SEC Proposes Amendments to Expand Retailization of Private Markets

Key Takeaways

• The SEC is proposing broader access to private-market investment opportunities. The package would expand who may qualify as an accredited investor and a “qualified client,” including through a new Financial Industry Regulatory Authority (FINRA)-developed accredited investor exam and additional professional credentials, potentially increasing the pool of individuals eligible to invest in private offerings and vehicles that charge performance-based compensation.
• Registered funds and business development companies (BDCs) could gain greater flexibility in performance fees and fund structures. Registered investment advisers could charge certain Regulated Funds performance-based fees, including fees based on unrealized appreciation, subject to new board governance, findings, and disclosure requirements. Separately, eligible closed-end funds and BDCs could offer multiple share classes without obtaining individual exemptive relief.
• Interval funds could become more flexible vehicles for less-liquid and private-market strategies. Proposed changes to Rule 23c-3 would permit monthly repurchase intervals, allow a longer initial period before repurchases begin, permit more frequent discretionary repurchases, and replace the existing asset-based liquidity requirement with a principles-based standard.

On September 30, 2026, the Securities and Exchange Commission (SEC) issued a coordinated package of proposals designed to “expand responsible retailization of private markets.” Taken together, the proposals would (i) expand the ability of registered investment advisers to receive performance-based compensation from certain categories of clients, including registered investment companies and BDCs (collectively, Regulated Funds); (ii) broaden the “qualified client” definition;[1] (iii) modernize the interval fund repurchase framework under Rule 23c-3; (iv) replace the existing exemptive order regime with a rules-based framework permitting registered closed-end funds and BDCs to issue multiple share classes without an individual exemptive order;[2] and (v) expand the methods by which natural persons may qualify as accredited investors, including through a new FINRA-developed exam and five additional professional credentials.[3]

The SEC frames the package as a response to a structural disadvantage for retail investors. Because performance-based compensation has traditionally been confined to private funds, the SEC observes that advisers may be incentivized to allocate their potentially higher-performing strategies to a narrow group of eligible investors rather than to Regulated Funds. The SEC notes that private fund assets reported on Form ADV grew from $11.9 trillion to $36.8 trillion over the 10 years ending in 2025, and ties the initiative to Executive Order 14330 on democratizing access to alternative assets for 401(k) investors. None of the proposals is effective, and each remains subject to public comment with the comment periods running for 60 days following publication of the proposing releases and the notices in the Federal Register, which occurred on October 5 and 6, 2026.

Investment Adviser Performance-Based Compensation Modernization

Section 205(a)(1) of the Investment Advisers Act of 1940 (the Advisers Act) generally prohibits registered advisers from receiving compensation based on a share of capital gains or capital appreciation. Rule 205-3 currently permits such compensation only for “qualified clients,” and Regulated Funds have historically been limited to fulcrum fees (used by only about 1% of registered funds) or, for BDCs, the statutory exception in Section 205(b)(3) for fees of up to 20% of net realized capital gains. The proposal would open two new avenues.

Avenue One: Board-Governed Regulated Funds

A Regulated Fund would be treated as a qualified client, and its adviser could charge performance-based compensation regardless of the fund’s shareholder base, if three conditions are met:

• 20% cap. The fee may not exceed 20% of the fund’s net capital gains or net capital appreciation over a specified period or as of definite dates. Unlike the BDC statutory exception, the fee could be based on unrealized as well as realized gains, and no minimum measurement period is proposed.
• Fund governance standards. The fund’s board must satisfy the fund governance standards in Rule 0-1(a)(7) under the Investment Company Act of 1940 (the 1940 Act), including a majority-independent board, independent legal counsel for the independent directors, and at least quarterly executive sessions.
• Board findings. As part of the initial approval and annual review process under Section 15(c) of the 1940 Act — the provision that requires a fund’s board, including a majority of its independent directors, to approve the investment advisory contract and its compensation, and requires the adviser to furnish the information reasonably necessary for the board to evaluate it — the board, including a majority of independent directors, must determine that the arrangement is in the best interests of the fund and its shareholders, with written findings addressing the arrangement’s appropriateness in light of the fund’s strategy and valuation practices, the basis of calculation (including the measurement period and whether it relies on realized gains, unrealized gains, or both), and investor protection features such as hurdles, high-water marks, or loss carryforwards.

