On Sept. 30, 2026, the U.S. Securities and Exchange Commission voted to propose two sets of amendments to rules under the Investment Advisers Act of 1940 (the Advisers Act) and the Investment Company Act of 1940 (the 1940 Act). The amendments are intended to expand retail investor access to private market strategies through regulated fund structures.
The first proposal (the Performance Fee Proposal) would expand registered investment advisers’ ability to receive performance-based compensation from registered management investment companies and business development companies (collectively, regulated funds). The second would modernize the interval fund framework and permit registered closed-end funds and business development companies (BDCs) to issue multiple share classes (the Interval Fund Proposal). Additionally, the SEC issued five notices under Rule 501(a)(10) of Regulation D seeking comment on further ways for individuals to qualify as accredited investors. Comments on each item are due in early December 2026, and none of the proposals are final as of the date of this GT Alert.
Background
Section 205(a)(1) of the Advisers Act generally prohibits a registered investment adviser from receiving compensation based on a share of capital gains in — or capital appreciation of — a client’s account, and Rule 205-3 provides an exemption from that prohibition for advisory contracts with qualified clients. The SEC observed that performance-based compensation has long been a defining characteristic of private fund strategies, including for hedge funds, private equity, and venture capital, and that access to these strategies has, as a practical matter, been limited to a narrow group of eligible investors. By permitting similar incentives for regulated funds’ advisers, the SEC anticipates that advisers may be more likely to launch and allocate private market strategies to regulated funds.
The interval fund framework under Rule 23c-3 has remained largely unchanged since its adoption in 1993. According to the SEC, the number of interval funds increased from 58 with $38 billion in assets in 2020 to 139 with $101 billion in assets in 2025. The SEC also noted that, in early 2026, multiple non-traded BDCs and registered closed-end funds, including several interval funds, experienced increased investor demand to repurchase shares and that, in several cases, investors sought to tender more shares than the fund had offered to repurchase.
Proposal 1 – Investment Adviser Performance-Based Compensation Arrangements
The Performance Fee Proposal would amend Advisers Act Rule 205-3 to expand registered advisers’ ability to receive performance-based compensation, based on capital gains or capital appreciation, from regulated funds. The proposal would permit these arrangements for registered management investment companies, such as mutual funds and ETFs, and for BDCs. This would be subject to conditions addressing fee design, governance, and investor protection.
Conditions for Performance-Based Compensation
- Under the Performance Fee Proposal, the adviser’s performance-based fee would not be able to exceed 20% of the fund’s net capital gains or net capital appreciation over a specified period or as of definite dates, and could be calculated on both realized and unrealized gains.
- The fund would be required to satisfy the fund governance standards in 1940 Act Rule 0-1(a)(7).
- The board, including a majority of independent directors, would have to determine that the arrangement is in the best interest of the fund and its shareholders and make specific findings regarding the arrangement’s appropriateness, structure, and investor protection features.
These conditions would provide an alternative to the existing shareholder “look-through.” A regulated fund would be a qualified client either if each of its shareholders is a qualified client (which, under the proposal, would include accredited investors) or if the fund satisfies the conditions above. A regulated fund relying on the conditions would be able to pay a performance fee without restricting its investor base, regardless of whether its shareholders are accredited investors.
Disclosure Requirements
The proposal would amend Forms N-1A, N-2, and N-CSR to require regulated funds to separately disclose all performance-based compensation paid to their investment adviser, including compensation based on interest, ordinary income, or dividends.
- A fee table line item and cross references would identify performance compensation.
- The expense example would reflect the impact of performance fees on shareholder costs.
- Management discussion would describe the performance fee arrangement and include a related graph.
- Form N-CSR would be amended to reflect the board’s findings regarding the performance-based compensation arrangement.
The proposal would provide a 12-month compliance period for the form amendments, but an adviser and regulated fund relying on the proposed board conditions would be required to comply with the amended forms from the time they first rely on that provision.
