Recent policy initiatives and remarks from leaders of the US Securities and Exchange Commission (SEC) have created a changing landscape for retail access to the private markets. At a recent conference hosted by the Practising Law Institute, the SEC reversed a long-standing practice that historically limited the ability of certain closed-end funds (CEFs) to invest in private funds. In remarks underscoring his focus on flexibility for retail investors, Chair Paul Atkins stated that the SEC would "reconsider [its] 23-year-old practice concerning investments by closed-end funds in private funds."
Following Chair Atkins' comments, Natasha Greiner, then-director of the Division of Investment Management,1 announced a policy change consistent with the theme of expanding access to private markets. She stated that the staff of the Division of Investment Management (Staff) will "no longer provide comments limiting the ability of retail investors to invest in registered closed-end funds that invest in private funds." This new approach reverses prior SEC guidance and will diversify the investment options available to certain closed-end funds and their investors.
Background
Prior to this recent announcement and since 2002, the SEC had informally taken the position that certain closed-end funds that invest in private funds must either (i) limit those investments to no more than 15% of the fund's assets or (ii) restrict the fund's offering of its own shares to "accredited investors"2 whose initial investment in the fund was at least $25,000.
Importantly, this practice was not codified in any statute or regulation, nor was this requirement published in any SEC guidance. Instead, the SEC enforced this policy through the disclosure review process of certain closed-end funds' registration statements, during which the Staff would issue a comment indicating that the registration statement would not be declared effective unless the closed-end fund complied with the limitations on investing in underlying private funds.
Key Takeaways
The SEC's change in position represents Chair Atkins' view that retail investors should have the ability to access what he called a "growing and important asset class, while still providing the investor protections afforded to registered funds." Commissioner Mark Uyeda has recently expressed this same perspective, stating that he hopes the SEC will find "ways to expand opportunities by promoting greater retail investing in private companies."
In light of the SEC's recent commentary, the landscape for listed closed-end funds may evolve as further SEC guidance becomes available. Notably, certain exchanges have historically required closed-end funds to certify that they will not invest in particular private funds in order to be listed on that exchange, so registrants should be aware that this flexibility may not apply to listed closed-end funds without further SEC action.
From a practical perspective for registrants, Chair Atkins has emphasized that the Staff will continue to focus on disclosure issues as these products become available to retail investors, noting that he believes the SEC "must consider and resolve important disclosure issues for these products, particularly for those that trade on exchanges, including conflicts of interest, illiquidity, and fees." As part of the SEC's more flexible approach to closed-end funds investing in private funds, registrants should be prepared to address their investment objective and applicable risks as part of the disclosure review process.
1 On June 10, 2025, the SEC announced that Greiner would depart from her position as Director of the Division of Investment Management on July 4, 2025. Brian Daly assumed the role effective July 8, 2025.
2 As defined in Rule 501(a) of Regulation D under the Securities Act of 1933.
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