Rethinking Retail: SEC Proposes an Alternatives Shakeup

The SEC is proposing to modernize the structure and liquidity framework for registered interval funds, dramatically expand options for performance-based compensation in retail fund products, and continue to expand the ability to qualify as an “accredited investor.” The proposals also seek to facilitate access to alternative assets in defined contribution plans by increasing the variety of registered alternative fund products available to plan sponsors.

At an open meeting on September 30, 2026, the SEC announced a three-pronged package of proposals that, taken together, would substantially reshape the regulatory framework through which private markets and other alternative investment strategies are offered. One proposal — the interval fund proposal — would modernize Rule 23c-3 under the Investment Company Act of 1940 (the Investment Company Act) and related rules governing interval funds, registered closed-end funds, and BDCs. Another proposal — the performance fee proposal — would expand when registered investment advisers may charge performance-based compensation, including by permitting performance fees for virtually all types of registered funds and by treating accredited investors as qualified clients under Rule 205-3 under the Investment Advisers Act of 1940 (the Advisers Act). The third proposal — the accredited investor proposal — is organized under five separate rulemaking notices and would provide additional ways for individuals to qualify as accredited investors.

Our Take

• These are ambitious proposals are well received by managers interested in expanding their regulated fund offerings. At the same time, significant rulemaking remains outstanding, including final action on the various proposals, and potentially additional SEC action to facilitate access to alternative investments in 401(k) plans.
• The proposed new interval fund liquidity framework — which would establish a more principles-based approach to managing fund liquidity — may be the most significant element of the interval fund proposal and would better balance the structural liquidity considerations applicable to interval funds with the private asset exposure that the rulemaking is intended to facilitate. The proposed changes adding flexibility to interval funds’ permitted repurchase schedules also are well received, though the proposal does not provide a roadmap for an interval fund to change its repurchase intervals over time.
• The proposed expansion of the ability to charge performance fees is perhaps the most far-reaching of the proposals. The ultimate effect would be to allow performance compensation in nearly all pooled vehicles, whether public or private, which may encourage new categories of asset managers to develop public funds. Some observers will note that private funds available to accredited investors also could charge performance fees, but in practice these vehicles currently are limited to 100 investors under Section 3(c)(1) of the Investment Company Act (Section 3(c)(1) funds), which limits ability to scale these products.
• The accredited investor proposal is more incremental and would, for example, add to the variety of professional designations that would qualify a person as an accredited investor. Most significant could be the proposal to allow FINRA to design and administer a national accredited investor examination, potentially allowing anyone to “test into” accredited investor qualification. The combination of continuing, incremental expansion of accredited investor qualification options and the ability to charge performance fees to accredited investors also could be significant in some contexts, particularly wealth management.
• Finally, the proposals should be taken in context. The agency has been building toward comprehensive rulemaking through a series of SEC Staff actions throughout 2025 and 2026. These include ending the so-called “15% rule,” in which SEC disclosure Staff directed funds to limit investments in private funds to 15% or less of assets or accept only “accredited investors,” and adopting a more principles-based approach to co-investment exemptive relief. There are also broader federal initiatives to expand access to alternative assets, notably the administration’s August 2025 401(k) executive order (Executive Order 14330, Democratizing Access to Alternative Assets for 401(k) Investors). Closely watched DOL rulemaking, proposed but not yet adopted, would establish a process-based safe harbor for a plan fiduciary selecting plan investments with exposure to alternative assets. Creative new registered funds products, informed by these proposed SEC rules, presumably will be among the options ultimately considered by plan sponsors under that framework. (Sidley discussed the executive order and its implications in our August 8, 2025, publication and then the DOL’s proposal in our April 6, 2026, publication.)

The SEC Proposals at a Glance

The SEC describes the interval fund proposal as allowing interval funds to better match the liquidity profile of their portfolios — both by changing the rule’s liquid asset requirement and by adding flexibility around repurchase timing — while retaining the operational and investor-protection framework of the Investment Company Act.

The SEC reports that the interval fund market grew from 58 funds with $38 billion in net assets in 2020 to 139 funds with $101 billion in net assets in 2025, with credit strategies now representing approximately 55% of aggregate net assets. Release No. 33-11444 would amend Rule 23c-3 and related rules and forms, a rule that has remained largely unchanged since its adoption in 1993.

Revised Liquidity Requirements

A central feature of the interval fund proposal is to replace the current requirement that an interval fund maintain liquid assets equal to at least 100% of the repurchase offer amount during the repurchase-offer period. Instead, the fund would have to manage portfolio liquidity so that it can satisfy repurchase requests without being required to sell portfolio investments at prices that deviate significantly from their value. This would replace a bright-line coverage test with a standard that turns on the fund’s own liquidity management, which may give private-credit and other less-liquid strategies more investment flexibility during the repurchase-offer period (but also may be more prone to second-guessing).

