SEC proposes 20% performance-based fee for advisers and looser interval fund redemptions

The Securities and Exchange Commission approved a slate of proposals Wednesday to widen retail access to private markets, and for sponsors of interval funds and tender-offer vehicles the provision worth the closest read governs compensation: registered investment advisers would be permitted to charge a performance-based fee of up to 20%.

If finalized, the fee measure would bring adviser fees closer to the performance arrangements some hedge funds use, an arrangement the agency described as an incentive for managers who normally would not want to work with retail investors. Chairman Paul Atkins cast the day’s work as a balance between access and protection, telling the meeting, “One of my priorities for the commission is to explore ways to facilitate the ability of individual investors to participate in private markets while at the same time protecting those investors from bad actors and fraud.” Each proposal carries a 60-day public comment period.

Interval funds got their own piece of the package. The commission unveiled a plan to give the wrappers more flexibility around redemptions, and Brian Daly, who directs the SEC’s Division of Investment Management, told the meeting that interval funds have “tremendous utility” but that the prescriptiveness of their existing structure is restricting their use. The wrappers typically let investors redeem shares at set periods and are less liquid than open-end mutual funds.

Two details in the fee measure will draw comment letters. The cap arrives as a ceiling rather than a mandate, and the text does not say which advisers would be newly eligible or whether a performance fee could be layered on top of an asset-based fee—the difference between an adjustment at the margin and a rework of a fund’s economics.

The accreditation side moved separately. A second proposal would expand the professional licenses that can qualify an individual as an accredited investor, naming certified public accountants and chartered financial analysts. That label, used to determine who can buy riskier assets, generally requires net worth above $1 million excluding a primary residence or income over $200,000 for an individual or $300,000 for partners. It is the second time under President Donald Trump that the SEC has moved to expand the definition, after easing some restrictions during his first term, and it sits inside a broader administration push that has already produced a proposal to make it easier for retirement savings plans to hold private credit and private equity.

The three proposals, released together, trace the retail pipeline from qualification to compensation to redemption—a grouping that suggests the commission sees them as one reform rather than three.

For sponsors, the fee provision is a bigger change than its headline number suggests: it widens the pool of advisers who can charge an incentive fee at all, and this publication argued in September that widening that pool redraws the semi-liquid shelf—the wrappers sold through wealth platforms, where the sponsor sets the terms of the vehicle. What the proposal does not say is how performance would be measured, against what benchmark, over what period, or netted how against the fees a fund already charges, and a ceiling without mechanics is the easy half of a rule.

The interval-adjacent proposals interact. If the flexibility plan gives sponsors latitude on redemption terms, a fund’s fee schedule and its exit mechanics become parts of the same conversation—likely a single due-diligence memo—at the platforms that decide what reaches advisors. Daly’s complaint that the existing structure is too prescriptive points at the rules governing those redemption windows, and the plan that follows will determine how much latitude sponsors get in drawing them.

Redemption mechanics have already been tested in public. In late August, a tender offer to buy non-traded BDC shares at a steep discount drew almost no takers, with investors choosing to wait out redemption queues rather than lock in a loss. That result suggests tolerance for illiquidity in these vehicles runs deeper than the discounts on offer, and it makes the redemption terms themselves, rather than any secondary exit, the thing a sponsor has to defend when an advisor asks whether a queue is manageable.

The accreditation change is as much a distribution change as an eligibility one. Accountants and chartered financial analysts work alongside client money, so widening the credentials that qualify an investor enlarges the population private funds can market to—likely a wider funnel into the same wrappers for sponsors whose clients arrive through wealth platforms. How much wider depends on a definition that has been reopened for comment, not settled.

All three measures now sit in a 60-day window, and none is final. What the comment file will determine is whether the performance-fee provision is written to reach advisers who place client money into interval funds and how much of the prescriptiveness Daly described gets stripped out of the redemption rules.