US retail investors are expected to put more money into private assets as options expand
Some private capital investment fund managers are increasingly exploring product structures to offer investments to this broader set of retail investors who desire greater options for liquidity and lower investment minimums.12 Under current US regulations, open-ended management investment companies, or mutual funds and exchange-traded funds (ETFs), may invest up to 15% of the fund’s assets in illiquid securities, which includes private funds and direct holdings of private companies.13 Retail investors may also invest in some interval funds, a type of closed-end fund that is not subject to the 15% illiquid securities limitation.14 Investment management firms offering interval funds set minimum investment amounts ranging from US$1,000 to US$50,000.15
One reason private fund managers may plan to launch these product structures is to help alleviate fundraising challenges the industry has experienced over the past few years.16 Another benefit for investment managers launching a registered fund is that the number of investors is no longer limited to 2,000.17 However, traditional fund managers are also launching products with exposure to private capital, and funds by both types of managers could fuel retail investor private capital AUM over the next five years.
While a large number of private assets available to retail investors are currently held within interval funds managed primarily by private capital firms, traditional investment managers are turning to structures that retail investors are already familiar with: mutual funds and ETFs.18 For example, in early 2024, Thrivent began offering retail investors exposure to private equity through their asset allocation mutual funds.19 Investment managers BondBloxx Investment Management and Virtus Investment Partners each launched actively managed ETFs with private credit exposure in December 2024.20 State Street Global Advisors’ actively managed private credit ETF launched in February 2025 with the aim to provide all investors with access to private markets by investing in both public and private credit such as asset-based finance and corporate lending.21 Another ETF recently changed its name and investment strategy to invest in shares of private companies alongside public equities by making the private purchases through a special-purpose vehicle.22
There have also been efforts to increase distribution of interval funds to retail investors. For example, the Cashmere Sweater Fund, which launched as an interval fund in 2022, recently signed a partnership with Apex Clearing to expand the fund’s distribution reach.23 Aside from increasing distribution through expanded partnerships, wealth management platforms have an important role to play in educating advisers and their clients about the potential benefits from private capital.24 To help effectively and efficiently reach the greater number of retail clients, technology will be an integral part of this education.25
We expect the inclusion of private capital within mutual funds and ETFs up to the 15% illiquid investment allotment will likely be a driving factor for US retail investors’ increased allocation to private assets over the next five years for two reasons. First, holdings of private capital within retirement accounts such as 401(k)s will likely be a significant portion of private capital AUM growth for the mutual fund product structure. Secondly, while expanded distribution of interval funds that specifically target retail investors could also contribute to AUM growth, traditional fund managers have an emergent opportunity to offer retail client exposure from the product structures with which they are already most familiar: the ETF wrapper. Fund managers exploring launching or shifting existing open-ended funds’ mandates to include private capital investments may benefit from reviewing potential tax reporting or other disclosures that may arise from the changes.
