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Why the proposal matters
This proposal, along with other recent Investment-Management focused proposals, is meant to assist with the “responsible retailization” of private-fund opportunities championed by SEC Chair Paul Atkins.
Interval funds have become a meaningful channel for providing retail and wealth-management investors with access to private credit, private equity, real estate, infrastructure, and other alternative strategies within a registered fund framework. According to the proposal, interval funds grew from 58 funds with $38 billion in assets in 2020 to 139 funds with $101 billion in assets in 2025.
The existing Rule 23c-3 (of the Investment Company Act of 1940) framework, however, was adopted in 1993 and has changed little since then. The SEC’s proposal reflects the view that the current framework can be too rigid for funds seeking to match periodic liquidity obligations with portfolios of longer-duration or less-liquid assets. The proposal aims to give funds more tools to align repurchase mechanics, liquidity management, and distribution structures with modern requirements and demand.
Let’s take a look at the major themes of the proposal.
Major proposed changes to interval fund repurchases
Longer ramp-up period
The proposal would allow an interval fund to wait for up to two years before its first repurchase request deadline. Under current rules, the first repurchase must occur no later than “two periodic intervals” after launch or adoption of the policy. For interval funds that repurchase quarterly, that generally means six months; under the proposal, it could be up to two years.
This change is especially relevant for strategies where portfolio cash flows may take time to season. The SEC’s rationale for this deferral is that a longer ramp-up period could reduce cash drag, avoid premature asset sales, and let funds build more diversified vintage exposure before repurchase obligations begin. With this change, funds may offer exposure to less-liquid strategies with potentially better portfolio builds, but investors may wait longer before receiving their first opportunity to tender shares.
Monthly intervals added to the lineup
Rule 23c-3 currently permits repurchase intervals of three, six, or twelve months, although some funds have obtained exemptive orders to offer monthly repurchases. The proposal would add a one-month interval directly to the rule.
To support a monthly repurchase cycle, the proposal would shorten the minimum shareholder notice period from 21 days to 14 days before the repurchase request deadline, while retaining a 42-day maximum. It would also require the prior repurchase payment deadline to occur at least one business day before the next repurchase notification is sent. That sequencing is intended to reduce investor confusion and ensure that shareholders know whether a prior request was fully or partially satisfied before deciding whether to submit a new request.
More frequent discretionary repurchases
Regulated closed-end funds, including non-interval funds and BDCs, may currently use Rule 23c-3 to make discretionary repurchase offers no more than once every two years. The proposal would permit such offers once every twelve months. This could give boards and advisers more flexibility to respond to market events, unusual liquidity conditions, or shareholder demand outside the fund’s regular repurchase schedule.
A more principles-based liquidity standard
One significant proposed change would replace Rule 23c-3’s current prescriptive liquidity requirement. Today, from the time an interval fund notifies shareholders of a repurchase offer until the repurchase pricing date, the fund generally must hold at least 100 percent of the repurchase offer amount in assets that can be sold or disposed of in the ordinary course of business at approximately the value assigned by the fund.
The proposal would replace that requirement with a principles-based obligation to manage portfolio liquidity so the fund can meet repurchase requests without requiring sales or dispositions at prices that deviate significantly from the value of those investments. In practice, this could allow funds to rely on a broader liquidity toolkit, such as portfolio cash flows, subscription inflows, maturing loans, amortization, targeted asset sales, and committed credit facilities.
For advisers, this is potentially the most operationally significant aspect of the proposal. It could reduce cash drag and make the interval fund structure more workable for private-market strategies. For boards and compliance teams, it also raises the importance of liquidity governance, stress assumptions, cash-flow forecasting, credit facility oversight, and documentation of policies and procedures.
Expanded multiple share class relief and distribution flexibility
The proposal would also amend Rule 18f-3 of the Investment Company Act of 1940 to allow regulated closed-end funds and BDCs to issue multiple classes of voting common stock without obtaining separate exemptive relief, bringing some parity with open-end funds.
The proposed relief would be limited to regulated closed-end funds that continuously offer their common stock and whose common stock is not listed, offered, or traded on a secondary market. Funds would need a board-approved written multi-class plan addressing class-specific arrangements and expense allocations.
The proposal would permit interval funds to deduct deferred sales loads from repurchase proceeds, subject to conditions. This would align interval funds more closely with open-end fund distribution practices and with conditions commonly included in existing exemptive orders.
Enhanced disclosure and reporting
The proposal would revise Form N-2 to require more detailed disclosure for multiple share class and master-feeder structures. Proposed changes include class-by-class presentation in fee tables where appropriate, additional plan-of-distribution disclosure, sales load and breakpoint information, Rule 12b-1 fee disclosure, and class-specific average annual total return information in shareholder reports. Share-class reporting would be required on the annual Form N-CEN (census form), and expense examples would be aligned with those of open-end funds to make cost comparisons easier.
Key takeaways
- Product design may become more flexible: Longer initial lock-up periods, more frequent ongoing repurchase intervals available.
- Liquidity governance will become more judgment-based: Moving from a 100 percent liquid asset test to a principles-based standard could reduce cash drag, but it will require robust policies, monitoring, and board oversight.
- Multi-class closed-end funds would likely become easier to launch: Codifying routine exemptive relief could reduce regulatory friction for eligible CEFs and BDCs.
- Disclosures will be enhanced: Investors will need clear explanations of liquidity limits, repurchase timing, fees, class differences, and expense examples.
What’s next?
The SEC’s proposal would meaningfully modernize the framework for interval funds, regulated closed-end funds, and BDCs. If adopted, it could make these vehicles more useful for delivering private-market and alternative strategies to a broader investor base, while preserving periodic liquidity and Investment Company Act protections.
The comment period for this proposal ends in early December, so we may see a Final Rule in 2027, though the change in control of Congress may affect timelines for the foreseeable future.
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