Qualified Client Definition
The proposal would also amend the definition of “qualified client” to include investors that meet the Regulation D “accredited investor” definition; further, it would remove the separate net worth and assets under management tests. The proposal would make conforming amendments to Advisers Act Rules 203A-3 and 204-3, which reference the qualified client definition. As a practical matter, advisers to Section 3(c)(1) funds that already limit investors to accredited investors would be able to charge performance fees without applying a separate qualified client standard. If adopted, this change would effectively supersede and lower the qualified client thresholds (which stand at $1.4 million in assets under management and $2.7 million in net worth, effective June 29, 2026).
Proposal 2 – Interval Fund Modernization and Multiple Share Classes for Closed-End Funds
Proposed Rule 23c-3 Amendments
The Interval Fund Proposal would amend 1940 Act Rule 23c-3 and related provisions governing regulated closed-end funds, including interval funds and BDCs. The proposal would revise repurchasing, pricing, liquidity, and sales load mechanics.
- The proposal would allow deferral of an initial repurchase offer for up to two years.
- Further, it would allow monthly repurchase offers to be made without exemptive relief.
- Interval funds and other regulated closed end funds would be able to make discretionary repurchase offers once per year, rather than no more than once every two years under the current rule.
- A fund would be able to deduct deferred sales loads from repurchase proceeds, subject to conditions.
- The process of determining the repurchase pricing date and treatment of oversubscribed repurchase offers would be simplified and clarified.
- A principle-based liquidity approach would replace the fixed liquidity holding requirement.
Multiple Share Classes and Related Disclosures
Through amendments to 1940 Act Rules 18f-3 and 17d-3, the proposal would permit regulated closed-end funds (registered closed end funds and BDCs) to issue multiple share classes and to enter into arrangements for asset-based distribution and service fees without first obtaining individual exemptive orders. The proposal also would amend Form N-2 to update prospectus disclosure for multiple share class and master feeder structures, extend multiple share class reporting on Form N-CEN to registered closed- end funds, and require enhanced expense disclosure for all regulated closed-end funds, including a shareholder report disclosure, a prospectus legend, and an increase in the dollar amount used in the prospectus expense example. Further, the proposal would update Form N-23c-3 and rescind certain existing exemptive orders relating to interval funds and multiple share class arrangements for regulated closed-end funds.
Potential New Accredited Investor Pathways
These are not proposed rule amendments. Instead, the SEC issued five notices under Securities Act Rule 501(a)(10) seeking comment on whether to designate the following credentials, held in good standing, as qualifying pathways to accredited investor status:
- Passing an accredited investor examination to be developed by FINRA.
- Holding a U.S. Certified Public Accountant license.
- Holding a Chartered Financial Analyst charter.
- Holding a Certified Financial Planner certification in the United States.
- Holding a FINRA Series 79 license, or FINRA Series 86 and Series 87 licenses.
These pathways would build on the existing designations for holders of FINRA Series 7, Series 65, and Series 82 licenses.
Comment Period
The SEC published the Performance Fee Proposal in the Federal Register on Oct. 6, 2026, and comments are due on or before Dec. 7, 2026. The SEC published its Interval Fund Proposal and the five accredited investor notices in the Federal Register on Oct. 5, 2026, and comments are due on or before Dec. 4, 2026.
Practical Takeaways
The proposals’ most consequential feature is the SEC’s recognition that performance-based compensation, traditionally associated with private funds, may be compatible with retail regulated fund structures when supported by appropriate governance standards, board findings, and disclosure. If adopted, the Performance Fee Proposal may allow advisers currently operating in private markets to offer comparable strategies through regulated funds. The Interval Fund Proposal and the multiple-share class framework may reduce the cost and time associated with launching closed-end products designed to provide retail exposure to private markets.
Advisers, fund sponsors, fund boards, and distributors should consider evaluating how the proposals might affect product design, fee arrangements, liquidity management, and disclosure. They may also wish to consider whether to submit comments before the comment periods close. Because the accredited investor items are notices rather than final designations, none of the new pathways are currently available.
*Special thanks to Law Clerk/JD Tyler Wardwell˘ for contributing to this GT Alert.
˘ Not admitted to the practice of law.