The Democratization of Investing: Expanding Access to Private Markets

By Herbert M. Chain

A Gradual Shift in Access

Private equity and other alternative asset classes have historically been accessible only to institutions and the wealthiest investors. Defined contribution participants, retail investors, and smaller allocators were excluded due to regulatory restrictions, high minimums, and illiquidity. Recent regulatory actions and technological advances, however, are gradually broadening access, creating new pathways for retirement savers and retail investors to participate in the fast-growing private markets channel.

Historical Context

The investing landscape is undergoing a meaningful broadening of access. What was once the preserve of institutions and ultra-high-net-worth investors is becoming more available to retail and retirement channels. This “democratization” is not a single event; it is a structural evolution driven by product innovation, regulatory clarification, and investor demand for diversification and diversified portfolios. As access expands, however, so do the responsibilities. Sponsors, managers, and fiduciaries must align product design, liquidity promises, valuation practices, and participant education with the inherently long-term, opaque, and fee-intensive nature of private markets.

Traditionally, access to private markets, particularly private equity, has been restricted by high minimum investments, complex fund structures, and strict investor accreditation requirements. The rationale was clear. Private assets are inherently less liquid and transparent, require longer holding periods, and come with complex risk profiles. Regulators and managers took a cautious stance, limiting participation to investors who could withstand losses and navigate the sophisticated structures. Yet as markets matured, the alternative asset industry recognized that both accredited and non-accredited investors could benefit from the diversification and return potential offered by private equity and other alternative investments. At the same time, asset managers sought new sources of capital and growth, leading to creative solutions and calls for regulatory adaptation.

What is Meant by “Democratization”?

“Democratization of investment” in the context of private equity and similar alternative asset classes refers to broadening access so that a wider range of investors can participate in these markets. Practically, it means reducing historical barriers related to minimum investment sizes, accreditation requirements, illiquidity, complexity, and information asymmetry, while introducing structures and safeguards that make participation feasible and appropriate for more investor profiles.

According to the World Economic Forum,

Market democratization refers to the increased ability of an individual to access capital markets,
related to the newfound availability of information, investing platforms and investment products. [1]

Key elements include:

Lower investment minimums, often through feeder funds, interval funds, tender offer funds, and evergreen vehicles.

Expanding access beyond institutional or currently-defined accredited investors[2] where regulations permit.

More investor friendly structures, with periodic liquidity, simplified tax reporting, and streamlined capital calls—often “evergreen” rather than drawdown.

Expansion of eligibility from institutions and ultra high net worth investors toward accredited, quasi institutional, and eventually some retail channels.

Digital intermediation from platforms and recordkeeping systems that make it operationally feasible to serve thousands of smaller investors instead of dozens of large ones in onboarding, suitability checks, fractionalization, and streamlined subscriptions.

Enhanced disclosures, reporting standards, and investor education to address complexity and information gaps common in private markets, and designing products within applicable rules (suitability, diversification, valuation, custody, leverage limits) to protect less-experienced investors.

Regulatory Developments

Regulators have gradually recognized that a binary world of “unsophisticated retail versus sophisticated institutional” may not accurately reflect today’s markets. Policy has been nudged toward a spectrum, where access and disclosure requirements can be calibrated to investor type, product complexity, and distribution channel. That has opened space for structures that sit between registered mutual funds and fully private institutional funds, while still imposing robust disclosure, valuation, and governance expectations.

Two recent changes are especially relevant:

Access for Defined Contribution Plans

A significant development for retirement investing is the evolving stance of the U.S. Department of Labor (DOL) regarding the inclusion of private assets in defined contribution (DC) plans, such as 401(k) accounts.

The core regulatory debate hinges on the fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA), which mandates that plan fiduciaries act prudently and solely in the interest of participants and beneficiaries. Historically, the complexity, valuation challenges, and illiquidity of PE were viewed as barriers to satisfying this standard for a broad participant base.

This perception began to shift with the DOL's Information Letter (Letter) issued in June 2020.[3] The Letter recognized that private equity investments present additional considerations to participant-directed individual account plans that are different than those involved in defined benefit plans and clarified that a DC plan fiduciary would not violate ERISA simply by offering a professionally managed, diversified asset allocation fund such as a target-date fund, target-risk fund, or balanced fund that included a component of private equity investments. Provided the fiduciary conducts an objective, thorough, and analytical process, private equity could be seen as an appropriate investment allocation to enhance diversification and potentially boost long-term risk-adjusted returns.