Notably, the proposal does not mandate a preferred return, hurdle, or high-water mark. If none is included, however, the board’s written findings must explain why the arrangement adequately protects shareholders without those features. The SEC emphasizes that the required findings are intended to operate in addition to, and to be more particularized than, the board’s existing duties under Sections 15(c) and 36(b) of the 1940 Act.

Valuation and the Unrealized-Gains Conflict

A key feature of the board-governed avenue is that it would permit a fee measured by unrealized appreciation. That ties a portion of the adviser’s compensation to the fund’s own fair value determinations. Under Rule 2a-5 under the 1940 Act, a fund’s board determines fair value in good faith for portfolio investments without readily available market quotations, and may designate the fund’s adviser as “valuation designee” to perform that function subject to board oversight, periodic reporting, and prompt reporting of material valuation matters. Most funds have made that designation. In a fund holding substantial Level 3 assets — private credit, private equity, real assets — an adviser that serves as valuation designee and is paid on unrealized appreciation would, in practical terms, be marking the base on which its own fee is calculated.

The existing statutory regime addresses this problem structurally. The Section 205(b)(3) exception on which BDC advisers rely today is limited to realized capital gains computed net of all realized capital losses and unrealized capital depreciation — a formulation that both excludes unrealized gains from the fee base and forces unrealized losses into the calculation. Proposed Rule 205-3 imposes no comparable requirement. It would cap the fee at 20% of net capital gains or net capital appreciation over a specified period or as of definite dates, but it does not mandate netting against prior losses, a high-water mark, a loss carryforward, a preferred return, or any minimum measurement period. The SEC states instead that no single mechanism is universally appropriate, that the board is best positioned to evaluate which protections suit the fund’s strategy and structure, and that where no investor protection features are included the board’s written findings must address the basis for concluding that the arrangement is nonetheless adequate to protect shareholders. The contrast with Section 205(b)(3) is therefore real: for a BDC adviser, the netting of realized losses and unrealized depreciation is a statutory condition of the fee itself, while under the proposed rule the equivalent protections are a matter for board negotiation and disclosure.

Because the proposed board findings must address the fund’s valuation practices and the basis of calculation, the conflict would be documented rather than resolved. Boards evaluating an arrangement of this kind should expect to focus on:

• The valuation function itself. Whether the adviser serves as valuation designee; whether an independent valuation firm is engaged for some or all Level 3 positions, and who selects, instructs, and pays it; and whether the fund’s Rule 2a-5 valuation risk assessment expressly identifies compensation-linked valuation risk as a risk to be managed.
• Crystallization and payment. Whether the fee accrues on marks but is payable only on realization, and whether any portion is deferred, escrowed, or subject to clawback if subsequent realizations fall short of the marks on which the fee was taken.
• Investor protection features. Whether a high-water mark, loss carryforward, or preferred return applies. The proposal would not require any of these, but the board’s written findings would have to explain why the arrangement protects shareholders in their absence — a finding that is considerably harder to make for a fee on unrealized appreciation than for one on realized gains.
• Measurement period. Shorter periods increase the fee’s sensitivity to period-end marks. The SEC has asked for comment on whether to mandate a minimum measurement period.
• Back-testing. Whether the fund compares historical marks against subsequent realizations and exit prices, and whether those results are reported to the board alongside the fee calculation.
• Scope of the fee base. Whether illiquid or hard-to-value positions should be excluded from the base entirely.

Boards should also expect the Rule 2a-5 reporting cadence and the fund’s Rule 38a-1 compliance policies to require revisiting, and independent directors — who would have independent counsel under the Rule 0-1(a)(7) governance standards — may wish to engage their own valuation expertise. Finally, because the written findings would become part of the fund’s Form N-CSR and the Section 15(c) record, they should be drafted with the understanding that they may later be examined by the staff or produced in litigation under Section 36(b).

