SEC issues relief to expand retail exposure to private capital; examines IPO frictions

Topline:

• SEC expands co-investment relief to mutual funds and ETFs

• California puts private fund transparency back in focus

• AI giants turn to PE as the new enterprise distribution channel

• Inaugural Carta PE Policy Dinner in NYC

• SEC small business committee examines IPO frictions

• Senate Banking releases compromise on stablecoin yield in advance of markup

• Quick hits
  

SEC expands co-investment relief to mutual funds and ETFs

The SEC’s Division of Investment Management issued a no-action letter allowing open-end funds—including mutual funds and ETFs—to participate in affiliated co-investment transactions by relying on existing exemptive orders that previously covered only closed-end funds and BDCs. In practice, open-end funds can now participate in negotiated private-market transactions alongside affiliated funds or accounts managed by the same adviser without seeking a separate SEC order, provided they follow the same investor-protection conditions in the existing order: fair allocation, participation on identical terms, independent board oversight, and liquidity risk management requirements. Additionally, the relief allows co-investment approvals to be handled by a committee of at least three independent directors rather than the full board.

Why it matters: The relief is another significant step in the SEC’s push toward “responsible retailization” of private markets. Co-investments are a key way institutional investors get direct exposure to specific private credit or private equity deals, often on more favorable terms than through a traditional fund. Mutual funds and ETFs have been legally barred from that access because federal securities law restricts affiliated joint transactions absent exemptive relief. This letter closes that gap.

The practical impact is that large asset managers with both retail fund complexes and private market strategies may now allocate the same opportunities across a broader lineup—not just to institutional private funds, BDCs, or closed-end vehicles. The relief doesn’t eliminate conflict-of-interest rules; it extends a principles-based co-investment framework already available to other regulated funds, with guardrails designed to ensure retail funds are not disadvantaged relative to affiliated private funds. The board committee process also removes a real logistical bottleneck for time-sensitive deals while preserving independent director oversight.

California puts private fund transparency back in focus

California is considering SB 1319, the Private Equity Sunshine Act, which would expand disclosure requirements for alternative investments held by public pension and retirement systems. The bill covers private equity, venture, hedge funds, private debt, and real assets, and would require reporting on fund ownership, investor commitments, benchmarks, continuation fund transactions, extended-term fees, portfolio company workforce and location data, and distressed debt information. The measure is framed as public-pension transparency for workers, retirees, and taxpayers, but opponents argue the bill goes well beyond fee and performance transparency by requiring disclosure of sensitive fund, transaction, and portfolio company information that top-tier managers may be unwilling to provide. Notably, CalPERS and CalSTRS oppose the bill as currently drafted, warning that expanded disclosure could make state public pension systems less competitive as LPs.

Why it matters: After the Fifth Circuit struck down the SEC’s private fund adviser rule and the agency shifted its posture toward private capital regulation, states are stepping in to fill a perceived transparency void. As public pensions, retail vehicles, and retirement plans increase exposure to alternatives, policymakers are moving from abstract debates over access to more concrete questions about the plumbing of private markets: fees, valuation, benchmarking, continuation funds, conflicts, liquidity, and underlying portfolio-company practices.

What’s next: SB 1319 has momentum and has already advanced through the Senate Judiciary Committee. Given pension fund opposition, the contours could shift if the bill continues to move. The bigger question is whether California becomes a template for states seeking to regulate private capital where federal regulators have pulled back.

AI giants turn to PE as the new enterprise distribution channel

OpenAI and Anthropic are moving forward with competing private equity-backed ventures, marking a new phase in the race to commercialize generative AI beyond API licensing. OpenAI has reportedly raised more than $4B for “The Deployment Company,” a new venture valued around $10B and backed by investors including TPG, Brookfield, Advent, and Bain. Anthropic formally announced a new AI-native enterprise services firm valued at $1.5B with Blackstone, Hellman & Friedman, and Goldman Sachs, backed by investors including Apollo, General Atlantic, GIC, Leonard Green, and Sequoia.