The key caveat was the requirement that the allocation must be contained within a highly diversified fund, ensuring that the PE exposure is limited and managed by an investment professional with the requisite expertise. The overarching trend, backed by a recent Presidential Executive Order, reaffirms the approach of the 2020 guidance.[4] The onus remains firmly on the plan fiduciary, but the legal framework for inclusion is now established, setting the stage for new pools of capital to enter the private market ecosystem.

Reduced Restrictions on Closed-End Funds of Private Funds

For over two decades, the SEC staff maintained an informal policy restricting closed-end registered funds (CE-FOPFs) from investing more than 15% of their assets in underlying private funds. If a fund sought to exceed this 15% limit, it was typically required to impose stringent investor requirements, such as restricting sales to accredited investors and mandating a minimum initial investment of at least $25,000. This informal restriction effectively capped the PE exposure within registered vehicles that were accessible to the general public.

In August 2025, the SEC’s Division of Investment Management published Accounting and Disclosure Information (ADI) 2025-16, signaling a formal policy reversal.[5] The new guidance explicitly states that SEC staff will no longer request that a registered CEF or CE-FOPF either adhere to the 15% cap or impose accredited investor requirements and minimum investment thresholds.

This administrative change means that CEFs and Interval Funds, which provide periodic, limited liquidity and are subject to the comprehensive investor protections of the Investment Company Act of 1940, can now be allocation vehicles. These registered structures are subject to oversight by a fiduciary board and managed by registered investment advisers, and they must provide clear, robust disclosures on fees, conflicts, and liquidity risk, significantly enhancing investor safeguards compared to direct private fund investment. The removal of the 15% hurdle allows these structures to offer a diversified portfolio exposure to private equity, private credit, and infrastructure for the ordinary investor.

Balancing Opportunity and Risk

Critics caution that retail investors may lack the sophistication to navigate private markets. Concerns include transparency gaps, illiquidity mismatches, and higher fees. Proponents counter that democratization is about responsibly broadening opportunity, not eliminating risk. With proper guardrails, retail investors can capture diversification benefits while maintaining protection.

However, this structural shift is not without its challenges. Fund sponsors and retail financial intermediaries must remain acutely aware of three critical areas:

Complexity and Fees: Private market investing inherently involves higher fees and more complex structures than public market counterparts. Comprehensive and plain-English disclosure, as emphasized by the SEC, is essential for investor understanding.

Liquidity Mismatch: While private funds often offer periodic liquidity (e.g., quarterly redemptions), they are not daily liquid vehicles like mutual funds. Educating investors on the true nature of the commitment to the investment is paramount to managing expectations and mitigating behavioral risk.

Fiduciary Responsibility: For DC plan fiduciaries, the duty of prudence remains critical. The decision to incorporate private equity must be based on a rigorous, documented analysis demonstrating the investment’s benefit to the long-term, risk-adjusted returns of the overall plan and its participants.

Democratization brings real risks alongside its opportunities. Illiquidity, valuation subjectivity, fee layers, and complex capital structures can be hard for nonprofessional investors to fully understand, even with enhanced disclosure. Semi liquid products can create a false sense of daily market like flexibility in what are fundamentally long horizon investments.

Accordingly, fiduciaries, advisors, and regulators play a critical role. Suitability assessments, clear communication of risks and time horizons, careful product design, and conservative liquidity management are essential. The industry will also need to support investor education that provides plain language explanations of how these strategies work, what they cost, and how they fit into an investor’s overall financial plan.

Technology as the Enabler

Technology is a critical enabler of democratization. Digital onboarding, electronic signatures, standardized data pipes into custodians and recordkeepers, and more automated capital call and distribution processing have dramatically lowered the marginal cost of serving smaller investors.

Looking ahead, tokenization and distributed ledger infrastructure may further facilitate more fluid secondary markets in private assets, potentially improving liquidity, price discovery, and expense ratios. For now, many tokenization efforts are still pilot scaled, and the regulatory overlay is evolving. But the directional trend is toward a world where fractional ownership and digital distribution make it operationally feasible to slice what used to be “lumpy” private assets into investor-friendly exposures.

