On September 30, 2026, the Securities and Exchange Commission (the "Commission") voted unanimously at an open meeting to propose two rulemakings aimed at expanding indirect retail investor access to private markets. The first, Investment Adviser Performance-Based Compensation Modernization (Release No. 33-11443), would allow registered investment advisers to charge performance fees to registered funds, business development companies (BDCs) and a broader set of clients. The second, Interval Fund Modernization (Release No. 33-11444), would modernize the interval fund rule and permit registered closed-end funds and BDCs to issue multiple share classes without exemptive relief. This update summarizes the two releases and compares them with AIMA's previously identified seven reform priorities.

Investment Adviser Performance-Based Compensation Modernization

The first proposed rulemaking would amend Rule 205-3 under the Investment Advisers Act. Current law generally bars registered investment advisers from charging fees based on a client's investment gains, with limited exceptions for wealthier or more sophisticated clients. This proposal would let registered investment advisers charge performance fees to more clients, including registered funds and business development companies. It would also require new fee disclosures and broaden the rule's "qualified client" definition.

The Commission's rationale is that current law permits performance fees based largely on a client's legal classification rather than an investor's ability to evaluate and bear the risks. The release notes that private fund assets grew from $11.9 trillion to $36.8 trillion over the ten years ending in 2025. Meanwhile, the main performance fee option the law already allows registered funds, called a "fulcrum fee," has rarely been used. Only about 1% of registered funds used one in 2026.

Under the proposal, advisers to registered funds and BDCs could receive performance-based compensation based on capital gains in, or capital appreciation of, the fund's account if three conditions are met. First, the fee cannot exceed 20% of the fund's net gains over a specified period. Second, the fund must meet the fund governance standards in Rule 0-1(a)(7) under the Investment Company Act. Third, the fund's board, including a majority of independent directors, must determine that the fee arrangement is in the best interest of the fund and its shareholders.

The board would also have to make specific findings on the arrangement's appropriateness, its structure, and how it protects investors. Advisers could base fees on both realized and unrealized gains. The current statutory exception for BDCs in Section 205(b)(3), by contrast, only allows fees of up to 20% of net realized gains. BDC advisers could rely on the new rule to charge on unrealized gains, and the statutory exception would remain available. The amendments would apply to mutual funds, ETFs, interval funds, tender offer funds, and BDCs. Unit investment trusts would be excluded. The proposal would also amend certain registration and reporting forms so that funds must disclose all performance-based pay to their adviser. This includes pay based on interest, ordinary income, or dividends.

Separately, the proposal would expand the qualified client definition to include investors who meet the accredited investor definition in Regulation D under the Securities Act. It would also remove the definition's separate net worth and assets-under-management tests.

Performance fee conditions and limitations

• Cap. The 20% cap applies to net capital gains or net capital appreciation over a specified period or as of definite dates, measured on realized gains, unrealized gains or both. The advisory contract must fix the measurement window. The proposal sets no minimum period.
• Board findings. At each annual Section 15(c) review, the board must make written findings on three points: the fee's appropriateness given the fund's strategy and valuation practices; the calculation basis; and the adequacy of investor protections such as hurdles, high-water marks and loss carryforwards, or why the fee is adequate without them. No protective feature is mandated.
• Valuation scrutiny. The release directs boards to scrutinize fees calculated on assets without readily available market quotations. It flags "NAV squeezing", where a fund buys private fund interests at a discount and marks them to the private fund's reported NAV.
• Disclosure. Form N-1A and Form N-2, which registered closed-end funds and BDCs use, would add a separate fee table line for performance-based compensation, an expense example reflecting it, and a narrative description with a graphical illustration across hypothetical performance scenarios. Funds relying on the new rule would disclose the board's findings under proposed Item 11(3) of Form N-CSR. BDCs do not file Form N-CSR, and the proposal does not identify a corresponding BDC disclosure of the board's findings.
• Limits. The fee cannot vary by shareholder or class. An existing fund adding a performance fee would generally need shareholder approval. Form N-3 separate accounts are excluded along with UITs. Income-based incentive fees, which most BDCs charge, gain no new relief but fall within the new disclosure. A fund relying on the new rule must comply with the amended forms immediately; other funds have 12 months.
• Qualified client. The $2.7 million net worth test, the $1.4 million assets-under-management test and the inflation adjustment are removed. A registered fund or BDC whose investors are all accredited investors would qualify without the board conditions. The release estimates that 102 private BDCs already limit their investors to accredited investors.
• Open questions. The release asks whether to lower the cap to 10% or 15% (request 7), limit fees to realized gains (request 8), hold BDC advisers to realized gains as under Section 205(b)(3) (request 9), require independent third-party valuation before paying fees on unrealized gains (request 19), limit fees to funds holding only Level 1 and Level 2 assets (request 20), and mandate investor protection features (request 21). Requests 19 and 20 would most directly constrain private credit strategies.

Interval Fund Modernization

The Commission also proposed amendments to Rule 23c-3 under the Investment Company Act, which permits registered closed-end funds and BDCs operating as interval funds to make repurchase offers to shareholders at net asset value at periodic intervals. It would also amend certain rules under the Investment Company Act so that registered closed-end funds and BDCs can offer multiple share classes without an exemptive order. Because the amendments would make them unnecessary, the Commission proposed to rescind certain existing exemptive orders related to interval funds and multiple share class arrangements for registered closed-end funds and BDCs.