Extended Ramp-Up Period for Initial Repurchase Offers

Another change under the interval fund proposal would extend the initial ramp-up period. Under the proposal, an interval fund could defer its first required repurchase offer for up to two years following either (1) the effective date of its registration statement or (2) the first shareholder vote adopting the fundamental policy specifying the fund’s periodic interval. The SEC specifically discusses private equity, venture capital, and private credit strategies as examples in which a longer ramp-up period could allow the fund to assemble investments across vintages and align expected cash flows with future repurchase obligations. A fund that later changes its periodic interval would not receive a new ramp-up period.

Expanded Flexibility for Periodic and Discretionary Repurchase Offers

The proposal would make monthly intervals generally available (without exemptive relief) but would retain Rule 23c-3’s standard requirement to offer to repurchase at least 5% and no more than 25% of outstanding common shares. The proposal would also set a uniform shareholder notification window of 14 to 42 days before the repurchase request deadline for all interval funds (compared with 21 to 42 days under the current rule and seven to 14 days under existing monthly orders) and would require that payment for a periodic offer be made no later than seven days after the repurchase pricing date and at least one business day before notice of the next periodic offer is sent.

The proposal includes several additional changes to the repurchase framework. Interval funds and other registered closed-end funds and BDCs (regulated closed-end funds) could make discretionary repurchase offers under the rule once every 12 months rather than once every two years. The proposed rule would clarify that discretionary offers are not subject to the 5% to 25% limits.

Interval funds also would be permitted to deduct deferred sales loads from repurchase proceeds, subject to certain conditions, in addition to the existing 2% repurchase fee. This aspect of the interval fund proposal is consistent with existing multiple-class exemptive relief but would be available to all interval funds, not only those with multiple share classes. The proposed rule would also remove the requirement that a fund’s fundamental policy state the maximum number of days between the repurchase request deadline and the repurchase pricing date (the 14-day maximum itself would be retained) and clarify the treatment of oversubscribed offers.

Multiple-Class Relief for Regulated Closed-End Funds

Separately, the SEC proposes to extend Rule 18f-3-style multiple-class relief to regulated closed-end funds, subject to specified conditions such as the adoption by the fund’s board of a written plan setting forth the arrangements and expense allocations applicable to each class. The SEC notes that it has issued approximately 230 multiple-class exemptive orders to unlisted, continuously offered closed-end funds since 2007. The proposal would also amend Rule 17d-3 to permit these funds and their affiliates to enter into arrangements for asset-based distribution and service fees and would update Form N-2 and Form N-CEN to include disclosure related to multiple-class and master-feeder structures.

The SEC proposes generally to rescind the existing monthly-interval and multiple-class exemptive orders, with one identified exception for a novel exchange-traded and tokenized multiple-class structure. The proposal notes that this structure may still require a fund to seek exemptive relief.

Enhanced Disclosure

For all regulated closed-end funds filing on Form N-2, not only multiple-class funds, the proposal would add disclosure in shareholder reports showing expense information similar to that disclosed by open-end funds, a prospectus legend, and an increase in the dollar amount used in the prospectus expense example.

Proposal Two: Expanding Performance-Based Compensation

The performance fee proposal addresses the statutory prohibition on registered advisers receiving compensation based on a share of capital gains or capital appreciation, while preserving existing statutory exceptions such as the BDC exception and the separate framework for so-called “fulcrum fees” (in which an asset-based fee adjusts up or down based on performance benchmark results over time). The relief proposed in Release No. 33-11443 (amending Rule 205-3 and related registration and reporting forms) would be available for advisory contracts with all regulated funds, whether listed or unlisted, including mutual funds, ETFs, interval funds, and tender offer funds. Advisers to BDCs could rely on the amended rule as an alternative to the statutory BDC exception, which limits performance fees to 20% of net realized capital gains. The SEC notes that based on 2026 industry data, only approximately 1% of registered funds use a fulcrum fee, which would remain an option.

Performance Fee Conditions and Fund Governance Requirements

Under the proposed rule, an adviser could receive performance-based compensation not exceeding 20% of the regulated fund’s net capital gains or net capital appreciation over a specified period or as of definite dates. This proposal would make valuation controls especially important for funds holding investments without readily available market quotations. The fund would need to satisfy the fund governance standards in Rule 0-1(a)(7) under the Investment Company Act, including that a majority of the board consist of independent directors, that the board annually evaluate its own performance and that of its committees, and that any legal counsel to the independent directors be independent.