As Larry Fink of BlackRock noted in his 2025 Chairman’s Letter to Investors, “Tokenization allows for fractional ownership. That means assets could be sliced into infinitely small pieces. This lowers one of the barriers to investing in valuable, previously inaccessible assets like private real estate and private equity.” In the letter, he also stated, “Some investments produce much higher returns than others, but only big investors can get into them. One reason? Friction. Legal, operational, bureaucratic. Tokenization strips that away, allowing more people access to potentially higher returns.” [6]

Closing Thoughts

The walls around private equity are not collapsing overnight; they are being carefully adjusted. Defined contribution participants, retail investors, and new classes of savers are gaining access, but with responsibilities that match the opportunities.

The democratization of investing is best understood as a measured evolution rather than a revolution. Expect continued regulatory refinement, balancing access with investor protection, innovation in fund structures to provide liquidity solutions, and a greater emphasis on education to ensure investors understand risks and rewards.

Democratization does not mean eliminating risk or complexity. Private markets carry unique risks—illiquidity, valuation lag, capital call dynamics, performance dispersion, fees, and limited transparency. Effective democratization balances wider access with product design, education, and safeguards so investors can participate in private market return streams in a manner consistent with their risk tolerance, time horizon, and financial profile.

📌 5 Key Takeaways

Broader Access for New Investor Classes - Recent regulatory changes and technological innovation are allowing retail investors, defined contribution plan participants, and smaller allocators to invest in private equity and other alternative asset classes—markets once reserved for institutions and ultra-high-net-worth investors.

Major Regulatory Milestones Enable Participation - The U.S. Department of Labor now permits private equity exposure in diversified DC plans (like 401(k)s), and has been instructed by the 2025 executive order to determine ways to increase the participation, while the SEC’s 2025 policy changes have lifted historic caps on closed-end funds’ investments in private funds, removing barriers for non-accredited and smaller investors.

Fund Innovation and Digital Solutions Facilitate Entry - The rise of interval funds, tender offer funds, feeder vehicles, and digital platforms makes smaller minimums, streamlined onboarding, and fractional ownership possible, further lowering operational barriers for managers and service providers.

Risks Demand Careful Oversight and Education - As new investor segments enter private markets, sponsors, fiduciaries, and service providers must address complexities including illiquidity, valuation lag, fees, and behavioral risks. Robust product design, transparent disclosures, and investor education are critical safeguards.

Democratization Is Evolution, Not Revolution - Expanding access requires ongoing regulatory refinement and industry innovation, balancing opportunity with prudent oversight. Technology and product design will continue to lower barriers, but investor protection and suitability remain paramount.

[1] World Economic Forum, Insight Report, August 2022, The Future of Capital Markets:  Democratization of Retail Investing, at https://www3.weforum.org/docs/WEF_Future_of_Capital_Markets_2022.pdf, accessed December 5, 2025

[2] Note that on May 13, 2025, the House proposed broadening the definition of an “accredited investor” by enabling individuals to qualify not only on the basis of income or net worth, but also by passing a certification examination devised by the SEC.

[3] https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020, accessed December 4, 2025.

[4] The August 7, 2025 Executive Order, Democratizing Access To Alternative Assets for 401(K) Investors, directs the DOL to re-examine its existing guidance on a fiduciary’s duties alternative assets are included in defined contribution (DC) plans like 401(k)s. This order instructs the Department of Labor to review, clarify, and reform existing regulations and to suggest appropriate “safe harbors” to reduce fiduciary and litigation risk. The order also directs the SEC to facilitate access to alternative-asset investments for participants in defined-contribution retirement plans.

[5] At 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, accessed December 2, 2025.

[6] At Larry Fink’s 2025 Chairman’s Letter to Investors | BlackRock, accessed December 5, 2025.

Herbert M. Chain
Director
CBIZ

CBIZ Alternative Investment Group delivers tailored audit, tax, and consulting services for hedge funds, private equity funds, venture capital funds, funds of funds, general partners, and investment advisors. Assisting alternative investment advisors isn’t just part of what we do — it’s all we do. Our dedicated team brings deep expertise in audit, tax, and consulting services for emerging and established fund managers. We help you manage complex investments, navigate regulations, and unlock new opportunities. https://www.cbiz.com/industries/alternative-investments