A Practical Step Toward Expanding Access to Private Markets Through Regulated Funds
Policymakers across Washington are focused on expanding access to private markets—particularly for retirement savers. The August 2025 Executive Order encouraging broader access to private market investments for 401(k) investors reflects a growing recognition that capital markets have evolved and that long-term investors should be able to participate more fully in that evolution.
The Department of Labor took an important step this week, proposing a rule to give retirement plan sponsors a clearer process for including private market assets in their plan lineups. But that addresses which investments plans can offer. The Securities and Exchange Commission (SEC) has a distinct and equally important role: expanding the way regulated funds can access private markets in the first place. A practical starting point is expanding principles-based co-investment relief to open-end funds.
Finishing What Was Started
A co-investment is a negotiated transaction in which a regulated fund makes a private investment in a company alongside an affiliated private fund managed by the same firm. Done properly, it can help regulated funds access larger or more bespoke opportunities on stronger terms, at better prices, or both, than they otherwise would receive if they were to negotiate these transactions alone—all while existing guardrails ensure retail investors receive equal treatment.
In other words, co-investment relief helps expand investor choice and diversification opportunities to private market assets within the regulated fund framework.
In April 2025, the SEC approved a modernized, principles-based framework for closed-end funds and business development companies (BDCs) that co-invest alongside affiliated private funds in negotiated transactions. That framework recognizes that regulated funds can benefit from participating in larger, more complex private market transactions—provided that strong investor protections are in place.
Notably, open-end funds were included in early versions of the co-investment application but were removed before final approval. In a recent letter, ICI urged the SEC to correct that omission and allow open-end funds to participate under the same conditions that apply to closed-end funds and BDCs as there is no persuasive policy case for excluding open-end funds from this framework.
Investor Protections Remain Intact
Some have expressed concern that allowing open-end funds to co-invest in private transactions could increase the risk that they might not be able to satisfy redemption requests. But liquidity in open-end funds is already governed by the SEC’s Liquidity Risk Management Rule, which limits illiquid investments and requires funds to have robust risk-management programs, overseen by a fund’s board, including its independent directors.
Expanding co-investment relief to open-end funds would not alter those requirements. Open-end funds would remain subject to the same liquidity thresholds and oversight processes that apply today. The change would simply allow them to invest alongside affiliates in negotiated private transactions—on the same terms, at the same price, and in the same class of securities.
Far from weakening safeguards, such relief would help ensure that retail fund investors receive equal treatment and are not disadvantaged in favor of private-funds.
How Open-End Fund Co-Investment Would Work
An adviser managing both a private fund and an open-end fund could allocate a negotiated private market investment across both funds. Here’s how:
- The adviser sources a private market opportunity and allocates a portion to each fund under pre-established policies designed to ensure fairness.
- Both funds invest in the same securities, at the same time, at the same price, and on the same terms.
- The open-end fund remains subject to all existing regulatory requirements—including SEC limits on illiquid holdings, board oversight, valuation standards, and fiduciary duties.
Why this matters for individual investors:
- Open-end funds are the primary regulated funds that most Americans utilize for retirement and are often the building blocks of target date funds, which nearly seven in ten 401(k) participants hold.
- Unlike closed-end funds or BDCs, open-end funds offer daily liquidity at net asset value and are broadly accessible through standard retirement plans and brokerage platforms.
- Including them in the co-investment framework would help extend private market access to everyday retirement savers.
Why This Matters for Retirement Savers
If policymakers are serious about expanding private market access in defined contribution plans, open-end funds must be part of the solution.
Open-end mutual funds remain a primary building block for target date funds and other core retirement offerings, particularly across much of the defined contribution marketplace. Without including open-end funds in the co-investment framework, retail investors’ access to private market opportunities will remain constrained.
Private markets now represent a multi-trillion-dollar segment of global capital and continue to expand as companies stay private longer and leverage alternative funding sources. For long-term investors, including retirement savers, access to these markets can enhance diversification and broaden the opportunity set within professionally managed portfolios.
An Efficient Path Forward
The SEC has already approved a principles-based co-investment framework for closed-end funds and BDCs that many sponsors now operate under. The SEC could build upon this framework by allowing firms that have received principles-based co-investment relief to include affiliated open-end funds under standardized exemptive or no-action relief. This would provide clarity and consistency across the industry without requiring firms to request and obtain individualized amendments.
ICI has recommended that the SEC take this structural approach in expanding co-investment relief to open-end funds. Doing so would streamline implementation, reduce unnecessary procedural burdens, promote administrative efficiency, and allow the agency to focus its resources where they are most needed.
Aligning Policy With Market Reality
Capital markets have shifted meaningfully over the past two decades. Companies are staying private longer, and private markets are playing a larger role in financing economic growth. At the same time, retirement savers continue to rely primarily on regulated funds for diversified, professionally managed market exposure.
Expanding principles-based co-investment relief to open-end funds would not weaken investor protections or alter liquidity standards. It would simply allow open-end funds to participate in negotiated transactions on equal footing with affiliated private funds—consistent with safeguards the SEC has already deemed appropriate for other regulated funds.
If the goal is to broaden access to private markets responsibly, this expanded relief does so in a thoughtful and pragmatic way.
The SEC has an opportunity to take a measured step that enhances diversification, supports capital formation, and aligns regulation with the realities of today’s markets—all while preserving the strong investor protections at the core of the agency’s mission.