Avenue Two: Expanded Qualified Client Definition

Alternatively, a Regulated Fund could pay performance-based compensation without satisfying the board conditions if every shareholder is a qualified client under an expanded definition. The proposal would remove the current standalone assets-under-management and net worth tests (currently $1,400,000 and $2,700,000, respectively) and instead include any person the adviser reasonably believes is an “accredited investor” under Rule 501(a) of Regulation D under the Securities Act of 1933 or a “qualified purchaser” under Section 2(a)(51) of the 1940 Act. This change would apply across the Advisers Act, not only to Regulated Funds.[4]

As a threshold matter, Section 205(a)(1) reaches only SEC-registered advisers. Exempt reporting advisers (ERAs) relying on the private fund adviser or venture capital adviser exemptions are not subject to the qualified client test today and would not be affected directly, although the amendment would reduce one friction point for an ERA contemplating registration.

For private fund sponsors, this would substantially align the qualified client and accredited investor thresholds for funds relying on Section 3(c)(1) of the 1940 Act, which are privately offered funds that generally limit their beneficial owners to no more than 100 persons (or 250 persons, in the case of a qualifying venture capital fund) and that today must separately confirm qualified client status before charging performance compensation. Funds relying on Section 3(c)(7), which are privately offered funds that must generally limit their investors to “qualified purchasers,” are unaffected, however, because the “qualified purchaser” threshold is set by statute rather than by Rule 205-3; so natural persons investing in 3(c)(7) funds generally still need at least $5 million in investments.

The knowledgeable employee prong survives. The proposal would remove the standalone assets-under-management and net worth tests, together with the related inflation adjustment mechanism, but would retain both the qualified purchaser prong and the prong covering certain executive officers and employees of the adviser who actively participate in its investment activities. Sponsors that rely on that category to admit general partner (GP)-affiliated personnel to carry-bearing vehicles can continue to do so.

The proposal would also retire the look-through mechanism in Rule 205-3(b). That provision currently treats each equity holder in a Section 3(c)(1) fund, a registered fund, or a BDC as though it were the adviser’s own client; the amended rule would instead state directly when the vehicle itself qualifies, which it would once every holder from whom a performance fee is taken is a qualified client in its own right. On that basis, the qualified client categories would consist of:

• Individuals and entities, other than Section 3(c)(1) vehicles, that the adviser reasonably believes are accredited investors at the time the advisory contract is entered into;
• Regulated Funds all of whose shareholders are qualified clients;
• Regulated Funds meeting the three board conditions described above; and
• Section 3(c)(1) vehicles in which every holder from whom a performance fee is taken is itself a qualified client.

The amendment does not liberalize across the board. Eligibility would widen considerably for natural persons, who could qualify on the accredited investor income or net worth tests — or, if the companion notices are adopted, on a professional credential — rather than on the higher standalone thresholds. But an entity that qualifies today on the $2,700,000 net worth test may find the accredited investor route harder to clear, because most entity categories under Rule 501(a) turn on $5 million in total assets or on all equity owners being accredited investors. Sponsors should run their current and prospective investor lists against the revised categories before assuming the change is uniformly favorable.

Advisers relying on the shareholder-composition avenue should also consider how the condition would be administered on an ongoing basis. The proposed definition is framed as a test applied when the advisory contract is entered into, which is consistent with how Rule 205-3 has always operated, and the release does not prescribe continuous testing or address what happens if a non-qualifying holder is introduced later by transfer, death, or through an omnibus or intermediary account. That silence matters in practice. A fund distributed through intermediaries cannot readily police the composition of its shareholder base after closing, and the condition would be effectively unworkable for a listed fund, which is one reason the SEC expects advisers to listed and broadly distributed funds to use the board-governed avenue instead. Sponsors for whom the point is commercially significant should consider raising it in a comment letter and asking the SEC to confirm the timing of the test and the consequences of a subsequent non-qualifying holder.