Why it matters: PE is becoming a go-to-market layer for enterprise AI. Rather than waiting for mid-market companies to adopt AI tools on their own, both companies are using sponsors’ portfolio networks as distribution channels, pairing capital, embedded engineering resources, and implementation support to accelerate adoption across thousands of companies.

• For PE, this is a private-market value creation story. Sponsors are under pressure to find operational levers as exit timelines stretch and portfolio companies face margin pressure. AI deployment offers a new playbook: automate coding, finance, customer support, healthcare administration, compliance, and back-office workflows, and then translate those gains into EBITDA improvement.

• For OpenAI and Anthropic, the PE channel accelerates enterprise adoption, deepens customer lock-in, and builds a services layer around their models as competition intensifies, as both companies are eyeing IPOs this year.

• For regulators and policymakers, the shift raises a new set of questions around AI governance, vendor concentration, data access, cybersecurity, and whether AI transformation inside portfolio companies is being matched by adequate oversight and controls. Congress may not agree on a comprehensive framework this year, but regulators will start looking at use cases.
  

Inaugural Carta PE Policy Dinner in NYC

Last week, the Carta team hosted its first PE Policy Dinner in New York at Ci Siamo. The food was excellent, but the company was even better. We covered the SEC regulatory outlook, increasing scrutiny around private credit, and how the push toward democratization could bring more attention to fund operations, including diligence and valuations. We also discussed how AI is changing the landscape, the increasing role of the states, and the opportunities—and challenges—that lie ahead for private capital.

These dinners are about more than a great meal. They provide us an opportunity to share insights, build community, and most importantly, learn from you. Stay tuned for the next one.

SEC small business committee examines IPO market frictions

The SEC’s Small Business Capital Formation Advisory Committee met to examine why fewer small and mid-sized companies are going public, and, more importantly, what the agency can do to make the IPO path more viable. The discussion, which featured remarks from Chairman Atkins, along with Commissioners Peirce and Uyeda, focused less on any single factor and more on the accumulated frictions that make becoming and staying a public company increasingly difficult for smaller issuers. Policy ideas included:

• Regulatory on-ramps. Extending IPO on-ramp accommodations beyond five years after a company goes public, giving smaller firms greater certainty and a longer runway as public companies.

• Shelf registration modernization. Updating Form S-3 “baby shelf” rules to give nearly all smaller public companies full shelf registration access, enabling faster capital raises when market windows are open.

• Reporting flexibility. Allowing companies the option to file regulatory reports quarterly or semiannually based on their industry, business model, and investor expectations, rather than being locked into mandatory quarterly reporting.

• Post-IPO market ecosystem. Participants flagged weak analyst coverage and limited aftermarket support as compounding barriers. Nearly half of small- and mid-cap stocks have no analyst coverage, undermining liquidity, investor awareness, and the value proposition of being public. Participants also discussed ways to incentivize coverage for small issuers, revisit market-making rules, and move toward a company registration model to improve post-IPO capital access.

Why it matters: The discussion highlighted a deeper structural problem: public markets are no longer functioning effectively as a capital-raising mechanism for smaller companies. As Chairman Atkins noted, companies today often do not go public until after Series E, whereas 20 years ago an IPO would have looked more like today’s Series B or C. That shift reflects more than market preference;it reflects accumulated regulatory cost, execution risk, and ongoing compliance burden.

The result is a public market that increasingly functions as an exit ramp for late-stage private capital rather than an on-ramp for ordinary investors. Atkins’s agenda aims to address those structural costs, while the SEC’s broader Reg S-K review provides the vehicle to revisit the recurring disclosure obligations that make staying public expensive. Together, the efforts align with broader capital formation reforms, including the INVEST Act provisions Carta has supported, to modernize the private-to-public company lifecycle and make the IPO path more practical for the next generation of American companies.

