On June 18, 2019, the SEC issued a concept release requesting comments on, among other things, whether to liberalize the definition of “Accredited Investor” under Regulation D to cover a broader group of investors, including retail investors who meet certain non-income or asset-oriented qualifications, or who assume disclosed risks. Further, the SEC sought comments on whether to ease restriction on the imposition of performance fees on retail investors, including through investments in registered funds (which would involve amending the “Qualified Client” definition in the Investment Advisers Act rules).

If the SEC adopts rules addressing these two specific areas (i.e., liberalizing the “Accredited Investor” definition to cover retail or retail-like investors and relaxing the ability of registered funds to impose performance fees), private fund managers should consider developing private or public registered hedge or private equity funds that are offered to a broader group of investors. Under a liberalized regime, private fund managers may (depending on the extent of the rule relaxation) also have opportunities to list registered hedge funds, which generate permanent capital AUM revenue, on the NYSE or NASDAQ.