The knock-on effects across the Advisers Act warrant monitoring as well. The SEC asked for comment on how the revised threshold would interact with other provisions built on the qualified client concept. An individual’s status as an “investment adviser representative,” for instance, depends in part on how much of that individual’s client base consists of qualified clients, and the term is also used in Item 5 of Form ADV and in Section 7.A of its Schedule D. Advisers whose state registration or reporting obligations turn on those provisions should consider the downstream consequences of the proposals.

Scope, Disclosure, and Implementation

• Funds covered. The proposal applies to open-end and closed-end registered funds (listed or unlisted) and BDCs. It is not limited to private-markets strategies, although the SEC expects closed-end funds to be the most likely users. Unit investment trusts and Form N-3 variable annuity separate accounts fall outside it. That follows from the board-centric design of the exemption, which depends on a board being able to meet the fund governance standards and to make and document the required findings through the Section 15(c) process. A unit investment trust is organized under a trust indenture, is unmanaged, and has no board or comparable governing body to perform that role, and a Form N-3 separate account is structured differently from a conventional fund board, so neither could satisfy the conditions.
• Open-end funds and index strategies. Nothing in the rule would shut out open-end funds, mutual funds and exchange-traded funds among them, though the SEC cautioned that a performance fee would seldom suit some registered funds already in the market, index trackers being the example it gave. Boards of those funds should expect the appropriateness finding to be a difficult one to make.
• BDCs. BDC advisers could continue to rely on the realized-gains-only Section 205(b)(3) exception, or use amended Rule 205-3 to base fees on realized and unrealized gains, subject to the additional governance, findings, and disclosure conditions. The optionality exists because Section 205(b)(3) is a statutory exception that the amended rule would neither displace nor condition; a BDC adviser content with a fee on net realized capital gains can stay within the statute and avoid the rule’s conditions, while an adviser that wants to charge on unrealized appreciation must use the rule and accept the conditions that accompany it.
• Disclosure. Amendments to Forms N-1A, N-2, and N-CSR would require disclosure of all performance-based compensation, including a separate fee table line item. This includes income-based incentive fees and fulcrum fees, so many existing BDCs and private credit interval and tender offer funds would be affected even if they never rely on the new exemption. The proposed compliance period is 12 months from the effective date of the final amendments, but funds relying on the board-governed avenue described above would need to comply with the amended forms when they first rely on the rule.
• Scope and content of the new disclosure. The disclosure changes are not confined to gains-based fees: they capture a fee measured by any performance metric, interest, ordinary income and dividends included, as well as fulcrum arrangements. A fund that adopts a performance fee would have to provide the fee table entry, carry the fee through the expense example, describe the arrangement in narrative form, and illustrate graphically how the fee would be computed across a spread of hypothetical return scenarios, with the board’s supporting rationale appearing in the fund’s Form N-CSR. Because these are fee and expense disclosures, they will also feed into the information 401(k) plan sponsors and participants use to compare Regulated Funds against other investment options[5].
• Existing funds and existing contracts. The proposal generally would not apply to advisory agreements with funds entered into before the effective date of a final rule. An existing Regulated Fund adding a performance fee generally would need shareholder approval of a new or amended advisory contract under Section 15(a). The SEC expects most users to be newly launched funds rather than existing funds.

Interval Fund Modernization

Interval funds have grown from 58 funds with $38 billion in assets in 2020 to 139 funds with $101 billion in 2025. The SEC proposes to amend Rule 23c-3 so that interval funds can better match the liquidity profile of their underlying assets. Since interval fund shares are not redeemable on demand and generally are not listed on an exchange, such funds adopt fundamental policies, changeable only by shareholder vote, under which funds typically make repurchase offers at predetermined intervals — currently every three, six, or 12 months — for between 5% and 25% of its outstanding shares. The proposed amendments would:

