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SEC’s proposed rules to offer retail investors access to closed end funds that invest in private assets, such as hedge funds and private equity through fractionalization enabled by tokenization

May 20, 2025 //  by Finnovate

Securities and Exchange Commission’s (SEC’s) new Chair, Paul Atkins discussed the SEC’s approach to innovation under the new administration. Apart from discussing crypto, he also proposed relaxing rules for retail investors in closed end funds that invest in private assets, such as hedge funds and private equity. With more companies and “unicorns” staying private for longer, these investment opportunities are often only available to accredited investors. Though riskier, these opportunities offer upside that retail investors cannot currently access. According to SEC statistics, the aggregate value of private funds grew from $9.5 trillion in 2012 to $30.9 trillion in 2024. “This common-sense approach will give all investors the ability to seek exposure to a growing and important asset class, while still providing the investor protections afforded to registered funds,” Chair Atkins said. From an investor perspective, the fractionalization enabled by tokenization helps to lower the minimum investment amount, which is a benefit even for wealthier investors looking to diversify their portfolios. This advantage could be diluted if more permissive laws make private market assets more accessible in traditional formats with smaller denominations. That said, some younger investors that lean into crypto prefer to have the flexibility of holding other assets on chain. The real upside for tokenization is more likely to come from the asset manager side. Most firms are simply not set up for retail access – even big names like Blackstone and KKR face operational challenges when managing thousands of smaller investors. This is where tokenization offers clear advantages. Recognizing this opportunity, major private market players are already moving toward tokenized structures.

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Category: Asset & Wealth, Innovation Topics

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