SEC Prepares to Open Private Markets to Everyday Investors With Performance Fee Overhaul

The U.S. Securities and Exchange Commission has sent a plan to the White House that could reshape who gets a shot at private equity, venture capital and other illiquid assets. Received by the Office of Management and Budget on September 1, the proposal targets amendments to the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Its aim: give retail investors more ways to tap private markets through registered funds while letting advisers charge performance fees to a wider group of clients.

Performance Fees and the Qualified Client Barrier

Current rules limit performance fees to qualified clients. Those typically need $1.4 million under management with an adviser or a net worth exceeding $2.7 million. The restriction has kept many alternative managers from launching products aimed at ordinary investors. Without the ability to earn carried interest or incentive allocations, top private fund sponsors saw little reason to build registered vehicles for the masses.

But the landscape has shifted. Private markets ballooned to roughly $30 trillion in gross assets by late 2025, according to SEC data compiled from Form PF filings. Growth continued even as public markets delivered strong returns. SEC Chairman Paul Atkins has argued repeatedly that such opportunities should not stay locked away for the wealthy. “Exposure to the full dynamism of our markets – both public and private – should not be reserved for wealthy insiders,” the agency stated, as reported by AdvisorHub.

The proposal, listed as “Enhancing Retail Exposure to Private Markets” on the SEC’s 2026 regulatory agenda, carries an October 2026 target for a notice of proposed rulemaking. It carries an economically significant and deregulatory label under Executive Order 14192. Details remain sparse. Yet the direction feels clear. Relax the qualified client test for registered funds. Allow performance fees in structures that serve retail accounts. Encourage more closed-end funds, interval funds and tender offer funds to hold meaningful stakes in private assets.

This builds on moves already taken. In May 2025, the SEC’s Division of Investment Management stopped pushing registration comments that forced closed-end funds investing over 15% in private vehicles to limit sales to accredited investors with $25,000 minimums. The policy change, announced by then-Director Natasha Vij Greiner, opened the door wider. Retail buyers gained access to professionally managed portfolios that blend public and private holdings. Dechert detailed the shift and its implications for fund sponsors.

And the Investor Advisory Committee weighed in. Its September 2025 report endorsed registered funds as the best channel for retail participation. Closed-end interval funds and tender offer funds earned particular praise for their built-in diversification, oversight and liquidity mechanisms. The committee urged valuation reforms, clearer fee disclosures and limits on conflicted transactions. It stopped short of calling for wholesale changes to the accredited investor definition but suggested adding sophistication tests such as professional credentials. Dechert summarized the recommendations.

Yet success is hardly guaranteed. Early retail products have shown mixed results. A January 2026 analysis from the Private Equity Stakeholder Project found that 15 large private equity evergreen funds delivered a median 2025 return of 11.97%. That trailed the S&P 500’s 17.43% and the MSCI ACWI’s 22.34%. Over three years the gap persisted. Apollo Aligned Alternatives returned 8.1% in 2025 while carrying a 3.54% expense ratio. KKR, Blackstone and others posted similar shortfalls relative to public benchmarks. PE Stakeholder Project highlighted the fee burden and performance drag.

Fees compound the problem. Private structures often layer charges. A fund-of-funds wrapper might add 1% to 2% at the top level on top of the underlying managers’ 2-and-20 model. Acquired fund fees, incentive allocations and operating expenses push total costs higher. Some academic work estimates the lifetime fee impact on private equity buyout funds near 7.9% annualized. Retail investors in these products can easily see net returns fall well below public market alternatives once all costs are stripped out.

Liquidity adds another layer of risk. Interval funds and tender offer vehicles promise periodic redemptions. But gates can appear when markets seize up. Blackstone’s Real Estate Income Trust limited withdrawals in 2022 after heavy demand. Similar pressures could hit new products if private valuations prove sticky or exits slow. The Congressional Research Service noted in its June 2026 report that private markets remain less transparent, less liquid and more expensive than their public counterparts. Higher costs and valuation challenges persist. EveryCRSReport laid out the trade-offs.

Supporters point to diversification benefits. Private assets have shown low correlation to public equities in some periods. Professional management and registration under the ’40 Act bring safeguards that direct private fund investments lack. The SEC’s own private fund statistics show continued growth in assets and adviser oversight. Yet recent studies question whether retail vehicles capture the same top-quartile returns that institutions chase. Manager selection still drives outcomes. A diversified interval fund holding 20 or 30 underlying sponsors may deliver average results at best.

Industry voices express both optimism and caution. Thoreau Bartmann, a partner at K&L Gates and former SEC attorney, noted that the current qualified client rule has blocked many alternative managers from retail products. Relaxing it could spur new launches. Law firm alerts from Goodwin and Alston & Bird in July 2026 described the potential for substantial registered fund market growth if performance fees become available more broadly. Goodwin outlined the rulemaking timeline and incentives.

But questions linger on investor protection. The proposal must balance expanded access with safeguards around disclosure, conflicts and suitability. The Investor Advisory Committee called for stronger rules on best interest obligations, clear conflict disclosures and director approval for certain transactions. Sales practices will matter. Broker-dealers and advisers will need training to determine when a private-heavy allocation fits a client’s risk tolerance and time horizon.

So far the reaction on X mixes skepticism with interest. Some users warn of illiquidity traps and fee creep for Robinhood-style investors. Others see it as a logical step after years of private market expansion. The proposal’s OMB review marks an early but meaningful milestone. Public comment will follow publication. Implementation could take years. Still, the signal feels unmistakable.

Private markets have matured under heavier SEC scrutiny since the 2012 JOBS Act and subsequent private fund adviser rules. Retail participation has crept higher through evergreen funds, interval products and listed alternatives. The coming rule could accelerate that trend. Whether it delivers better outcomes for average investors depends on execution. Strong disclosure. Honest performance reporting. Realistic liquidity terms. Without those, the expansion risks repeating past mistakes on a larger scale. With them, it could broaden portfolios in ways that matter over decades.

The SEC has set an ambitious course. Industry participants, from fund sponsors to wealth advisers, will watch the proposal text closely when it lands. So will the investors it seeks to serve.