(Article from Registered Funds Regulatory Update, July 2025)
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At a recent “SEC Speaks” conference held on May 19, 2025, SEC Chair Paul Atkins stated that he is directing the SEC to reconsider the 15% private fund limit rules that prohibit retail investors from investing in closed-end funds, such as interval funds and business development companies.
Since 2002, SEC Staff has held the position that closed-end funds that invest more than 15% of their net assets in underlying private funds must limit sales to investors who are “accredited investors.” Accredited Investors with respect to natural persons generally include individuals who have earned income exceeding $200,000 (or $300,000 with a spouse) in each of the past two years and have a minimum net worth (or joint net worth with a spouse) of $1 million (excluding the individual’s primary residence). Although this 15% limit is codified in rulemaking for open-end funds, it has only been an informal Staff position for closed-end funds. Atkins noted that since the SEC informally capped closed-end fund investments in 2002, assets in private markets have nearly tripled from $11.6 trillion to $30.9 trillion, leading many retail investors to miss out on investment opportunities and the ancillary benefits related to private market growth over the course of the last 20+ years. During the same period, however, there has been “increased oversight and enhanced reporting by both private fund advisers and registered funds”—meaning that over this period of exponential growth, institutional and high-net-worth investors eligible to participate gained the benefit of both access and increased regulatory oversight and protections, while retail investor participation and access has been curtailed. A “common-sense approach,” as advocated by Chair Atkins, “will give all investors the ability to seek exposure to a growing and important asset class, while still providing the investor protections afforded to registered funds.” Atkins noted, however, that the SEC must address and reconsider disclosure issues for these closed-end funds, particularly those that trade on an exchange, including conflicts of interest, liquidity, and fees.
SEC Commissioner Caroline Crenshaw, however, expressed concerns about lifting the 15% limit, noting that “[t]he distinction between public and private markets exists for a reason.” She noted that putting private fund assets in registered closed-end funds would not change the nature of the assets but rather expose retail investors to private market risks, including, among others, less disclosure and liquidity and more volatility.
Consistent with Atkins’ remarks, then Director of the SEC’s Division of Investment Management Natasha Vij Greiner stated, on May 20, 2025, that the SEC Staff will no longer provide comments during the registration statement review process seeking to limit the ability of retail investors to invest in registered closed-end funds that invest in private funds.
Paul S. Atkins, SEC Chair, Speech, Prepared Remarks Before SEC Speaks (May 19, 2025), available at https://www.sec.gov/newsroom/speeches-statements/atkins-prepared-remarks-sec-speaks-051925.
Caroline A. Crenshaw, SEC Commissioner, Speech, A Reckless Game of Regulatory Jenga - Remarks at “SEC Speaks,” (May 19, 2025), available at
https://www.sec.gov/newsroom/speeches-statements/crenshaw-remarks-sec-speaks-051925.
Natasha Vij Greiner, Director of the SEC’s Division of Investment Management, Speech, The SEC Speaks in 2025: Day 2 (May 20, 2025), available at:
https://www.pli.edu/offers/sec-speaks-2025.