SEC Proposes Rules to Expand Private Market Opportunities Through Registered Fund Structures

Overview

In the Trump administration’s August 7, 2025, executive order to encourage retirement plan sponsors to offer access to alternative assets, the U.S. Securities and Exchange Commission (SEC) was directed to consider adopting or amending rules to facilitate such access.¹ In early October 2026, the SEC acted on that directive by publishing two related proposals intended to facilitate private market and alternative strategies in regulated fund structures. The first proposal (the “Interval Fund Proposal”) would modernize Rule 23c-3 under the Investment Company Act of 1940 (the “1940 Act”), as amended, for interval funds and permit continuously offered, unlisted regulated closed-end funds and business development companies (BDCs) to use multiple share classes without individual exemptive relief.² The second proposal (the “Performance Fee Proposal”) would expand the clients from which registered investment advisers may receive performance-based compensation to include certain registered management investment companies, BDCs, and accredited investors, among others.³

Together, the proposals are designed to increase the supply of registered funds through which retail investors can access alternative assets, including private markets. The Interval Fund Proposal would make it easier for sponsors to offer less-liquid and private market strategies through interval funds by obviating the need for sponsors to obtain exemptive relief from the SEC so they can utilize multiple share classes, as well as providing additional flexibility with respect to repurchases, liquidity management, and share class structures. The Performance Fee Proposal would permit advisers to certain registered funds, including interval funds and tender offer funds, to receive performance fees subject to specified conditions. The combined effect of these proposals could make registered funds more attractive for sponsors seeking to offer private market strategies in a registered vehicle. Sponsors evaluating new products should consider the operational and economic effects of the two proposals; they may make it more feasible to provide registered funds offering access to private markets.

Proposal One: Interval Fund Modernization and Multiple Share Classes 

The Interval Fund Proposal would codify current multi-class exemptive relief into a rule that would cover continuously offered, unlisted closed-end funds (including interval funds and tender offer funds) and BDCs, as well as revise current interval fund repurchase and liquidity requirements and expand related disclosure and reporting.

Current Framework and Proposed Changes

Liquidity Management

The proposed standard does not define when a sale price “deviates significantly” from value. That flexibility may help funds with less-liquid strategies, but it may also increase scrutiny of a fund’s liquidity policies, forecasting, and board oversight. Policies should address subscriptions, portfolio cash flows, targeted dispositions, committed facilities, valuation, capital commitments, and stressed repurchase scenarios.

Leverage and Credit Facilities

The proposal would not modify Section 18 limitations on senior securities. Funds relying on borrowing as a liquidity source would still need to monitor statutory asset coverage requirements and applicable credit facility covenants, including during stressed repurchase periods.

Repurchase Mechanics

The proposal would leave certain core repurchase mechanics largely intact, including the 14-day maximum period between the repurchase request deadline and pricing date and a fund’s ability to accept up to an additional 2% of outstanding shares, while clarifying the treatment of oversubscribed offers. However, funds currently operating under exemptive relief permitting 2% monthly repurchase offers could be required to increase those offers to at least 5% per month.

Repurchase offers still would have to be made equally to all classes, with participation calculated pro rata on a fundwide basis. In other words, as with current exemptive relief, a fund could not use its class structure to provide one class with priority liquidity.

Multi-Class Conditions

The proposed relief would be available only to continuously offered, unlisted funds that satisfy a number of conditions, including adoption of a board-approved written plan, compliance with Rule 12b-1 for distribution and service fees, and compliance with Rule 11a-3 for exchange offers. Listed funds, funds with both listed and unlisted classes, and most tokenized structures generally would continue to require individual exemptive relief.

Tender Offer Funds 

Even if the proposal is adopted as drafted, tender offer funds may remain attractive for certain less-liquid strategies because they are not subject to Rule 23c-3’s liquidity-management framework and their boards retain discretion over the frequency and amount of repurchase offers. In contrast, under the proposal, interval funds would continue to provide predictable, rules-based liquidity, including the ability to conduct monthly repurchase offers, which is now only available pursuant to separate exemptive relief.

Disclosure and Reporting

Form N-2 would add class-level fee, sales load, structural, and return disclosure; a standardized fee-table legend; and a $10,000 expense-example assumption. Shareholder reports would present fund- or class-level expense examples. Form N-CEN would collect class data, and Form N-23c-3 would remove outdated filing mechanics.

