Archimedes, Maslow's Hammer, and Interval Fund Modernization

2 days ago

6 min read

Updated: 4 hours ago

I view the proposed rule, “Interval Fund Modernization”, as part of a broader SEC effort to encourage more companies and funds to move to the public regulatory framework.

Prepared by Mark Goldberg | October 5, 2026

Mark M. Goldberg, Alternative Investments Market Intelligence, 5 October 2026, “Archimedes, Maslow's Hammer, and Interval Fund Modernization”, https://www.altsmi.com/post/archimedes-maslow-s-hammer-and-interval-fund-modernization

In this instance, from private funds to 40 Act registrations. That goal is directionally sound: investors generally receive stronger governance, disclosure, and oversight protections within the '40 Act framework than in private-fund structures. However, the investor-protection merits of each proposed change still must stand on their own.

In the final analysis, the proposal gets the direction right but doesn't do enough to protect investors. It would make registered interval funds more useful to managers and, in some respects, to investors. The question is whether the Commission can modernize the structure without importing the weakest habits of private funds: higher embedded compensation, valuation opacity, and liquidity financed with leverage rather than held as cash.

What the SEC Is Trying to Do

Investors generally receive stronger protections inside the '40 Act framework. There are restrictions on affiliated transactions. It requires independent-board oversight. It is subject to SEC-reviewed registration and disclosure. In total, it is a more prescriptive governance regime.

The SEC identified what managers dislike about registered interval funds and systematically reduced those impediments: liquidity requirements, performance-fee restrictions, repurchase mechanics, and share-class limitations. The bigger strategic goal makes sense. That doesn't make every individual change good for investors. In my view, the proposal goes too far because it underestimates the business philosophy of many private-asset managers. That philosophy is best explained by “borrowing” from Archimedes, the Greek mathematician, physicist, engineer and inventor, and one of the most important scientists of antiquity: private-market managers seem to believe that if you give them a place to stand (i.e. access to retail investors) and enough leverage, they can move the world.

What I'd keep from the proposal

The proposal contains several provisions I would keep, even though I object to other parts of the package.

Monthly repurchase intervals. Rule 23c-3 currently contemplates three-, six-, or twelve-month intervals. The proposal would permit monthly intervals, giving shareholders more frequent liquidity windows.
More frequent discretionary repurchases. Funds would have greater flexibility to offer additional repurchase opportunities outside the scheduled periodic interval.
Simplified treatment of oversubscribed offers. The proposal simplifies how a fund handles situations where investors tender more shares than the fund has offered to repurchase.
Deferred first repurchase offer. A newly launched interval fund could wait longer before its first required repurchase offer, letting the manager deploy capital rather than reserve liquidity for an early redemption window.
Multiple share classes without individual exemptive relief. The SEC would codify the existing exemptive-order framework so registered closed-end funds and BDCs could use multiple share classes under a rules-based regime, rather than applying to the SEC individually, and would rescind the corresponding individualized exemptive orders once codified.
Deferred sales loads deductible from repurchase proceeds. This makes interval-fund distribution economics more compatible with multiple retail share classes.

Taken together, these changes genuinely expand shareholder-facing liquidity options and reduce regulatory friction for managers without, on their own, degrading investor protection. That is a meaningfully different category from the three issues below, which raise harder investor-protection questions. The dividing line is whether modernization gives investors better access on better terms or simply gives managers more room to reproduce private-fund economics inside a registered wrapper.

My first objection: performance fees

If “retailization” is the objective as stated by Commissioner Atkins, the discussion should start with lowering the total cost to the investor, not adding another layer of compensation. That is where my first objection begins.

I am not opposed to performance fees in principle. If the total fee burden, inclusive of the performance fee, is lower or demonstrably better aligned, I am open to it.

What concerns me is importing private-fund economics into a retail product without the investor receiving better all-in economics after management fees and incentive compensation.

Historical precedent drives to one conclusion. Lower fees equals broader acceptance. One attraction of interval funds today is that, in many cases, they offer private-market exposure at fees that compare favorably with traditional private-fund economics. The advisor/investor community is rightfully fee-sensitive. If expanding performance fees pushes the all-in cost of interval funds toward private-fund pricing, the SEC may undermine one of the very features that makes the structure attractive to advisors and their clients. If investors reject the economics, the entire “retailization” effort risks becoming a fool's errand. Access to retail capital is enormously valuable to managers. The benefits of scale should accrue not exclusively to the manager but rather primarily to the investor.

My second objection: valuation has to come first

Before expanding performance compensation, we need to fix how the purchase and redemption price is determined. That issue should come first.

In these funds, NAV is not merely an accounting or reporting number. It is the price at which investors enter and leave. If NAV does not reflect a security's defensible fair value, value shifts among purchasers, redeemers, and remaining shareholders. Add a performance fee based on an unreliable share value, and the fund may pay, or fail to pay, for performance that is not accurately measured. In part, this is the topic SEC's chief economist and Director of Investment Management issued a critical release about. Read my Th e SEC’s Warning Shot on NAV.

My recommendation is to first establish confidence that NAV reflects defensible fair value, inclusive of market conditions, before using it as the basis for expanded performance compensation. And only if the performance fee purpose is better alignment not incremental cost.

My third objection: financing liquidity instead of holding liquidity

I do not support moving liquidity management from the asset side of the balance sheet to the liability side. The current framework effectively requires an interval fund to maintain cash that can support the fund’s repurchase obligation.

The proposal would eliminate that requirement and replace it with a more principle-based approach. In practice, when that choice falls to the manager, I believe many managers will choose to borrow. That may reduce cash drag, but it also means the fund can become more leveraged precisely when investors are asking for their money back. I do not view that as an improvement in investor protection. The opposite is true. I call this not a principle-based approach, but a leverage-friendly approach.

Why that concerns me

Leverage has become the preferred solution throughout private markets. Managers use leverage at the asset level. Managers use leverage at the fund level. Managers use leverage in SPVs. Managers use NAV facilities and other financing structures to manufacture liquidity. And now we are increasingly using leverage in secondary funds and transactions to provide liquidity to aging private funds. The liquidity stack and its circularity are getting perilous.

In some circumstances, each of those tools makes sense. My concern is that I’m seeing leverage become the default answer to every liquidity problem.

That is Maslow's hammer: if the only tool you have is a hammer, every problem starts to look like a nail.

A redemption request is a liquidity obligation. It should be met with cash on the balance sheet, not with incremental leverage layered onto an already illiquid portfolio.

Bottom line

I support bringing more private-market activity inside the '40 Act umbrella. But modernization should not mean removing all disadvantages managers perceive in the registered structure, especially when those disadvantages also function as investor protections.

If we loosen liquidity requirements, permit more performance compensation, and allow portfolios to become more fully invested in illiquid assets, we will be handing managers a bigger hammer. When the answer to every liquidity problem is leverage, eventually the hammer will land on the investor's thumb. It will be painful.

The proper priorities are straightforward: better valuation discipline, lower total fees, and genuine asset-side liquidity. Above all, not more leverage.

Mark Goldberg is the founder of Alternative Investments Market Intelligence (AltsMI.com). He has served as chief executive officer of investment management and broker-dealer firms and received the Institute for Portfolio Alternatives’ Lifetime Achievement Award for his contributions to the wealth management industry. Through AltsMI.com, Mark publishes the Alts Leaders Survey and research on private-market adoption in the wealth channel. His commentary and published research are widely read, and he is a featured speaker at industry events.

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