By Kenneth Corbin

A prominent trade organization representing the asset-management industry is hoping that the second administration of President Donald Trump will ease regulations that limit access to private markets for retail investors.

Eric Pan, president and CEO of the Investment Company Institute, laid out the organization's agenda at a conference in Washington this week, saying that while the volume of assets held in private markets has exploded in recent years, regulations have kept those assets beyond the reach of too many investors.

"The rise of private markets cannot be ignored as a fringe part of the investment ecosystem," Pan said.

In 2013, private markets had holdings of around $4 trillion, according to the ICI. Current estimates have that figure as high as $25 trillion today, but those inflows have largely been driven by institutional investors such as pension funds and insurance companies, as well as wealthy individuals and families who meet the Securities and Exchange Commission's accredited investor definition.

"But retail investors don't have the same access," Pan said, referring to regular investors who don't meet the accredited investor requirements. "They overwhelmingly rely on regulated funds for long-term investing, but federal policies severely limit how much those funds can invest in alternative asset classes," he added. "As a result, individual investors are largely stuck with the declining number of publicly traded companies, unable to meaningfully participate in the dynamic rise of private markets."

Supporters of the accredited investor rule argue that the wealthiest and best-connected investors are the best positioned to understand the risks of private investments and weather any potential losses.

Sen. Elizabeth Warren (D., Mass.) has fought against proposals to relax the accredited investor definition and shared her concerns in a letter to incoming SEC Chairman Paul Atkins.

"That would have the effect of exposing many more investors to the heightened risks that come with private offerings and undermining critical disclosure requirements and investor protections that have enabled the strength of America's capital markets," Warren said.

On the other side, Pan's call for expanding access to private markets echoes what many financial services companies have been saying and doing on their own.

Robinhood Markets CEO Vlad Tenev earlier this year argued in a Washington Post essay that regulators should enact revisions to allow for tokenized trading of private securities, using the blockchain-enabled model of the crypto world to expand access to investing in private companies. Tenev mentioned the issue again this week on Robinhood's earnings call.

Tenev called the accredited investor rule, which generally limits private investments to wealthy or high-income individuals, "nonsensical and anachronistic," arguing -- as others have -- that the regulation is regressive because it limits the opportunity to invest in the most promising early-stage companies to the rich. Tenev also advocated for the SEC to establish a system for young companies to create tokenized offerings for investors and to write rules for brokers and exchanges to list those tokens "legally and safely."

One of the latest efforts to expand access to private markets came this week from Morgan Stanley, which announced a new fund, the North Haven Private Assets Fund, that offers "select investors" the ability to access "institutional-quality private-equity exposure primarily through co-investments and secondaries in the lower middle market." The move follows similar funds Morgan Stanley Investment Management has created offering access to private credit and real estate.

Morgan Stanley's new fund represents an effort to ease the burdens associated with private-equity investing -- including by addressing the long-term lockup that comes with traditional PE investments -- but it is still limited to the wealthy. The fund requires an initial investment of at least $25,000, and the prospectus makes clear that participation is available only to accredited investors.

From the ICI's perspective, regulators need to think bigger and remove barriers for less-affluent investors to gain access to some of the most promising emerging companies that no longer have their sights set on an initial public offering.

"Retail investors should be able to invest in the companies that would have gone public 25 years ago, but stay private today," Pan said. "They should be able to invest in the next generation of potentially transformative companies, because getting in earlier could lead to much bigger returns later."

He says that ICI will focus its advocacy on expanding access to a wider menu of products and including private investments in more retirement platforms.

Specifically, the group is calling on the SEC to raise the 15% cap on alternative investments on retail-facing closed-end funds, something Pan said should not be a "heavy lift" for the commission.

ICI is also advocating for the SEC to expand access to co-investments by regulated funds such as closed-end funds and business development companies, an issue the commission recently addressed when it relaxed some of the restrictions on co-investments, which Pan called "welcome relief."

Pan's group is also calling for steps to limit the influence of activist investors, including the requirement that closed-end funds hold annual meetings. Activist investors "abuse" those meetings for "short-term gain, " Pan said.

The fourth prong of the advocacy campaign Pan described calls for reforms to encourage 401(k) plans and other regulated retirement vehicles to incorporate private-market strategies.

Roadblocks to investing in private markets such as the accredited investor rule are designed as safeguards to protect less affluent investors from the volatility and risk that those investments entail. Pan acknowledged that risks must be mitigated but argued that "regulated funds already offer the best protection," including advisors' fiduciary duty, the mandate to have an independent board, and leverage limitations and diversification requirements.

"By using regulated funds to invest in private markets," he said, "retail investors will get the best of both worlds -- and the protections they deserve."

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May 01, 2025 16:39 ET (20:39 GMT)

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