKR have launched products aimed at individual investors and their advisers.
The SEC's proposals now enter a public comment period before the agency can vote to finalize them. The accredited investor definition has not been substantially rewritten since 1982, when the SEC set the $200,000 income and $1 million net worth thresholds that remain in place today.
