The SEC's new proposals would allow incentive fees of up to a fifth of net gains, while easing the redemption rules that have kept investors waiting this year.
For decades, the 20% performance fee has been a private-fund feature reserved for institutions and the wealthy. The Securities and Exchange Commission now wants to bring it to registered funds sold to a much wider audience.
At an open meeting Wednesday, the commission voted to propose rules that would let registered investment advisers collect performance-based pay, figured on capital gains or appreciation, from regulated funds and other client types. Under one proposed condition, the fee could not exceed 20% of a regulated fund's net gains over a specified period. The plan also folds Regulation D accredited investors into the definition of a "qualified client," dropping the separate net-worth and asset thresholds.
None of this is final. Each proposal opens for 60 days of public comment once it appears in the Federal Register.
What a fifth of gains looks like
The arithmetic is simple. A fund that earns 10% in a year and charges the full 20% of net gains would hand the adviser 2 percentage points, leaving investors 8%. In a 20% year, the adviser keeps 4 points. Incentive fees reward managers for strong performance, but they also widen the gap between what a strategy earns and what a retail investor keeps, which is why advocacy group Better Markets has criticized the approach.
The exit door
The second half of the package targets liquidity. Interval funds would be allowed to schedule repurchases to fit the liquidity of their portfolios, to run them as often as monthly and to make discretionary repurchases more frequently. A fixed liquidity requirement would give way to a principles-based standard. Closed-end funds, business development companies among them, could issue multiple share classes under one rule instead of seeking individual exemptions.
This is where the proposal meets an uncomfortable year. Semi-liquid private-credit and private-equity vehicles have repeatedly held withdrawals to 5% in 2026. More flexible repurchase calendars could let them return cash more often. A looser liquidity standard could just as easily let them hold less cash in reserve. The rule text permits both outcomes, and fund boards will choose between them.
Who gets in
The SEC is also asking for comment on two new ways to qualify as an accredited investor: passing an exam developed by FINRA, or holding a recognized credential such as a CPA license, a CFA charter, a CFP certification or one of FINRA's Series 79, 86 and 87 registrations. Chairman Paul Atkins framed the push around investors' "post-tax, pre-retirement dollars."
The contrast to watch
The package widens the entrance to private markets at the same moment many of its funds have narrowed the exit. The first funds to adopt the new interval rules will reveal which way the industry leans: toward offering investors their money back more often, or toward keeping more of it invested and charging a share of the gains.