Board Review and Written Findings

The release’s discussion of required board findings warrants close consideration. The release devotes almost 20 pages to topics a board might need to assess, including the appropriateness of the arrangement in light of the fund’s investment strategy and valuation practices; whether the fee is based on realized gains, unrealized gains, or both; the measurement period; and investor-protection features such as a preferred return or high-water mark. The SEC also cautioned boards about valuation practices that could affect the fee base, such as acquiring private fund interests at a discount and immediately marking them to the underlying fund’s net asset value (NAV). The board’s review would need to be part of the initial assessment of any fee proposal and then annually and in each case will be part of the annual “Section 15(c) process” (in this regard, a performance fee would be subject to excessive fee claims under Investment Company Act Section 36(b)). Finally, the term “written findings” is itself interesting, in that it is novel and not used elsewhere in the Investment Company Act. Presumably, “written findings” means findings supported by resolutions recorded in writing.

The performance fee proposal does not prescribe particular investor protections, but discusses features common in private funds, such as hurdles, high-water marks, preferred returns, and loss-carryforward mechanisms. These kinds of features also would be evaluated through the board’s written findings.

Performance Fee Disclosure Requirements

The performance fee proposal would also require regulated funds to disclose separately all performance-based compensation paid to their advisers, including compensation based on interest, ordinary income, or dividends, through amendments to Forms N-1A, N-2 and N-CSR.

Expansion of Qualified Client Status

The SEC also proposes to redefine qualified client status (“qualified clients” being those permitted to pay performance fees based on capital gains) by removing the current $1.4 million assets-under-management and $2.7 million net-worth tests. Instead the term would include natural persons and companies that the adviser reasonably believes are accredited investors when the advisory contract is entered into. The proposal continues to treat the equity owners of a Section 3(c)(1) fund as “clients” for purposes of the rule but because accredited investors would be qualified clients under the proposal, a Section 3(c)(1) fund whose equity owners are all accredited investors could pay its adviser fees based on a share of capital gains. This change would substantially broaden the population of investors eligible for performance-based fee arrangements. Conforming amendments would be made to Rule 203A-3, Rule 204-3, and Form ADV, which reference the qualified client definition.

Again, the net effect of these proposals would be that nearly any public or private pooled vehicle could be subject to performance compensation terms, with potentially far-reaching implications for both product design and incentivizing new groups of investment advisers to advise registered investment companies, and perhaps expanding the products available through wealth managers and other high-net-worth distribution channels.

Proposal Three: Potential New Accredited Investor Pathways

Alongside the first two proposals, the SEC issued five notices (Release Nos. 33-11445 through 33-11449) of potential orders that would designate additional ways for individuals to qualify as accredited investors: passing an accredited investor exam to be developed by FINRA; holding in good standing a U.S.-certified public accountant license; holding in good standing a CFA charter; holding in good standing a U.S. CFP certification; or holding a FINRA Investment Banking Representative (Series 79) or Research Analyst (Series 86 and 87) license. These designations would build on the SEC’s prior designation of holders of Series 7, Series 65, and Series 82 licenses as accredited investors.

How the Three SEC Proposals Work Together

The proposals are not legally dependent on one another, which means they can advance through the rulemaking process separately. From a public policy and product development perspective, however, the proposals clearly reinforce one another. The interval fund proposal addresses whether a registered vehicle can hold and manage less-liquid assets while offering limited periodic liquidity and multiple distribution classes. The performance fee proposal addresses whether an adviser can be compensated with a performance fee when managing that vehicle. A private-market manager considering a regulated product therefore could face fewer differences between the economics and portfolio architecture of its private funds and a regulated alternative product than today. Additionally, the performance fee proposal would fold accredited investor status into the qualified client definition. The potential new pathways to accredited investor status in turn could expand the population of qualified clients eligible for performance-based fee arrangements.

This does not mean that a regulated fund could simply replicate a private fund. Regulated funds remain subject to the Investment Company Act, board oversight, valuation requirements, standardized disclosure, restrictions on affiliated transactions and leverage, and the requirement to treat shareholders of the same class consistently. The performance fee proposal itself notes structural limitations on importing private fund fee structures into regulated funds. Performance fees, generally, are assessed at the individual investor (or account) level in private funds, a practice that could not be implemented in regulated funds as the fees set forth in their advisory agreements are assessed at the fund level. Performance fees would reduce the NAV across all outstanding shares of a regulated fund, thereby affecting all shareholders regardless of when they subscribed or the extent to which they experienced gains. These structural differences will require care both in design and board review and then in operation. Regulated funds and their service providers also may need to make operational changes to support the new fee terms. There also likely will be significant evolution in how fund intermediaries assess funds and the suitability of new terms for different kinds of investors. Plaintiffs’ law firms will no doubt assess these developments from the perspective of whether they will create new opportunities for claims that can be brought against funds and their directors, advisers, and intermediaries.

