Proposed Legislation Aims to Expand Investor Access to Private Equity

ThinkAdvisor is reporting that a re-proposed bill would expand the availability of private equity investments to retail investors by overriding regulations that limit access to private funds only to accredited investors and by amending regulations that limit closed-end funds’ investments in private funds. The report notes that the Increasing Investor Opportunities Act (H.R. 4262) was introduced in the last Congress, H.R. 8786, but the written text of the new bill is not yet available. The bill would amend current regulations that limit closed-end funds’ investments in private funds to 15% of their net assets unless the fund sells shares to accredited investors with minimum initial investments of at least $25,000 and would restrict activist investors and their affiliates to acquiring no more than 10% of a closed-end fund, putting them in the same position as registered funds and their affiliates. Industry leaders have supported the bill particularly for the closed-end funds provision, stating that the bill strengthens the closed-end fund structure by eliminating a loophole used by activist investors to extract short-term profits at the expense of retail investors. Meanwhile, in a recent meeting of the SEC’s Asset Management Advisory Committee, the subcommittee on private investments recommended widening retail investor access to private investments subject to appropriate design principles that strike a balance between broader investor access and investor protection. Among the considerations raised for the widening of such access are the availability of investment structures that offer limited redemption rights or secondary market trading, and chaperoned access for retail investors to allow an additional level of protection through a modified regulatory framework or limiting retail investments to funds with significant large institutional investor participation.