In a speech last week, SEC Chairman Paul Atkins announced a major change for registered closed-end funds (RCEFs), continuing a trend of expanding access to private markets for retail investors. Following his announcement, the SEC will no longer limit the sale of RCEFs that invest 15% or more of their capital in private assets to accredited investors.
While it remains to be seen whether this change will become a significant driver for the democratization of private markets, it does open a new avenue for fund managers to develop innovative products for retail investors. These investors could soon gain access to RCEFs with meaningful private equity exposure, as well as to funds with blended strategies involving private equity, credit, real estate, and infrastructure. Importantly, these funds will not have the tax restrictions imposed by similar vehicles such as real estate investment trusts (REITs) and business development companies (BDCs).
Although interval funds and other types of evergreen funds already offer retail investors access to private equity and other private assets, investor liquidity in those vehicles is limited to periodic redemptions, which may be gated during periods of market stress. In contrast, investors in RCEFs can freely trade their interests on open exchanges such as the NYSE – though at market prices that may differ substantially from the fund’s net asset value (NAV).
This increased liquidity, however, introduces additional risks. Investors may actively trade funds that provide limited transparency regarding their underlying assets and valuation methodologies. Chairman Atkins referenced these risks in his remarks, noting the need for the SEC to “consider… important disclosure issues for these products.” As retail investors continue to gain broader access to private markets, this tension between liquidity and transparency will become increasingly important.
Steve was formerly the Chief Investment Officer and Head of Private Markets at Manulife Investment Management. In this role, he was responsible for leading global investment teams across a wide range of asset classes, including private equity and credit, real estate, infrastructure, timber, and agriculture. Steve has served as a director of many public and private companies during his career, including two of Manulife’s U.S. SEC-registered investment advisors.
Important Notice: Private Markets Navigator does not provide investment advice, and the information should not be construed as such. Investing in private asset funds is risky, with potential for total loss and long-term liquidity restrictions. Read our full dislaimer.