SEC Proposes 1940 Act Performance Fees and Interval Fund Flexibility
The SEC's proposal would let registered retail funds charge performance fees and give interval funds more operational latitude, reshaping private-market access, adviser economics and product structuring.
What happened: the SEC has proposed amendments designed to expand retail investor access to private-market strategies through registered funds. The proposal addresses two levers: permitting performance fees for funds organized under the Investment Company Act rather than limiting them to incentive-based fee structures, and easing operational constraints that currently govern interval funds, which invest a stated share of assets in illiquid holdings. The single source in the cluster is a law-firm client alert analyzing the proposal; the comment record and any final rule text are not reflected in the available material.
Why sophisticated counsel should care: performance fees are central to how private-credit, secondaries, and hedge-fund-style managers are paid, and routing those strategies into registered wrappers changes both adviser revenue models and the fiduciary analysis of incentive alignment, liquidity, and disclosure. Relaxed interval fund mechanics would touch liquidity risk classification, board oversight, and valuation processes. For clients on both sides — managers launching registered private-market vehicles and institutional investors allocating to them — the proposal cuts in opposite directions.
Concrete next step: read the adopting release text closely and track the public comment record, where fee eligibility definitions, side-letter restrictions, and conditions tied to interval fund flexibility are likely to be contested. Any final rule's timing should be monitored before offering documents change.