The Trump administration, including the Securities and Exchange Commission (SEC) leadership, has ushered in a push to "democratize" access to alternative investments. Speaking at an Investor Advisory Committee meeting on September 18, SEC Chairman Paul S. Atkins stated that the SEC is "exploring ways to facilitate the ability of individual investors to participate in the private markets," but cautioned that "appropriate guardrails" are needed to provide exposure in a controlled way to protect those investors from bad actors and fraud.1 In this advisory, we explore the changing regulatory landscape that is expanding access to alternative strategies. We will provide an overview of several types of closed-end funds (CEFs) and discuss the key CEFs managers use to tap into this market.
Why Now?
Much has been written about the benefits of portfolio diversification and investing through products beyond stocks and bonds, including alternative investments that offer exposure to the private markets. Until recently, a retail investor's access to the private markets (including private funds) was significantly restricted by regulatory limitations such as the accredited investor standard, as discussed below. In recent years, however, retail interest in such investment products has grown with market participants recognizing many potential benefits to a more diversified portfolio that provides exposure to alternative investments, including, for example: (i) serving as a counterweight to market volatility; (ii) providing for enhanced returns that have historically exceeded traditional equity and fixed income investments; (iii) accessing unique early growth and value-creation opportunities before such issuers enter the public markets; and (iv) hedging against inflation.
Expanding retail access to the private markets and alternative investments is top-of-mind under the current administration. For example, on August 7, President Trump issued an executive order to "democratize" access to alternative assets for 401(k) investors.2 The executive order seeks to make it easier for defined contribution plans (including 401(k) plans) to include alternative asset classes, including private investments, within the offered investments. To accomplish this, the executive order directs the Department of Labor to consider new fiduciary safe harbors to help limit the liability of plan fiduciaries and instructs the SEC to consider revising existing investor qualification standards (i.e., the accredited investor and qualified purchaser standards) to help retirement plan participants access alternative asset classes.
Such ideas are also top-of-mind on Capitol Hill. For example, Congress is considering legislative changes to the accredited investor standard, which is one of the most common gateways to accessing alternative investments, including private funds. The accredited investor standard is the cornerstone of the private placement exemption from registration in Regulation D of the Securities Act of 1933, as amended. While the accredited investor standard was last substantively revised in 2020, there is bipartisan support for legislation3 that would expand the accredited investor definition to include investors who invest through certain certified/licensed professionals and direct the SEC to engage in rulemaking intended to deem as accredited investors natural persons that have sufficient and demonstrable education or job experience, as verified by a self-regulatory organization. If enacted, such legislation would shift from how investors today qualify as accredited investors — standards that focus solely on investor income and net worth as a proxy for investor sophistication.
In a similar vein, in March of this year, SEC staff issued guidance4 making it easier for an issuer to establish and verify an investor’s status as an accredited investor under a Rule 506(c) private placement that permits general solicitation. As permitted under the staff’s guidance, an issuer can now verify accredited investor status by virtue of a minimum investment of $200,000 for a natural person or $1 million for a legal entity (in addition to standard representations regarding investor status). Under the new guidance, an issuer is relieved from having to verify status by reviewing financial information, tax returns and other private and confidential investor information.
One of the most significant policy shifts and a likely contributor to future growth in closed-end fund products comes from the SEC Staff’s August 2025 Accounting and Disclosure Information update (ADI).5 The ADI eliminated the Staff's longstanding informal position that required registered funds under the Investment Company Act of 1940 (1940 Act) with more than 15 percent of their assets invested in private funds to limit their offerings to accredited investors and require minimum initial investments of at least $25,000. The shift provides both an opportunity and caution for fund managers. The opportunity lies in structuring registered investment vehicles that can invest meaningfully in private funds while still appealing to retail investors. The caution lies in ensuring that disclosures keep pace with regulatory scrutiny. The ADI emphasizes that increased flexibility comes with heightened expectations around disclosure and governance. Sponsors (including with regard to CEFs) must, for example, ensure clear and plain-English explanations of fee layering, liquidity limitations, valuation practices and conflicts of interest. The expected disclosures will, of course, vary based on the type of CEF structure selected or otherwise preferred.
What Is a Closed-End Fund?
Against the backdrop of the ongoing policy efforts described above, market observers expect CEFs to experience expanded growth as fund sponsors and managers look for new ways to broaden their investor base.6 Closed-end funds are one of four primary types of investment companies regulated under the 1940 Act, along with mutual funds, exchange-traded funds (ETFs), and unit investment trusts (UITs). Historically, the vast majority of CEFs have been "listed" CEFs — investment companies that issue a fixed number of common shares in an initial public offering (IPO) that are publicly traded on an exchange or in the over-the-counter market, like traditional stocks. For listed CEFs, once issued, shareholders may not redeem those shares directly from the fund (though some CEFs may repurchase shares through stock repurchase programs or through a tender for shares). Subsequent issuance of common shares generally only occurs through secondary or follow-on offerings, at-the-market offerings, rights offerings, or dividend reinvestments. Listed CEFs primarily include traditional CEFs and interval funds, as well as business development companies (BDCs) listed on exchanges.