• Extend the initial deferral. Funds could defer the first repurchase offer for up to two years after registration effectiveness (or the shareholder vote adopting the interval policy), regardless of the fund’s interval. Currently the first repurchase request deadline must fall no later than two periodic intervals after that date, which means six months for a quarterly fund and one year for a semiannual fund; only annual-interval funds have two years today. A fund could still begin repurchase offers earlier and would have to disclose the length of any deferral period in its prospectus.
• Permit monthly intervals. Monthly intervals would be added to the existing three-, six-, and 12-month options. The shareholder notification window would also be shortened to 14 to 42 days before the repurchase request deadline, from the current 21 to 42 days. Each repurchase cycle would need to be completed, including payment, at least one business day before notice of the next offer is sent. The 5% minimum repurchase offer would be retained even for monthly funds, so funds operating under existing orders that allow 2% monthly offers would need to move to 5%.
• Allow more frequent discretionary repurchases. Discretionary repurchases — offers made to all shareholders outside the fund’s fundamental policy — would be permitted once every 12 months rather than once every two years.
• Permit deferred sales loads. Funds could deduct deferred sales loads from repurchase proceeds, subject to Rule 6c-10 (which permits a fund to impose a deferred sales load which is a sales charge collected on redemption rather than at purchase, provided the load is structured as a percentage that declines over time and is disclosed), Rule 11a-3 (which governs exchange offers between funds in the same group and requires that any sales load or administrative fee charged on an exchange be applied on a consistent, non-discriminatory basis), and, where applicable, Rule 22d-1 (which permits a fund to offer scheduled variations in, or waivers of, sales loads for particular classes of investors or transactions, provided the variations are disclosed in the prospectus and applied uniformly).
• Simplify mechanics. Funds would no longer need to state the maximum number of days between the repurchase request deadline and the pricing date in their fundamental policies. Separately, and as a distinct change, the rule would clarify how oversubscribed offers are prorated, confirming that the pro rata requirement applies where a fund has repurchased additional shares in an amount less than 2% of its outstanding common stock.
• Adopt a principles-based liquidity standard. The rule would no longer require funds to hold liquid assets equal to 100% of the repurchase offer amount from the notification date through the repurchase pricing date. Instead, funds would have to manage portfolio liquidity so they can meet repurchase requests without selling investments at prices that deviate significantly from their value, supported by board-overseen policies and procedures under Rule 38a-1. The release indicates that a fund may look to several layers of liquidity for this purpose, among them cash thrown off by the portfolio, subscriptions it expects to receive, planned asset sales, and available borrowing capacity. The same standard would govern discretionary repurchase offers by funds that are not interval funds. The SEC describes the shift as intended to make the interval fund structure more viable for strategies holding less liquid assets.

Multiple Share Classes for Closed-End Funds and BDCs

Since 2007, the SEC has issued approximately 230 exemptive orders allowing unlisted, continuously offered closed-end funds to offer multiple share classes. The proposal would codify that relief by amending Rules 18f-3 and 17d-3, so that eligible registered closed-end funds and BDCs could issue multiple classes and pay asset-based distribution and service fees without an individual order. The Rule 17d-3 amendment matters because a distribution arrangement among a fund, its adviser, and affiliated distributors can implicate the joint-transaction prohibition of Section 17(d) and Rule 17d-1; Rule 17d-3 currently exempts open-end fund distribution arrangements conducted under a Rule 12b-1 plan, and the amendment would extend that exemption so that affiliated distribution arrangements are permitted for eligible closed-end funds and BDCs.

The conditions track the existing open-end fund version of Rule 18f-3:

• a written plan, approved by the board and by a majority of the independent directors, setting out the class arrangements and the methodology for allocating expenses;
• board findings that the plan, and any material amendment to it, is in the best interests of each class individually and of the fund as a whole;
• allocation to a class of the expenses attributable to that class alone;
• class-by-class voting on matters affecting only that class;
• limitations on specified fee arrangements; and
• compliance with the fund governance standards in Rule 0-1(a)(7).

A set of closed-end-specific conditions would sit on top of those:

• the fund must offer its common stock on a continuous basis;
• any offering above or below net asset value must be extended to every class — relevant because Section 23(b) of the 1940 Act, made applicable to BDCs by Section 63, generally restricts the sale of closed-end fund shares below net asset value absent shareholder approval and other conditions; and
• the shares may not be listed, offered, or traded in a secondary market.

