Private Investments SubCommittee Update

SEC Asset Management Advisory Committee –

19th March 2021
Agenda

 Discuss returns from other asset classes

 Private Debt

 Real Estate

 Discuss Design Principles

 Some initial feedback

 Emerging “main” issues for rest of Committee to 

consider

 Discuss comments / suggestions that have been 

received by the SEC relevant to the issue

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 Real Assets (other than Real Estate)

 Lack of public market comparisons

 Structured Products

 Very large market ($7tn approx.)

 Used largely by insurance companies and very large 

investors with long term investment horizons

 Hedge Funds

 Also a very large market ($3.5tn approx.)

 Variety of asset classes and strategies which make any 

comparison to public markets impossible

 We did not ultimately seek to compare some 

perceived risky retail products such as levered ETFs / 

ETNs and options with private investments

What we 

decided to 

not look at

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What restrictions should there be, if any, on the ability of closed-end 

funds, including BDCs, to invest in private funds, including private 

equity funds and hedge funds, and to offer their shares to retail 

investors?1

 Use of the registered investment company regime to allow 

retail investors to invest in private funds

 Removal of the 15% limit on closed end funds (“CEFs”) investing 

in private funds

 Allowing CEFs that invest in private funds to list and create a 

secondary market

 Increasing flexibility of interval funds and tender offer funds to 

make them more suitable for private investments

 Allowing advisers of RICs to be affiliated with underlying 

sponsors

 Allow target date funds to have greater % of investment in 

private investments that decrease as target date gets closer

Comments / 

Suggestions 

from public 

comment 

letters to 

Harmonization 

Concept 

Release 

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Sources:

Harmonization Concept Release 

Public Comment Letters to the Harmonization Concept Release

1. Question #115 on Pg 188 of the Commission’s Concept Release on Harmonization of Securities Offering 

Exemptions (“Harmonization Concept Release”). See also Questions #116, 117, 121, 122, 128, and 129 on Pgs 188 

– 193 of the Harmonization Concept Release.
Unless otherw ise noted, information as of 

A P O L L O G L O B A L M A N A G E M E N T

March 19, 2021

March 2021

Private Debt Landscape

John Suydam, Senior Partner & Chief Legal Officer – Apollo Global Management

SEC Asset Management Advisory Committee
Private Debt Can Take Many Forms

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(1) These view s reflect the view s and opinions of Apollo Global Management.

What is the definition of private debt?

Security

▪ The definition of private debt can vary widely, but generally private debt refers to debt held by, or loans made to, private 

companies

- It is also helpful to contextualize what private debt is not: broadly syndicated, CUSIP’d loans widely available for liquid 

trading in the secondary market

▪ Key categories of differentiation in private debt include security type, asset class and the lender’s source of capital

▪ Private debt investment vehicles may isolate specific variables below or could involve mandates with broad flexibility across the 

private credit investing spectrum

Senior

Subordinated / Mezzanine

Secured

Unsecured

Unitranche

Lender Capital

3(c)(7) Fund

Registered Fund

Mutual Fund

Interval/Tender Fund

BDC

Asset Classes / Strategies

Corporate

Asset-Backed

Infrastructure Debt

Distressed

Structured Credit

Venture Debt

Real Estate Debt

Special Situations

Banks

Other Non-Bank 

Financial Institutions
(4)

(2)

0

2

4

6

8

10

12

14

16

1-Year 3-Year 5-Year 10-Year 20-Year

Senior Debt Subordinated Debt Credit Opportunities

Private Credit Composite Bloomberg Barclays Gov't Bond / Credit Index Bloomberg Barclays Corp HY / FTSE HY

Russell 3000

Private Debt Benchmarking

3

Source: Large, well-known global consulting firm. As of September 30, 2020. Data compiled from 512 private credit funds, including fully liquidated partnerships, formed between 1986 and 2020. (1) Pooled horizon return, net of fees, 

expenses, and carried interest. (2) Large, well-known global investment firm’s adjusted modified public market equivalent replicates private investment performance under public market conditions. The public index’s shares are 

purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and NAV is a function of public market cash flows and public index returns. (3) Bloomberg 

Barclays US Corporate High Yield/FTSE High Yield Market. Data from 1/1/1986 to 1/31/1989 represented by Bloomberg Barclays USCorporate HY index. Data from 2/1/1989 to present represented by FTSE HY Market.

Private Credit Benchmarking Analysis

% Annualized Return

▪ Given the nuance within private credit strategies and risks associated with each individual investment, it is challenging to measure private 

credit against an appropriate public market benchmark

- Many industry participants compare private credit to a corporate HY benchmark as well as public equities across a variety of time periods

▪ Private credit tends to lag public market alternatives over shorter time periods, but outperforms over the longer -term

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Private Investments SubCommittee Update

SEC Asset Management Advisory Committee –

19th March 2021
Real Estate 

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Real Estate

Categories of domestic real estate investments

 Core 

 Core properties require very little asset 

management and are typically occupied with credit 

tenants on a long term basis.