The Commission's rationale is that the interval fund framework has remained largely unchanged since its adoption in 1993, and some of its provisions have become outdated, operationally burdensome, or poorly suited to modern fund operations. The release notes that the number of interval funds grew from 58 in 2020 to 139 in 2025, with assets rising from $38 billion to $101 billion, driven largely by demand for access to private credit, private equity, and other alternative assets. It also acknowledges that in early 2026, investors in multiple non-traded BDCs and registered closed-end funds, including several interval funds, sought to tender more shares than the funds had offered to repurchase, with the pressure falling largely on non-traded BDCs. On share classes, the Commission has issued approximately 230 exemptive orders permitting multi-class structures since 2007, with 76 interval funds, 59 tender offer funds and 33 BDCs operating under them, and now views the cost of individual applications as difficult to justify.

Under the proposal, a new interval fund could defer its first repurchase offer for up to two years, rather than two periodic intervals, regardless of the length of its periodic interval. Funds could conduct repurchases monthly, in addition to the currently permitted three, six, or twelve-month intervals, and could notify shareholders 14 to 42 days before the repurchase request deadline, rather than 21 to 42 days. Discretionary repurchase offers would be permitted once a year rather than once every two years, and funds could deduct deferred sales loads from repurchase proceeds, subject to certain conditions. The proposal would also simplify and clarify how funds determine the repurchase pricing date and how they treat oversubscribed repurchase offers.

The proposal would replace the current requirement that funds hold liquid assets equal to 100% of the repurchase offer amount with a principles-based liquidity approach. Under that approach, funds would need to manage liquidity so they can meet repurchase requests without selling investments at prices that deviate significantly from their value.

Liquidity risk management framework for interval funds

Current Rule 23c-3(b)(10) also requires board-adopted written liquidity procedures and board action on any shortfall. The proposal deletes both along with the 100% requirement.

• Oversight. Compliance moves to the fund's Rule 38a-1 policies and procedures, which the board approves. The release says those policies generally would need to account for other obligations, such as senior securities. For private markets strategies, it lists illustrative practices, including valuation of hard-to-value assets, cash flow forecasting and the timing of capital calls.
• No safe harbor. The rule sets no minimum liquid buffer, and the release does not quantify "deviates significantly." The Commission rejected a prescriptive alternative, such as 50% liquid assets plus a committed credit facility.
• Accepted approaches. A fund may layer investor inflows, loan maturities and amortization, and targeted dispositions, backed by a committed bank facility. Alternatively, it may hold a partial liquid buffer at notification and source the balance once it knows the amount tendered.
• Scope. The standard also applies to non-interval registered closed-end funds and BDCs making discretionary repurchase offers under Rule 23c-3(c).
• Minimum offer size. The 5% minimum applies to every offer, including monthly offers, where existing orders permit 2%. Requests 33 and 72 ask whether to scale the range to the interval or retain a 2% monthly minimum.
• Performance fee interaction. Fees on unrealized gains consume cash without offsetting inflows as the prescriptive buffer disappears. The release treats the interaction as minimal but asks about it in request 83.

For multiple share class structures, the proposal would permit registered closed-end funds, BDCs and their affiliates to enter into arrangements for the payment of asset-based distribution and service fees. It would update required prospectus disclosures to account for multiple share class and master-feeder structures, and would update certain reporting forms to enhance multiple share class reporting by registered closed-end funds. BDCs do not file the relevant form, Form N-CEN.

Multiple share class conditions and limitations by fund type:

Amended Rule 18f-3 carries over the open-end conditions: a board-approved written plan, class-specific distribution and service expenses, fund-wide allocation of advisory fees, and class voting on class matters. Proposed Rule 18f-3(g) adds conditions for registered closed-end funds and BDCs:

• The fund must offer its shares continuously, and no class may be listed or traded on a secondary market.
• Any offer other than at NAV, and any repurchase offer, must be made to all classes, with proration calculated at the fund level.
• Asset-based distribution and service fees must comply with Rule 12b-1, and exchange offers with Rule 11a-3. Rule 17d-3 permits affiliated distributors to receive these fees but bars sharing distribution costs with affiliated registered funds or BDCs.
• The existing order conditions requiring compliance with FINRA Rule 2341 (registered closed-end funds) and FINRA Rule 2310 (BDCs) are dropped.

The conditions apply as follows by fund type:

• Interval funds. Eligible. All interval funds, single-class or multi-class, may also deduct deferred sales loads from repurchase proceeds, subject to Rules 6c-10, 11a-3 and 22d-1.
• Tender offer funds. Eligible if continuously offered and unlisted. Repurchases remain issuer tender offers under Exchange Act Rule 13e-4.
• BDCs. Non-traded and private BDCs are eligible if continuously offered and unlisted, through a new exemption from Section 61(a). Private BDCs that raise capital through drawdowns or closed offering periods will need to confirm they meet the continuous offering condition. Request 57 asks whether funds that are not continuously offered should be covered.
• Listed closed-end funds and BDCs. Excluded. Listed and tokenized multi-class structures stay in the exemptive process, and the ARK Venture Fund order is the one order the Commission would not rescind.

Existing multi-class orders would be rescinded one year after the effective date.

Finally, the proposal would require enhanced expense disclosures for all registered closed-end funds and BDCs, including new disclosures in shareholder reports (for BDCs, in annual reports only), a prospectus legend, and a higher dollar amount in the prospectus expense example.

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  Joe Engelhard

  Head of US Private Credit and Asset Management Policy & Regulation, AIMA