Introduction

The SEC is advancing policies that could expose ordinary investors to opaque, illiquid, and risky private market assets. Federal securities laws were designed to shield them from these risks, but the push to open up the private markets represents a radical departure from investor protection.

On March 4, 2026, the SEC is hosting a roundtable to “discuss governance, valuation, and other considerations with the aim of promoting responsible retailization.” In short, the topic is exposing retail investors to the private markets. Yet not one of the panelists represents the interests of retail investors. Several panelists do represent firms that offer private market investments and stand to benefit from the “retailization” of the private markets. This is consistent with the SEC’s recent agenda, which mirrors the financial industry’s agenda, but it is inconsistent with an event whose ostensible purpose is to promote responsible “retailization.”

That’s because what is really going on is that the SEC and the financial industry are determined to push private market assets onto retail investors at any cost. The two topics to be discussed at the roundtable give the game away. The first topic concerns what happens “when two worlds collide,” and asks what are the opportunities and challenges as assets historically offered in the private markets migrate into publicly offered vehicles and the lines between public and private market assets continue to blur? This presupposes that those lines should blur. And it ignores that it is the SEC, often at the behest of the financial industry, that is responsible for blurring those lines. The second topic concerns “fund governance,” and asks what the challenges are as managers seek innovative ways to deliver exposure to private market assets in response to retail demand? This presupposes that retail demand is driving the push to relax the restrictions on selling private market assets to retail investors. But it isn’t. Instead, the private funds industry simply wants to get its hands on the retirement savings of retail investors. The question the SEC should be asking is whether it should continue to blur the line between the public and private markets, and whether it should permit the industry to circumvent the longstanding prohibitions against exposing retail investors to risky private market assets. The answer is a resounding no.

The financial industry can’t take no for an answer, though, because it needs retail investors to compensate for the fact that institutional investors are pulling back from the private markets. Despite the narrative pushed by the SEC and the industry, it’s not retail investors driving the push to change the rules that have long governed the private markets. It’s the private market firms that stand to benefit that are urging the SEC to change the rules, and the SEC seems only too willing to oblige. Yet the fact that this push is occurring at the same time as funds from the institutional investors who have traditionally invested in the private markets are drying up should give the SEC pause. Trying to get retail investors into the private markets at the same time as the risks of the private markets are becoming apparent even to institutional investors is quite the juxtaposition.

The Line Between the Public and Private Markets

The reason there is a line between the public and private markets is because public securities offerings provide investors with all material information about the investment so that investors can make informed investment decisions. Securities offered privately provide far less information about their offerings. This makes private market assets hard to value. They are also illiquid since there is no market in which they trade. That is why private securities offerings have long been restricted to so-called “accredited investors”—institutions and high net worth individuals who can theoretically “fend for themselves” and who can bear the risk of loss in the risker private markets.

This means that “blurring the line” between the public and private markets really means exposing retail investors to risks that the federal securities laws exist to protect them from. The risks are so pervasive that even executives in the private funds industry realize the peril for retail investors.  Josh Harris, who co-founded private equity giant Apollo Global Management before leaving to start his own firm, said recently that the push to sell private market assets to retail investors is “not going to end well.” Similarly, Robert Morris, founder of US private equity group Olympus Partners, told investors that the “scheme” to push private assets into retail investors’ 401(k)s could lead to taxpayer bailouts and “‘bodes to be the successor to the 2008 mortgage crisis.’”

Morris said ‘the multiple layers of fees’ in private equity funds designed for retirees’ 401k savings accounts meant their ‘projected rate of return is unlikely to exceed that of an equity index fund’ and noted that the funds exposed savers to ‘ample dollops of additional risk.’ He also questioned whether the expectations for such funds were too high and if ordinary investors were equipped to lose large amounts of money on individual deals.

Perhaps most tellingly, Morris said that “investors who had been pitched a ‘cartoon version of private equity . . . paved with gold and high fees’ might not be ‘financially and emotionally prepared to . . . handle a disastrous result.’” There is no question the SEC and the industry present private market assets as a necessary part of an investment portfolio with the potential to improve its performance. It is therefore unsurprising that retail investors may be unprepared for the significant losses that befall even institutional investors in the private markets.

For example, Fortress Investment Group, Ares Management Corp., and Blackstone Inc. are set to lose a combined $1.4 billion in a private equity deal orchestrated by Platinum Equity. The three firms were among the anchor investors in a continuation fund Platinum Equity created in 2021 to buy United Site Services Inc., a private company. Platinum is now poised to hand control of the company to other lenders, and Fortress, Ares, and Blackstone are poised to suffer a total loss.

Similarly, Clearlake Capital owned Wheel Pros, another private company, in one of its continuation funds when Wheel Pros declared bankruptcy. The New York Times reported that every investor in the continuation fund, which included public employees’ pension funds in New York, Connecticut, and Nevada and firms like Blackstone, Pantheon, and ICG, was wiped out.

The risks that even institutional investors face in the private markets reveals the threat posed by the SEC’s and the financial industry’s push to loosen protections for retail investors. As law professors William Clayton and Elisabeth de Fontenay said recently, retail investors “would face numerous disadvantages relative to institutional investors in the private markets.” So retail investors would be even more vulnerable if exposed to risky private market assets.

