Many secondaries players began 2025 with the anticipation that the new presidential administration might further liberalize rules around access to private equity markets (see our 2025 market outlook commentary here.)
SEC Chairman Paul S. Atkins and Division of Investment Management Director Natasha J. Greiner took a step in this direction in late May by announcing that the SEC staff will no longer require 1940-Act registered closed-end funds that are offered to non-accredited investors to limit investments in private equity funds to 15% of assets. Ropes & Gray registered fund specialists released a note with additional details available here.
In recent years, many institutional secondaries investors have offered registered funds focusing on private equity fund investments, but these have predominately been restricted to institutions and high net worth individuals. In part this is because the SEC has, for over two decades, required that registered closed-end funds either:
- Limit exposure to private funds to no more than 15% of net assets or
- Restrict issuance of fund shares to investors that qualify as accredited, with (additionally) a $25,000 investment minimum.
This has never been a formal rule, but the SEC has imposed the constraint through the registration statement review and comment process. The SEC’s new position expands the universe of products that may be offered to retail investors who don’t satisfy the accredited investor criteria.
Secondaries market investments have several advantages for registered funds seeking exposure to private equity assets. Secondaries (more so than primaries) can allow for immediate deployment of capital and allow investors to gain exposure to assets late in the “J-curve” – that is, late in an investment’s life cycle when value creation is most expected.
Although the new guidance suggests greater opportunities for non-traded registered funds to invest in secondaries, it remains to be seen whether the SEC’s new position means that we will start seeing listed-closed end funds that invest in private equity assets. Commercial issues (especially the propensity of listed funds to trade at discounts to NAV) and exchange rules may still be obstacles to this type of product.
These offerings could be on the horizon, though, given the general direction of travel.