Proposal Two: Performance-Based Compensation Modernization

The Performance Fee Proposal would amend Rule 205-3 under the Investment Advisers Act of 1940 (the “Advisers Act”), as amended, to permit additional performance fee arrangements and add related fund and adviser disclosures. Section 205 of the Advisers Act generally prohibits a registered adviser from receiving compensation based on capital gains or appreciation, subject to statutory and rule-based exceptions, including certain fulcrum fee arrangements, BDC arrangements, Section 3(c)(7) funds, and non-US clients and qualified clients under Rule 205-3.

Current Framework and Proposed Changes

Covered Funds and Fee Basis

The rule would apply to advisers of all regulated funds — including open-end funds (e.g., mutual funds and exchange-traded funds), closed-end funds (e.g., interval and tender offer funds), and BDCs, whether listed or unlisted. Unlike the current BDC statutory exception,⁴ the proposal could permit fees based on both realized and unrealized appreciation.

Alternative Qualification Pathways

The proposed regulated fund exemption would be an alternative to, rather than a replacement for, the existing Rule 205-3 look-through pathway. A regulated fund could continue to qualify because each relevant equity owner is a qualified client or could instead satisfy the proposed fund-level fee cap, governance, and board-finding conditions.

As part of the Section 15(c) process, the board, including a majority of independent directors, would determine that the arrangement is in the best interests of the fund and shareholders. Written findings would address the strategy and valuation practices, realized and unrealized gain treatment, measurement period, and adequacy of hurdles, high-water marks, loss carryforwards, or other safeguards. If safeguards are absent, the board would have to explain why the arrangement remains adequate. The proposal would not prescribe a minimum performance measurement period, leaving the period and payment frequency to the advisory contract and the board’s review.

Ramifications for Existing Funds

The Performance Fee Proposal would not remove otherwise applicable requirements for approval of an investment advisory contract, including those under Section 15 of the 1940 Act. Accordingly, an existing regulated fund — even one that offers access to private markets or other alternative asset classes that often feature a performance fee in the private fund context — would be required to obtain shareholder approval pursuant to Section 15 to begin charging a performance fee. It remains to be seen whether, if the Performance Fee Proposal is adopted, managers will seek shareholder approval to change the fee structure of existing funds to one that includes a performance fee.

Valuation and Structural Concerns

Fees based on unrealized appreciation of hard-to-value assets create heightened valuation conflicts. Valuation judgments could affect both adviser compensation and the net asset value (NAV) used for repurchase offers, increasing the importance of robust valuation, liquidity-management, and board-oversight processes. Listed funds may also face a mismatch between NAV-based performance fees and shareholder returns because performance fees would be calculated using the NAV while investors may buy and sell shares at a discount or premium. In the Performance Fee Proposal, the SEC indicates that performance fees for passive or formulaic strategies generally “would be difficult to justify,” although such funds are not categorically excluded.

Qualified Clients and Transition

An adviser could treat “a natural person or company,” other than a private investment company, as qualified if the adviser “reasonably believes” the person “is an accredited investor” when the contract is entered into. Existing contracts that complied when executed would generally retain transition protection and a new party or equity owner would be tested under the then-current rule.

Disclosure

Forms N-1A and N-2 would separately disclose performance fees beneath management fees and explain their variability. The management discussion would cover the rate, calculation basis, pre- or post-expense treatment, measurement period, and safeguards, with a hypothetical graphical illustration. Form N-CSR would describe the board’s supporting analysis, and conforming Form ADV changes are proposed. Although Section 205 generally addresses compensation based on capital gains or appreciation, the proposed fund disclosure requirements would also cover compensation based on other performance measures, including interest, ordinary income, and dividends.

Conclusion

The proposals, if adopted in their current forms, could create meaningful product and distribution opportunities but may also increase reliance on fund-specific judgments regarding liquidity, valuation, fees, and board oversight. Both releases propose a one-year compliance period after effectiveness. Comments on the Interval Fund Proposal are due December 4, 2026, and comments on the Performance Fee Proposal are due December 7, 2026.

We would be glad to discuss the potential ramifications of the Interval Fund Proposal and Performance Fee Proposal with you at your convenience, including the operational and commercial impacts and incentives they present.