WASHINGTON, Sept 30 (Reuters) - The US securities regulator is set to propose rules on Wednesday aimed at expanding retail investors' access to private assets that have traditionally been reserved for professionals, potentially offering higher returns but also exposing everyday Americans to more risk.
The Securities and Exchange Commission's proposals are part of a broader push by US President Donald Trump's administration to "democratize" private assets, such as private equity, private credit, real estate and venture capital, that can potentially result in higher returns than traditional stock and bond portfolios.
Critics say the effort is a boon for Wall Street, coming at the expense of retail investors who may not understand the fees involved or risks of such assets, which are often hard to price and cannot be immediately redeemed for cash.
SEC Chair Paul Atkins in remarks earlier this year said the agency aimed to pursue such changes while preserving investor protections in what he called "responsible retailization," so that access to higher returns isn't limited to wealthy insiders.
Analysts' views differ as to the extent to which private investments typically outperform the stock market, however.
In a public meeting set for 10 a.m. EDT (1400 GMT), the three-member SEC, which currently has no Democratic commissioners, is set to propose changes to so-called performance fees for investment advisers and share redemptions at "closed-end" funds. It will also vote on issuing notices that it is considering allowing more people to qualify as "accredited investors" who are able to access a broader range of private assets, according to a public notice.
The SEC is expected to give asset managers more freedom to charge performance fees based on their clients' capital gains, a change SEC officials say would encourage such advisers to offer retail investors access to funds holding private assets where compensation is structured this way. Currently, investment advisers can only charge performance fees to "qualified" clients with a net worth or portfolio assets that surpass certain thresholds.
Several financial advisers told Reuters such changes could create a perverse incentive to expose clients to greater risk.
"An adviser paid a share of gains has a reason to reach for risk, so I'd want strong valuation policies and informed client consent," said Jeff Judge of Chesapeake Financial Planners.
A second proposal would modify rules governing when closed-end funds — investment companies that raise fixed amounts of capital — can redeem investor shares and what classes of shares they can offer. The SEC has not yet disclosed the details of the proposal, but a regulatory advisory committee last year said such moves would give retail investors better access to private assets.
The changes would be subject to public notice and comment before any decision on whether to adopt them.
The commission is also due to issue a notice that it is considering whether to designate certain certifications and credentials as qualifying individual investors to be accredited investors, who can access private assets. Currently, investors meet that definition through wealth and income tests or by being themselves licensed as broker-dealers or investment advisers, among other ways.
Reporting by Douglas Gillison in Washington; Editing by Michelle Price and David Gaffen
