Statements earlier this week by SEC Chairman Paul S. Atkins and by Division of Investment Management Director Natasha J. Greiner indicate that the SEC staff will no longer require retail closed-end funds to limit their investments in private funds – i.e., funds relying upon Sections 3(c)(1) or 3(c)(7) of the 1940 Act (“private funds”) – to 15% of their net assets.
Chairman Atkins made his remarks on May 19, 2025 at the first day of the “SEC Speaks in 2025” conference organized by the Practising Law Institute. Director Greiner’s remarks followed on the second day of the conference.
- Prior to these remarks, the SEC staff required closed-end funds that proposed to invest more than 15% of their net assets in private funds to limit the sale of their shares to investors (i) who are “accredited investors,” as defined in Regulation D’s Rule 501(a) under the Securities Act and (ii) whose initial investment was $25,000.
- These SEC staff requirements were not required by any statute or rule, nor were they published or memorialized in any formal SEC guidance but, instead, have been communicated to closed-end fund registrants during the registration statement disclosure review process.
- Although recently the SEC staff had narrowed the scope of their position by not applying the 15% limit to real estate or infrastructure funds, it had still been applying it to private equity funds and hedge funds.
Chairman Atkins’ Remarks
In a wide-ranging speech covering SEC innovations, Chairman Atkins stated:
Financial innovation sometimes means getting out of the way of capital formation and allowing all investors to gain the benefits of our robust markets.
Since 2002, the SEC staff has taken the position that closed-end funds investing 15% or more of their assets in private funds should impose a minimum initial investment requirement of $25,000 and restrict sales to investors that satisfy the accredited investor standard. As a result, many retail investors have missed out on opportunities to invest in closed-end funds that invest in private investment funds, like hedge funds and private equity funds.
Much has changed since 2002 – including the growth of private markets and the increased oversight and enhanced reporting by both private fund advisers and registered funds. Indeed, in the last 10 years alone, private fund assets have almost tripled from $11.6 trillion to $30.9 trillion. Allowing this option could increase investment opportunities for retail investors seeking to diversify their investment allocation in line with their investment time horizon and risk tolerance.
With this in mind, I intend to have the Commission address this situation and reconsider this 23-year-old practice concerning investments by closed-end funds in private funds. This common-sense approach will give all investors the ability to seek exposure to a growing and important asset class, while still providing the investor protections afforded to registered funds. We must consider and resolve important disclosure issues for these products, particularly for those that trade on exchanges, including conflicts of interest, illiquidity, and fees. (Footnote omitted).
Director Greiner’s Comments
The following day, Director Greiner participated in a panel discussion by senior SEC staff members. Summarizing developments at the Division of Investment Management, she stated:
While the Division continues its day-to-day work, we are also adapting to an ever-changing industry. As Chairman Atkins mentioned in his remarks yesterday, for example, the staff as of yesterday [Monday, May 19, 2025], will no longer provide comments limiting the ability of retail investors to invest in registered closed-end funds that invest in private funds. This decision was made based on the ever-evolving industry, and we hope that the shift will provide investors with new investment opportunities to the extent they align with their risk tolerance and investment objectives.
As our staff begins to review these filings, we encourage filers to engage with our staff throughout the Division. As you will hear today, many of the topics that we are talking about do not lie within just one office within [the] Division but is very much a collaborative approach. We will be working with filers on disclosure issues that may arise as these products become available to retail investors. And, in reviewing these filings, our staff, as always, will continue to consider disclosures issues relating to conflicts of interests, liquidity and fees. (Emphasis added).
Observation
We expect that this change in position will pave the way for more meaningful access to private capital by retail investors and result in greater product innovation.