Any asset-based distribution fees would have to comply with Rule 12b-1, as if the fund were an open-end company, the rule that permits a fund to use its own assets to pay distribution expenses, but only pursuant to a written plan approved and annually reviewed by the board, including a majority of the independent directors, with the related data furnished to the board. The fund would also have to make repurchase offers to all classes, allocating them at the fund level.

Current exemptive orders condition relief on compliance with the FINRA rules that limit the sales charges and asset-based service fees a FINRA member may receive for distributing fund shares: FINRA Rule 2341 for registered closed-end funds and FINRA Rule 2310 for BDCs. The proposed rule does not carry that condition forward. The SEC’s reasoning is that the condition is unnecessary: FINRA Rules 2341 and 2310 already apply directly to the funds and distribution arrangements that matter in practice, including interval funds and publicly offered BDCs, whether or not compliance is a condition of relying on Rule 18f-3. Sponsors therefore should not treat the omission as substantive relief. It matters only for a fund or distribution arrangement that falls outside the independent reach of the FINRA rules. Because this is the one place where the proposal arguably relaxes an existing investor-protection condition, sponsors should expect questions about it and should confirm with distribution counsel whether a particular structure falls outside both the condition and the FINRA rules.

The proposal also amends Form N-2 to add multi-class and master-feeder disclosure, a fees-and-expenses legend, and an expense example in shareholder reports for all funds filing on Form N-2. It also extends class-level reporting on Form N-CEN — the annual census form on which registered funds report structural and operational information such as classes, service providers, and securities lending activity — to registered closed-end funds, and makes conforming amendments to Form N-23c-3.

Transition for funds operating under existing orders. The SEC proposes to rescind all but one related exemptive order. A fund operating today under existing relief would be free to move onto the rule as soon as it takes effect, and the proposal would give such a fund a one-year window in which it could instead keep operating under the order slated for rescission. A fund that elects into the rule before that window closes takes the rule whole and may not blend it with the terms of its order. Sponsors operating under an order should therefore calendar the window and run a condition-by-condition comparison of their order against the rule before electing, with particular attention to any order terms that are more permissive than the rule. The proposal does not say how pending exemptive applications will be handled, whether applicants should withdraw, whether applications will be held in abeyance, or whether orders will continue to issue before adoption. Sponsors with applications on file should treat that as unresolved, keep their applications pending in the meantime, and consider asking the SEC to address the point in a comment letter.

The SEC is not rescinding a recently issued order permitting multiple share class structures that include classes trading on a securities exchange and in tokenized form using distributed ledger technology, and expects applicants with similar “unique structures” to continue seeking exemptive relief. The SEC also requested comment on whether conditions could be developed to permit a multi-class closed-end fund to issue a class traded on a secondary market, and whether that question is ripe for rulemaking or should continue to be handled through exemptive applications. Sponsors contemplating a listed or tokenized class should treat the exemptive route as the operative path for the foreseeable future, and those with a commercial interest in the secondary-market question should consider responding to that request for comment, which is among the more consequential open items in the package.

Expanding the Accredited Investor Definition

Under Rule 501(a)(10) of Regulation D, the SEC may designate professional certifications, designations, and credentials that qualify their holders as accredited investors. It has done so to date only for the Series 7, 65, and 82 licenses. The SEC issued five notices seeking comment on new designations:

• FINRA accredited investor exam. FINRA would develop an exam modeled on the Securities Industry Essentials (SIE) exam, with about 75 multiple-choice questions over roughly two hours. It would cover securities structures, investment risks, disclosures, financial statements, conflicts of interest, and corporate governance. Anyone age 18 or older could take it, with no FINRA member firm affiliation required. A passing score would confer accredited investor status for 10 years, the fee is expected to be similar to the $100 SIE fee, and FINRA would build a verification process for issuers.
• Professional credentials. The other proposed credentials are a U.S. Certified Public Accountant (CPA) license in good standing, the Chartered Financial Analyst (CFA) charter, the U.S. Certified Financial Planner (CFP) certification, the Series 79 (Investment Banking Representative) license, and the Series 86 and 87 (Research Analyst) licenses, which must be held together.

