SEC proposes performance fees for regulated fund advisers

The SEC voted to propose amendments that would allow advisers to regulated funds to receive performance-based compensation, a step intended to widen retail access to private-market strategies.

The SEC says allowing those incentives in regulated funds may make them more likely to offer private-market strategies. Performance-based pay has traditionally been associated with hedge funds, private equity and venture capital, and that association has kept those strategies with a narrow group of eligible investors. The proposal also addresses capital formation in public markets and innovation in regulated fund structures, while preserving investor protections.

For allocators, the change lands on fee comparison: the research desk would compare total cost at a given return, not just the presence of an incentive fee. If a regulated fund can pay performance compensation, the same private-market strategy may be offered in two wrappers, both with incentive terms. The measure is a proposal, not an adopted rule.

The SEC is also seeking comment on whether a FINRA-developed exam, or holding certain licenses, certifications or credentials in good standing, should count as a route to accredited-investor status. That would operate at the subscription step, governing who can enter a vehicle and how eligibility is documented. It is a request for comment, not a proposed rule.

Chairman Paul S. Atkins said investor demand for private-market opportunities is growing and that one of his priorities is to let individual investors participate while protecting them from bad actors and fraud. He said the effort complements work under President Trump’s executive order on alternative assets for 401(k) investors. Public comment on both the proposed amendments and the accredited-investor questions will remain open for 60 days.