Senate Banking releases compromise on stablecoin yield in advance of markup

Senate Banking is reportedly targeting a May markup for the CLARITY Act after Sens. Thom Tillis and Angela Alsobrooks released compromise language on stablecoin yield, but any deal is far from done. The text would prohibit crypto firms from paying interest or rewards on stablecoin balances that are “economically or functionally equivalent” to a bank deposit, while preserving activity-based rewards tied to bona fide uses like payments, transfers, market-making, staking, governance, and loyalty programs. Crypto advocates quickly embraced the language, but leading banking trades said the proposal “falls short,” warning that carve-outs based on balance size or holding duration could recreate deposit-like yield under a different label.

The issue: Stablecoin yield has become a gating issue for digital asset market structure. The policy distinction is real: a stablecoin that pays users simply to hold it looks more like a deposit substitute; a stablecoin that rewards users for transacting looks more like a payments network. But the political problem is that the compromise relies on regulators to police that line after the fact. That may be workable for crypto platforms seeking flexibility, but it is not enough for banks that want a bright-line prohibition before the bill leaves committee.

The catch: Chairman Tim Scott needs the yield language to hold together a bipartisan markup, but the banking coalition’s rejection means the compromise could require another round of negotiation in a narrowing legislative window. And even if a bipartisan majority lands on yield, other unresolved issues—DeFi treatment, noncustodial developer protections, illicit-finance safeguards, and ethics provisions—could further complicate the path forward.

What’s next: CLARITY is closer than it was a week ago, but its path remains fragile. Prediction markets now put passage in the 40% range, down from more than 80% in February (not an endorsement, but a useful signal of how quickly momentum can fade). The markup will be the first real test of whether the Tillis-Alsobrooks language is a bridge to bipartisan consensus or another placeholder in a debate that is running out of calendar. Every week of delay makes passage harder.

Quick hits

• Trump signs executive order expanding retirement benefits. President Trump signed an executive order directing the Treasury to launch TrumpIRA.gov by Jan. 1, 2027, creating a federal platform where private sector workers without employer-sponsored retirement plans can browse and enroll in eligible, low-cost private sector IRAs. The portal launch is timed to coincide with the rollout of the SECURE 2.0 Saver’s Match, which converts a prior nonrefundable tax credit into a direct government contribution of up to $1,000 per year for eligible lower-income workers who contribute to qualifying retirement accounts. For startups, small businesses, gig workers, and independent contractors, the portal could lower search and onboarding frictions for basic retirement access.
  
  Carta shares the view that expanding retirement access is essential. Our Carta 401(k) partnership with Vestwell and Morgan Stanley brings enterprise-grade plans to startups. We are also pursuing regulatory relief to allow employees to be able to contribute their equity compensation to their retirement plans.
  
  

• Counting up carried interest. Recent analysis from Yale’s Budget Lab estimates that taxing carried interest more like ordinary compensation could raise roughly $90B over 10 years, nearly double prior estimates. The industry successfully fended off changes during Build Back Better, the Inflation Reduction Act, and the One Big Beautiful Bill negotiations, but a larger revenue score could make carried interest a more tempting offset and put it back in the crosshairs in the next tax debate. Democrats have long attacked carried interest as a Wall Street giveaway, but populist Republicans are increasingly adopting the same sentiment.
  
  

• CFPB finalizes small business data rule. The CFPB finalized revisions to its Section 1071 small-business lending rule, scaling back a Biden-era framework that banks and credit unions had argued would be costly and could chill lending. The final rule lowers the small-business revenue threshold from $5M back to $1M, raises the reporting trigger from 100 to 1,000 covered small-business loans, reduces the number of data points lenders must collect, and excludes certain products, including merchant cash advances.
  
  

• Senate bans members and staff from betting in prediction markets. The Senate unanimously banned members and staff from prediction market betting to prevent insider trading on sensitive government information. The resolution, by Sen. Moreno (R-OH), is effective immediately and reflects bipartisan consensus on market guardrails. While the move gained industry support, debate continues regarding the adequacy of existing fraud authorities. Separately, Sens. Gillibrand and McCormick introduced legislation for CFTC clarity and a broader federal ban on political insider trading.

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