The exam pathway is potentially the most far-reaching element of the package, because any adult who passes could qualify without meeting an income or net worth threshold. Combined with the proposed qualified client amendments, the same individual could, through that accredited status, also be eligible to invest in vehicles that charge performance-based compensation. Designees would qualify only for their own investments and could not rely on their status to purchase on behalf of others.

Key Takeaways and Next Steps

Fund sponsors and advisers should consider the following as they evaluate the proposals:

• Board-centered framework. For Regulated Funds, the focus is on board composition, the Section 15(c) record described above, and written findings supporting the fee’s measurement period, realized-versus-unrealized basis, and investor protection features. Because the SEC requested comment on mandating a minimum measurement period and on alternative caps of 10% or 15%, the final rule may be more prescriptive.
• Broader private fund investor base. If the proposals are adopted, Section 3(c)(1) fund sponsors could charge carried interest to a larger pool of accredited investors without a separate qualified client test. Sponsors should consider updating subscription documents, investor eligibility procedures, and verification practices.
• Product design for semi-liquid funds. Sponsors of interval funds, tender offer funds, and BDCs should assess how the two-year ramp-up, monthly intervals, principles-based liquidity standard, and codified multi-class relief may affect pending exemptive applications and new product launches.
• Disclosure impact beyond the exemption. Funds with existing income-based incentive fees should plan for the new performance-fee disclosure requirements, which would apply whether or not the fund relies on amended Rule 205-3.
• Sequencing of new products. Because the proposal would not reach advisory contracts entered into before a final rule’s effective date, and because adding a performance fee to an existing fund requires a Section 15(a) shareholder vote, sponsors planning to use the relief should build the fee into the advisory contract of a fund launched after adoption rather than retrofitting an existing vehicle.
• Retirement channel implications. These fee and expense disclosures would become part of what 401(k) fiduciaries weigh when they line Regulated Funds up against the other options on a plan menu, so a sponsor selling into the retirement channel should be ready for questions about how a performance fee is computed and how it is presented, all the more so against the backdrop of the Executive Order 14330 initiative.

Comments on the interval fund and multiple share class proposal and on the accredited investor notices are due December 4, 2026. Comments on the performance-based compensation proposal are due December 7, 2026. The three workstreams are also likely to move on different timetables. The credential designations would come by SEC order, which could issue not long after comments close depending on what those comments say, while the exam route carries the added step of FINRA building and administering the test before any such order would have practical effect. The two rulemakings, on performance fees and on interval funds, are likely to need a year or longer before final rules emerge. Interested parties should consider submitting comments, particularly on the open questions the SEC has identified.

Should you have any questions regarding the contents of this alert, please do not hesitate to contact a member of Foley’s Fund Formation and Investment Management team.

[1] Investment Adviser Performance-Based Compensation Modernization, Release Nos. 33-11443; 34-106533; IA-7022; IC-36350 (Sept. 30, 2026); SEC Fact Sheet, Expanding Retail Investor Choice and Promoting Innovation in Regulated Fund Structures.

[2] Interval Fund Modernization; Expansion of Multiple Share Class to Registered Closed-End Management Investment Companies and Business Development Companies, Release Nos. 33-11444; 34-106534; IC-36351; File No. S7-2026-34 (Sept. 30, 2026).

[3] Release Nos. 33-11445 (FINRA accredited investor exam), 33-11446 (CPA license), 33-11447 (CFA charter), 33-11448 (CFP certification), and 33-11449 (Series 79 and Series 86/87 licenses) (Sept. 30, 2026).

[4] Specifically, the change would bring conforming amendments to Rule 203A-3 (which defines terms, including “client,” used in determining an adviser’s eligibility to register with the SEC rather than the states), Rule 204-3 (the brochure delivery rule governing the Form ADV Part 2 disclosures an adviser must deliver to clients and prospective clients), and Form ADV itself.

[5] This point carries particular weight given the package’s connection to Executive Order 14330, Democratizing Access to Alternative Assets for 401(k) Investors (Aug. 7, 2025), 90 FR 38921 (Aug. 12, 2025).