SEC Proposes Changes to Interval Funds, Closed-End Fund Share Classes, and Investment Adviser Performance Fee Rules
The US Securities and Exchange Commission recently released proposals on interval fund repurchases and liquidity, closed-end fund share classes and distribution arrangements, and investment adviser performance-based compensation.
Key Takeaways
- Interval funds could set their first repurchase request deadline up to two years after the later of the relevant registration statement’s effectiveness or the shareholder vote first adopting the periodic-interval policy. They could also conduct monthly repurchase offers without individual exemptive relief.
- Registered closed-end funds and business development companies (BDCs) could make discretionary repurchase offers under Rule 23c-3(c) once every 12 months rather than once every two years.
- The current requirement for interval funds to maintain qualifying liquid or maturing assets equal to 100% of the repurchase offer amount would be replaced by a more flexible, principles-based liquidity management standard.
- Interval funds currently offering monthly repurchases under exemptive orders would need to conform to the amended framework before those orders are rescinded at the end of the proposed compliance period.
- Continuously offered, unlisted registered closed-end funds and BDCs could issue multiple share classes without individual exemptive relief under amended Rule 18f-3, subject to certain conditions.
- The SEC proposes to rescind existing routine multi-class exemptive orders one year after the final amendments become effective, with an exception for the ARK Venture Fund order.
- Eligible registered funds and BDCs could pay performance-based advisory fees of up to 20% of net capital gains or net capital appreciation under a new route requiring specified governance standards, board approval and written findings, and related disclosure, without restricting shareholders to qualified clients or accredited investors.
- The proposal would replace the “qualified client” net-worth and assets under management tests with an “accredited investor” standard based on the adviser’s reasonable belief, potentially broadening access to Section 3(c)(1) private funds charging performance fees. Advisers should assess corresponding updates to investor eligibility screening and subscription documents.
The US Securities and Exchange Commission (SEC) released two proposals on September 30, 2026: the Interval Fund Release, which would amend Rules 23c-3, 18f-3, and 17d-3 under the Investment Company Act of 1940, together with related forms, and the Performance Fee Release, which would amend Rule 205-3 under the Investment Advisers Act of 1940. This report discusses the practical implications of the proposed changes for sponsors, advisers, boards, and service providers as well as the issues left open for commenters.
The scope of the new closed-end fund multi-class framework would be limited to continuously offered, unlisted funds, while the performance fee proposal would apply to eligible open-end and closed-end management investment companies and business development companies, as well as expand performance fee eligibility for certain private fund investors and other advisory clients.
As the SEC’s Division of Enforcement and Examinations is likely to remain active in this area, affected parties should review the proposals against existing repurchase policies, exemptive orders, advisory agreements, fee-calculation systems, and disclosure processes, and identify issues on which operational experience would assist the SEC.
Public comments are due in 60 days after the proposals are published in the Federal Register. The Interval Fund Release proposes a one-year compliance period after effectiveness. The Performance Fee Release proposes 12 months for specified disclosure amendments. Earlier reliance would require compliance with the applicable conditions and related form amendments.