 Core Plus

 Core plus properties have the ability to increase 

cash flows through light property improvements, 

management efficiencies or by increasing the 

quality of tenants. Similar to core properties, these 

properties tend to be of high-quality and well 

occupied.

3
Real Estate

Categories of domestic real estate investments

 Value Add  Value add properties often have little to no cash flow 

at acquisition but have the potential to produce cash 

flow once the value has been added. 

 These buildings may have occupancy issues, 

management problems or deferred maintenance.

 Investments require deep knowledge of real estate, 

strategic planning, and oversight by owners.

 Opportunistic  Opportunistic investments take on the complicated 

projects and may not see a return on their investment 

for three or more years.

 These investments require deep knowledge and 

experience.

 Ground up developments, acquiring an empty 

building, land development and repositioning a 

building from one use to another are examples of 

opportunistic investments. 

 Little or now cash flow at acquisition but have the 

potential for significant cash flow once the value has 

been added. 

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Real Estate

Investment Returns

We looked at investment returns from Cambridge Associates 

and Hamilton Lane through 9/30/20.

Cambridge Associates utilized FTSE NAREIT All Equity Index 

and Hamilton Lane utilized the Dow Jones Equity REIT Total 

Return Index.  Both contain certain tax qualified REITs that also meet 

minimum size and liquidity criteria. 

Both Cambridge Associates and Hamilton Lane employ a 

methodology to convert the private investment real estate IRR 

returns to a public market equivalent using certain 

assumptions. 

In looking at the return information, generally over a 3, 5 and 

10 year period the private investments out performed the 

public REIT between 100 to 300 basis points.

In looking at the 1 year return through 9/30/20 there was 

significant over performance from private real estate. This 

could be explained by the difference of share based total return 

in public REITs compared to asset based valuation for a private 

fund during the COVID environment. 

There were periods (over 15 years) where public equity REITs 

outperformed private real estate which incorporates the 2009 

Global Financial Crisis. 

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Private Investment 

Design Principles

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Design 

Principles 

Criteria

 Liquidity of Investments 

 Diversification

 Institutional Investor Participation

 Disclosure of Fees, Risks and Conflicts

 Avoiding Excessive Risks and Fees

 Aligning Adviser Compensation with 

Investor Interests

 Chaperoned Access

 Investor Choice

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Potential

Private 

Investment

Access

Options for 

Retail 

Investors

 Registered Exchange-Traded ClosedEnd Funds

 Tender Offer or Interval Funds

 Target-Date Funds

 Registered Funds of Private Funds

 Managing Conflicts of Interest

 Chaperoned Access

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Registered Exchange-Traded 

Closed-End Funds

•Should retail non-accredited investors be 

allowed to purchase shares of a registered 

closed-end fund that holds more than 15% of 

its portfolio assets in private investment 

companies?

•Should there be a cap (above 15%) on 

portfolio investments in private investment 

companies? 

•Should securities exchanges be allowed to list 

such closed-end funds for trading?

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Registered Exchange-Traded 

Closed-End Fund

Frequency of 

Calculating NAV

NAV usually calculated daily on 

voluntary basis; Share prices are 

determined in secondary market 

trading

Continuously offered No; shares trade on exchange 

after IPO

Redemptions N/A; Market demand on 

secondary market

Repurchase 

Frequency

N/A

Repurchase Amount N/A

Timing of Payment of 

Repurchase Proceeds

N/A

Illiquid Assets 

allowed

Up to 100%, however private 

investment companies limited to 

15% of net assets (unless sales 

limited to accredited investors 

and fund not traded on an 

exchange)

Repurchase Fees N/A

Performance Fee No performance fee permitted 

based on capital appreciation. 

Adviser may be paid based on 

"fulcrum fee" arrangement or 

performance fee based only on 

dividend/interest income.
Tender Offer or Interval Funds

An interval fund is a type of registered closed- end fund that continuously offers its shares, 

but also makes periodic repurchase offers of 

outstanding shares at net asset value, subject 

to specified requirements under SEC rules. 

Tender offer funds are registered closed-end 

funds that also continuously offer their shares, 

but have greater flexibility with respect to the 

timing and amount of repurchase offers as 

compared to interval funds. However, tender 

offer funds must comply with specified 

Exchange Act tender offer rules that are less 

streamlined than the rules that apply to 

interval funds.

