SEC proposes performance fees in retail funds and would make about 17.1 million more households eligible

The Securities and Exchange Commission on Wednesday voted to propose two rule packages meant to put private-market strategies inside funds that ordinary investors can buy. One would let advisers to registered funds and business development companies charge performance fees on capital gains. The other would rewrite the rules for interval funds and let closed-end funds offer multiple share classes. The Financial Times led on the performance fee piece.

Chairman Paul Atkins tied the effort to the President's executive order on alternative assets in 401(k) plans, and said the Commission is focused on "investors' post-tax, pre-retirement dollars." Both proposals are open for comment for 60 days after they appear in the Federal Register.

The number behind the headline

The press release describes the change as expanding "retail investor choice." The proposing release is more specific about who that means. Today an adviser can charge a client a share of gains only if the client is a "qualified client": at least $2.7 million of net worth, or $1.4 million managed by that adviser. The proposal would replace both tests with the accredited investor definition, which starts at $1 million of net worth excluding a primary residence, or income above $200,000 ($300,000 with a spouse).

The SEC's own economic analysis, using the Federal Reserve's 2022 Survey of Consumer Finances, puts the effect in households:

So the pool that can be charged a performance fee roughly triples. And that is not the ceiling. A second route in the proposal lets a fund's board, with a majority of independent directors, approve a performance fee of up to 20% of the fund's net gains if it makes specific findings. The SEC's analysis says that channel "could extend to all U.S. households," to the extent such funds are sold to non-accredited investors.

What the headline gets wrong

"Performance fees for retail funds" can read as a benefit to retail investors. It is a fee they would pay. The 20% cap mirrors the "20" in the private fund model of a management fee plus a fifth of profits. The Commission's argument is that advisers will not put their best private strategies into public funds unless they can earn the same incentive fee there. Both things can be true, and the proposal requires the fee to be disclosed in fund registration and reporting forms.

Interval funds and the credential route

The second release says interval funds grew to 139 funds with $101 billion of net assets in 2025, from $38 billion in 2020. They currently must offer to buy back 5% to 25% of shares every three, six or twelve months. The proposal adds monthly intervals, more discretionary repurchases, and a principles-based liquidity approach in place of today's fixed requirement. Regulated closed-end funds and BDCs held about $710 billion in total.

Separately, the SEC asked for comment on letting people qualify as accredited investors by passing a FINRA exam or holding a CPA license, a CFA charter, a CFP certification, or the Series 79, 86 or 87 licenses.

Who it actually hits

Business owners are a large share of the newly eligible group. Accredited net worth counts everything except a primary residence, so an owner whose company is worth $1.2 million on paper can clear the bar with very little cash. That investor would now be eligible for funds that charge a share of gains, and may be sold them. The liquidity terms matter as much as the fee: an interval fund returns money only on its repurchase schedule and only up to its offer limit. Our reporting on private credit fund withdrawals shows what happens when requests exceed the cap.

The vote comes two days before the Commission shrinks to two members, as we reported Tuesday. Final rules would need a later vote.

Sources: SEC press release; SEC proposal on performance-based compensation; SEC proposal on interval funds; Financial Times. This is market information, not investment advice.