There are also "unlisted" CEFs, which have recently seen steady asset growth. Unlisted CEFs are not listed on an exchange but are sold publicly to retail investors (mainly through intermediaries) or to certain qualified investors through private placement offerings. Unlike listed CEFs, unlisted CEFs do not initially issue a fixed number of shares but instead continuously offer their shares at net asset value (NAV). As they are not traded on an exchange, unlisted CEFs engage in scheduled repurchases or tender offers for a certain percentage of the CEF's shares to provide shareholders with limited liquidity. The ability of a shareholder to exit the CEF is dependent on the timing of the scheduled repurchase or tender offer. Unlisted CEFs include interval funds, tender offer funds, and BDCs.7 We have prepared the chart appended to this advisory to highlight the key features of interval funds, tender offer funds and BDCs, and compare how they differ in structure, liquidity, and operational requirements. Each of these vehicles offers distinct pathways for accessing capital and engaging with investors, but they also raise unique regulatory and practical considerations.
Interval Funds. Interval funds are a type of CEF that allows investors to buy shares at NAV on an ongoing basis. Most interval funds do not trade on an exchange. Instead, they provide liquidity to investors by offering periodic repurchases — typically every quarter, though some do so monthly, semiannually or annually. The amount repurchased during each interval is limited, usually between 5 percent and 25 percent of the fund's outstanding shares.
Tender Offer Funds. Tender offer funds, like interval funds, are not generally exchange-traded and continuously offer shares at NAV. However, tender offer funds differ from interval funds in how and when they provide liquidity. Rather than following a set schedule, tender offer funds repurchase shares through discretionary tender offers, established at the direction of the fund's board. The timing and frequency of these offers vary widely — some funds may conduct them quarterly, while others may do so much less frequently. In contrast to interval funds, there are no regulatory requirements for how often or how many shares must be repurchased by a tender offer fund.
Business Development Companies (BDCs). BDCs are not registered investment companies, but instead operate under a distinct regulatory framework, electing to be governed by certain provisions of the 1940 Act. BDCs must invest at least 70 percent of their assets in "qualifying assets," which are generally US private companies or small public companies. BDCs can be publicly traded on stock exchanges or offered privately to qualified investors. For non-listed BDCs, liquidity is typically provided through periodic share repurchase programs or major events like an IPO, merger, spin-off or fund liquidation.
Final Thoughts
Unlike open-end mutual funds and ETFs, the investment products discussed in this advisory can be attractive vehicles for the types of longer-term and less liquid private market expansion that financial market participants want and of which the current administration and Congress are supportive — namely, to allow retail investors access to alternative strategies. While these products all provide fund sponsors with flexibility to raise capital for illiquid strategies, there are, as our chart demonstrates, both key operational and business-driven considerations, as well as regulatory trade-offs that exist. The right structure depends on a fund sponsor's goals for investor access and portfolio strategy, among other things, and each requires careful structuring to align regulatory requirements with business objectives. Through this advisory and the appended chart, we aim to equip fund sponsors and managers with a clearer understanding of key structuring considerations as related to these types of CEFs.
Katten advises fund sponsors and other market participants on structuring, registering and operating CEFs, including interval funds, tender offer funds, and BDCs. We understand the practical trade-offs among these vehicles and help clients design approaches that meet their fundraising goals while navigating complex regulatory regimes.
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Attorney advertising. Published as a source of information only and such information does not constitute, nor is such information intended to reflect, a complete analysis of factors to be considered when evaluating various fund structures. The information contained herein, including in the chart, is not to be construed as legal advice or opinion.
1 See Paul S. Atkins, Chairman of the Securities and Exchange Commission, Remarks at the Investor Advocacy Committee Meeting (Sep. 18, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-091825-remarks-investor-advisory-committee-meeting.
2 See Donald J. Trump, Executive Order, Democratizing Access to Alternative Assets for 401(k) Investors (Aug. 7, 2025), https://www.whitehouse.gov/presidential-actions/2025/08/democratizing-access-to-alternative-assets-for-401k-investors/.
3 See H.R. 3394, Fair Investment Opportunities for Professional Experts Act (119th Congress) (Introduced May 14, 2025), https://www.congress.gov/bill/119th-congress/house-bill/3394/text.
4 See SEC Staff No-Action Letter: Latham & Watkins, Request for Rule 506(c) Interpretive Guidance (Mar. 12, 2025), https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-corporation-finance-no-action/latham-watkins-503c-031225.
5 See SEC Staff Accounting and Disclosure Information Update (ADI 2025-16), https://www.sec.gov/about/divisions-offices/division-investment-management/fund-disclosure-glance/accounting-disclosure-information/adi-2025-16-registered-closed-end-funds-private-funds.
6 Retail allocations to private capital are projected to surge to $2.4 trillion in the United States by 2030 (up from $80 billion). See Eric Fox, Retail Investor Access to Private Markets Expected to Grow Significantly, Wall Street Journal (June 30, 2025), https://deloitte.wsj.com/cmo/retail-investor-access-to-private-markets-expected-to-grow-significantly-2294d52e.
7 As of December 31, 2024, there were 775 CEFs, with $652 billion in total assets — 382 traditional CEFs, with $249 billion in total assets; 118 interval funds, with $99 billion in total assets; 113 tender offer funds, with $80 billion in total assets; and 162 BDCs, with $225 billion in total net assets. Source: Investment Company Institute and publicly available data taken from SEC Form N-PORT, N-CEN, and Form 10-Q and 10-K filings.
