The SEC's rulemaking notice, now at the White House budget office, flags another attempt to chip away at a corner of the market that most individuals rarely touch. The agency put it bluntly: "Exposure to the full dynamism of our markets - both public and private - should not be reserved for wealthy insiders." The planned rule would update how performance fees are handled and create a mechanism for retail investors to access private markets via registered funds. The notice did not provide further specifics.
Today, advisers generally can assess performance fees only to qualified clients, according to Thoreau Bartmann, a K&L Gates partner and former SEC investment management attorney. "Through limiting performance fees, you're limiting access to that asset class," Bartmann said. "Whether that's a good or bad thing, that's debatable." Historically, private investments have been the province of institutions and affluent investors presumed to have the expertise to evaluate them.
SEC Chairman Paul Atkins has long pushed back on restrictions that wall off private markets, arguing that many fast-growing companies raise money privately and are out of reach for most investors. At a March SEC event, he said expanding access is about "freedom and fairness."
Private offerings come with less disclosure than public-market deals, which makes them tougher to value and, as groups like Better Markets have warned, increases potential risks to investors. After the White House finishes its review, the current commission is expected to issue a formal proposal for public comment, evaluate the responses, and later return a final rule to the commission for a vote.
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For your money, the punch line is patience: if this advances, retail investors could eventually see new ways into private assets and more widespread use of performance fees, but only after public comments and a second commission vote determine the final shape.