The Securities and Exchange Commission’s (SEC’s) new Chair, Paul Atkins, today 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. Currently they have a $25,000 minimum investment to filter out most retail investors. Is this good or bad for tokenization?
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.
In February, Commissioner Uyeda raised a similar topic, suggesting that if an investor has a diversified portfolio, it would help address the risks, and he repeated this in a speech last week. 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 today.
The United States is not alone in exploring a more relaxed stance. For example, the Monetary Authority of Singapore opened a consultation in March.
This regulatory shift intersects with growing interest in tokenizing private assets, which could offer a technological solution to retail access challenges.
Private assets and tokenization
Several surveys have highlighted that private assets are low-hanging fruit for tokenization. In mid 2024 State Street published a survey of 300 institutions finding that 64% believe private equity was the most likely asset to be tokenized, followed by 50% choosing private credit.
Additionally, Bank of America’s survey of high net worth individuals found that younger investors (aged 21 to 43) are more than three times as likely to invest in alternative assets versus older investors. Fans of alternatives (17%) outnumber crypto proponents (14%).
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 who 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. Two examples are major private market investors, Apollo Global (AUM $781 billion) and Hamilton Lane (AUM $956 billion). The operational efficiencies of tokenized structures – automated compliance, programmable distributions, reduced intermediaries – become more valuable as you scale to larger numbers of smaller investors. Managing thousands of $1,000 retail positions is much easier with smart contracts than traditional fund administration.
So it will depend on the nuances of any new rules, but on balance, expanded retail access is likely a net positive for tokenization.
Source: ledgerinsights