The Lack of Investor Demand to Blur the Line

Despite these risks, the proponents of exposing retail investors to the private markets usually argue that with the greater risks come the potential for greater returns. The problem is that research increasingly shows that private market assets do not offer greater returns than the stocks, bonds, and mutual funds found in the public markets. The New York Times reports that, for the past several years, “private equity’s annual returns have been lower than the S&P 500’s”:

Between 2022 and Sept. 30, 2025, U.S. private-equity firms have generated annualized returns of 5.8 percent, including investors’ fees. The S&P 500 generated 11.6 percent annualized returns over that same time period, according to the most recent available data from MSCI, a research firm.

Cambridge Associates found similarly that, for the three years ending June 30, 2025, private equity returned an annualized 7.4%, whereas the S&P rose 19.7% a year. Other studies reach similar conclusions. There is scant evidence that pensions with the highest allocations to private market assets outperform their counterparts. These studies all support the view that we’ve now “learned that private assets aren’t a magic bullet for better performance or investor outcomes.”

In light of the heightened risks and mediocre returns, it is unsurprising that retail investors are not demanding greater access to the private markets. According to a Harris Poll survey of U.S. adults conducted for The Wall Street Journal, only 10% of investors are dissatisfied with their current 401(k) investment offerings and want more nontraditional options. AARP found similarly that 61% of adults do not think it is important to have the ability to invest in private market investments, with interest declining sharply “when people learn about fees, liquidity, transparency, and risk—three in five are not at all interested, and another quarter only slightly interested.”

These statistics show that the push to open the private markets to retail investors is not coming from retail investors themselves; instead, it is coming from the industry that stands to benefit. As Hal Ratner recently wrote in Morningstar about the push to include private assets in 401(k)s,

Despite the press flurry, there’s little demand-side pull at this point. Neither the plan sponsor community nor the investing public appear to be crying out for private market exposure. The push is almost entirely coming from asset managers, who see an untapped $12.5 trillion defined-contribution market on one side and decreasing funding rates on the institutional side.

Those decreasing funding rates on the institutional side, and not any desire on the part of retail investors to be exposed to risky private market assets, are the real reason for the SEC’s and the financial industry’s push to open the private markets to retail investors.

The Real Reason for the Push to Change the Rules

The push to allow private funds to sell to retail investors has nothing to do with “democratizing” investing or allowing retail investors to diversify their portfolios. Instead, it has to do with the private funds industry needing new investors. With “poor returns and less cash going back to investors, it’s been tough for private-equity firms to raise more money to create new funds”:

Many firms have been producing lackluster returns that lag the stock market; firms are struggling to raise money from investors; and they are saddled with a record number of companies they bought years ago, but have been reluctant to sell, fearing they won’t get the returns they promised investors.

Indeed, as private equity firms fail to deliver “the robust returns once promised to pension managers, endowments, foundations, and wealthy individuals,” these investors have become “reluctant to pony up fresh capital at a time when . . . more than 18,000 private capital firms are seeking $3.3 trillion.” So these firms need a new source for the capital that they seek.

Yet the SEC and the private funds industry should not push retail investors into the private markets at the same time as institutional investors are pulling back. Not only are institutional investors putting less money into new private market investments, but some institutional investors are pulling money out of private equity. For example, the New York Times reports that “Yale University’s endowment and New York City’s public worker pensions recently sold their stakes in some private equity funds at discounted prices to get cash back.” Harvard has now made cashing out of some private market investments a long-term strategy. The Alaska fund that manages the state’s oil revenues has similarly scaled back investments in private equity. An institutional investor retreat is hardly the time to expose retail investors to these assets.

The panelists at the SEC’s roundtable tomorrow are unlikely to share this view. Instead, they are likely to promote the supposed benefits of the private markets for retail investors. That is consistent with the story the private funds industry wants to tell, but it is not the whole story:

The pullback by institutions has private equity firms hunting for new sources of capital, such as wealthy brokerage customers . . . and launching products that can be sold to retail investors. . . . The pitch is that private equity can outperform public markets with less volatility. Mentioned less often is the trouble institutional investors have experienced getting their money back . . .

There is no question that the biggest players in the private markets “have been pushing to get private investments into the hands of individual investors as growth in allocations by institutional investors such as pensions and endowments slow.” There is also no question that these firms see the $12 trillion that retail investors have in their retirement plans as the holy grail. The question is why the fact that institutional investors are reducing their investments in private market assets means we should eliminate the longstanding protections for retail investors. The firms pushing to get access to retail investors are already experiencing meltdowns as part of their push. The newfound reticence of institutional investors to invest in the private markets should make it more, and not less, important to ensure that retail investors receive the protections they deserve.

Conclusion

The SEC is supposed to protect retail investors. Instead, it is aiding and abetting a scheme to expose retail investors to assets that present heightened risks without greater returns. This scheme is likely to benefit private asset managers and not retail investors. Private market firms promote this scheme because they want and need access to retail capital. That is understandable. What is not understandable is the SEC doing everything in its power to provide that access notwithstanding the longstanding restrictions in the federal securities laws—the laws that the SEC is supposed to enforce. Unfortunately, this is all too consistent with the SEC’s apparent determination to demolish investor protection. Retail investors stand to suffer as a result.