Continued Focus on Valuation and Disclosures

SEC Staff Statement on Fair Value Measurement and Private Assets

On September 28, 2026, SEC Chief Accountant Kurt Hohl and Division of Investment Management Director Brian Daly issued a joint Staff statement on fair value measurement and disclosure for private assets, which has thematic consistencies with the subsequent proposals. The statement is not a rule and expressly states that it creates no new obligations. It nevertheless provides significant context for the September 30 proposals because it identifies valuation and disclosure issues the Staff views as increasingly important as regulated funds and other registrants continue to expand exposure to private assets.

The Staff highlighted private credit in particular, noting that private credit exposure in registered fund portfolios increased nearly 60%, from approximately $170 billion in December 2020 to approximately $270 billion in December 2025. Private credit instruments are generally illiquid, individually negotiated, and not traded on established secondary markets, with fair value often dependent on significant unobservable inputs, and they are typically classified as Level 3 under FASB ASC Topic 820 (Fair Value Measurement). The Staff stressed that a lack of timely borrower information does not relieve management of its responsibility to estimate fair value and that valuation should reflect a market-participant perspective rather than merely internal expectations.

The Staff also emphasized calibration with respect to valuation. When a transaction price represents fair value at initial recognition, a valuation technique using unobservable inputs should be calibrated to that price and periodically reassessed against available market information in accordance with FASB ASC Topic 820. Related to disclosure, the Staff cautioned against boilerplate or overly aggregated disclosure and identified nonaccrual status, payment-in-kind interest, modifications, restructurings, and extensions as areas where tailored disclosure may be material to investors assessing the quality and sustainability of fund income. The statement also reminds auditors to exercise professional skepticism under PCAOB Auditing Standards 2501 (Auditing Accounting Estimates, Including Fair Value Measurements) and 1105 (Audit Evidence), including when management relies on NAV reported by an investee.

NAV as a Practical Expedient and Private Fund Interests

The Staff separately addressed use of NAV as a practical expedient for investments in private funds. It reminded registrants that U.S. GAAP permits the use of NAV to estimate the fair value of an investment in a private fund so long as certain conditions are met, including that the investee NAV be calculated consistently with FASB ASC Topic 946 (Financial Services – Investment Companies) as of the measurement date. The practical expedient may not be used when, as of the measurement date, it is probable that the investment will be sold for an amount different from NAV.

The statement is particularly relevant to regulated funds that invest their assets in private funds, as secondary trading in private fund interests becomes more developed. The Staff cited reports that secondary transaction volume for private fund interests grew approximately 42%, from roughly $156 billion in 2024 to $220 billion in 2025. The Staff encouraged an iterative, evidence-based assessment that considers relevant information, including investee valuation policies and controls, market conditions, and secondary market data.

What’s Next: Issues to Watch During the Comment Process

Comments on all of the proposals described here are due 60 days after publication in the Federal Register.

• Monthly interval fund minimums. Existing monthly funds with exemptive relief permitting a 2% monthly minimum could be required to move to a 5% minimum under the proposed rule, potentially changing portfolio and credit facility needs. The SEC requests comment on whether to lower the minimum for monthly funds to 2%, with a 5% aggregate floor over each three-month period, consistent with some existing orders, or to raise the maximum for monthly funds to 30% or 40%.
• Performance-based fee safeguards. The SEC asks whether it should require minimum measurement periods, restrict fees to realized gains, or mandate hurdles, high-water marks, loss carryforwards, or other protections rather than relying principally on board findings. The SEC also asks whether the 20% cap is appropriately calibrated, whether advisers to BDCs should be permitted to charge fees on unrealized gains under the amended rule, and whether the relief should be limited to closed-end funds and BDCs or exclude passive strategies.
• Ramp-up period and notice timing. The SEC asks whether two years is the right ramp-up period or whether a longer period (or one based on a multiple of the periodic interval) would be preferable, whether ad hoc repurchases or repurchases of less than 5% should be permitted during the ramp-up, and whether a 14-day minimum notice is sufficient, particularly for funds with annual intervals, or whether monthly funds should retain the seven-day minimum notice period available under existing orders.