The Securities and Exchange Commission's new proposals to expand retail access to private markets may read as deregulation, but compliance consultants say alternative asset managers moving into regulated funds will instead face tougher demands on valuation, liquidity and governance.
"Private-market retailization may look like deregulation from the outside, but for many managers it will mean stepping into a much more complex compliance environment," said Dan Campbell, managing director at ACA Group, a compliance advisory firm in New York.
"For managers that have historically operated in institutional and HNW markets, retailization could come with a bit of a culture shock. Moving into regulated-fund structures can mean new expectations around independent governance, valuation, liquidity, and investor disclosures that many private-market managers have not historically had to operationalize," Campbell said.
Shane McGreevy, compliance consultant at STP Investment Services, an investment operations and compliance firm in West Chester, Pennsylvania, said the SEC is trying to widen access without removing safeguards.
"That's really the balance the SEC needs to strike: how do you give more investors access without losing the protections that are there for a reason? You can see pieces of that taking shape in the SEC's proposals around interval funds and performance-based compensation," McGreevy said.
The commission voted to propose letting advisors to regulated funds earn performance-based fees capped at 20% of a fund's net gains. Those fees would require findings by a board with a majority of independent directors. The commission also proposed allowing interval funds to offer monthly repurchases and replacing their fixed liquidity requirement with a principles-based approach. Separately, the SEC is considering letting CFP, CFA and CPA credential holders qualify as accredited investors, as detailed in InvestmentNews' coverage of the SEC's accredited investor proposals.
SEC Chairman Paul S. Atkins linked the effort to President Donald Trump's executive order opening 401(k) plans to private equity and other alternative assets.
Campbell said retail distribution won't simplify valuation of alternative assets.
"The underlying assets don't become easier to value simply because they're being offered to a broader investor base. As private markets move further into regulated and retail structures, firms will need much stronger governance around valuation methodologies, consistency across vehicles, and independent challenge of difficult marks," Campbell said.
McGreevy said the SEC's recent attention to private credit pricing reinforces that point.
"At the same time, the SEC's recent focus on private credit valuations is a good reminder that managers and sponsors need strong processes in place to make sure valuations reflect the cash flows, performance, and underlying economics of the private market investments," he said.
Interval funds have become a primary private credit vehicle for advisors. Campbell said looser redemption terms raise the bar on liquidity oversight.
"Greater flexibility around redemption terms makes liquidity governance more important, not less. When you pair periodic investor liquidity with inherently illiquid private assets, firms need to be able to demonstrate how they define available liquidity, stress-test it and communicate redemption expectations consistently," Campbell said.
For advisors, McGreevy said, client understanding matters as much as access.
"The key is making sure investors understand what they're getting into. Private markets are very different from public markets, particularly when it comes to liquidity, valuation, and risk. You may not be able to sell an investment when you want to, and determining what it's worth isn't always as straightforward as looking at a market price," he said.
Comment periods will run for 60 days after the proposals and notices are published in the Federal Register.
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