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Tender Offer Fund Interval Fund

Frequency of 

Calculating NAV

Varies Weekly, except daily during 

five business days 

preceding a repurchase 

request deadline; each day 

investors purchase/redeem 

shares

Continuously offered Typically Typically

Redemptions At the discretion of the 

board

Periodic

Repurchase 

Frequency

At the discretion of the 

board

Intervals of 3, 6 or 12 

months; monthly with 

exemptive relief

Repurchase Amount At the discretion of the 

board

Between 5% and 25% 

Timing of Payment of 

Repurchase Proceeds

Paid "promptly" Paid within 7 days of 

repurchase pricing date

Illiquid Assets 

allowed

No liquidity requirements, 

but must be able to fulfill 

tenders "promptly"

Liquidity restrictions apply 

during period between 

notice of redemption and 

redemption pricing date

Repurchase Fees Maximum 2% for early 

withdrawal

Maximum 2% of proceeds 

for repurchase expenses

Performance Fee No performance fee based 

on capital gains unless sales 

limited to "qualified 

clients." Fund with retail 

investors may charge 

"fulcrum fee" or 

performance fee based only 

on dividend/interest 

income.

No performance fee based 

on capital gains unless sales 

limited to "qualified 

clients." Fund with retail 

investors may charge 

"fulcrum fee" or 

performance fee based only 

on dividend/interest 

income.
Tender Offer or Interval Funds

 • Would interval funds or tender offer 

funds be a good means for retail investors to 

access private investments given their 

limited liquidity?

 • Do interval funds and tender offer funds 

offer the right mix of liquidity and access?

 • Are there other limits or investor 

protections that the SEC should adopt for 

this structure?

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Tender Offer Fund Interval Fund

Frequency of 

Calculating NAV

Varies Weekly, except daily during 

five business days 

preceding a repurchase 

request deadline; each day 

investors purchase/redeem 

shares

Continuously offered Typically Typically

Redemptions At the discretion of the 

board

Periodic

Repurchase 

Frequency

At the discretion of the 

board

Intervals of 3, 6 or 12 

months; monthly with 

exemptive relief

Repurchase Amount At the discretion of the 

board

Between 5% and 25% 

Timing of Payment of 

Repurchase Proceeds

Paid "promptly" Paid within 7 days of 

repurchase pricing date

Illiquid Assets 

allowed

No liquidity requirements, 

but must be able to fulfill 

tenders "promptly"

Liquidity restrictions apply 

during period between 

notice of redemption and 

redemption pricing date

Repurchase Fees Maximum 2% for early 

withdrawal

Maximum 2% of proceeds 

for repurchase expenses

Performance Fee No performance fee based 

on capital gains unless sales 

limited to "qualified 

clients." Fund with retail 

investors may charge 

"fulcrum fee" or 

performance fee based only 

on dividend/interest 

income.

No performance fee based 

on capital gains unless sales 

limited to "qualified 

clients." Fund with retail 

investors may charge 

"fulcrum fee" or 

performance fee based only 

on dividend/interest 

income.
Target-Date Funds

Fund companies generally have generally not 

invested in private investments because of 

portfolio liquidity concerns, and because 

investments in private equity funds can 

increase a fund’s expense ratio, which may be 

inconsistent with a retirement plan sponsor’s 

fiduciary duty under ERISA.

• Should the SEC alter its rules limiting 

investments in illiquid investments to permit 

target-date funds to hold more than 15% of 

their portfolio net assets in illiquid 

investments? 

• Is the potentially higher cost structure that 

may result from greater private investments 

justified given the access to a new investment 

class?

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Open-end Target Date Fund

Frequency of 

Calculating NAV

Daily

Continuously offered Yes

Redemptions Daily

Repurchase 

Frequency

Required to meet all daily 

requirements

Repurchase Amount Required to meet all daily 

redemption requests

Timing of Payment of 

Repurchase Proceeds

Paid within 7 days of request

Illiquid Assets 

allowed

Up to 15% of net assets

Repurchase Fees Permissible under SEC Rule 22c-2 

and as stated in prospectus

Performance Fee No performance fee based on 

capital gains unless sales limited 

to "qualified clients." Fund with 

retail investors may charge 

"fulcrum fee" or performance fee 

based only on dividend/interest 

income.
Registered Funds of Private Funds

Some industry commenters have argued that the 

SEC should permit registered investment 

companies to invest more than 15% of its assets in 

one or more underlying private funds, that 

themselves hold investments in private issuers, 

without limiting their investors to accredited 

investors.

• Should the SEC consider revising its affiliated 

transaction rules to allow registered funds to invest 

in affiliated private funds, and if so under what 

conditions?

•Should the SEC require a registered fund of private 

funds to invest only in funds that have substantial 

institutional investor participation?

•Should the SEC adopt other investor protection 

rules?

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Chaperoned Access

Some industry commenters have argued retail 

investors should be allowed to invest in private 

equity funds, but only if access is provided by a 

investment professional with a duty to act in the 

best interest of the retail investor.

Do you believe this structure would be beneficial 

to the retail investor?

Should the SEC prohibit the investment 

professional from receiving sales compensation 

from the issuer? 

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Summary Attributes of Common Fund Offerings

Registered Exchange-Traded 

Closed-End Fund

Tender Offer Fund Interval Fund Open-end Target Date Fund

Frequency of 

Calculating NAV

NAV usually calculated daily on 

voluntary basis; Share prices are 

determined in secondary market 

trading

Varies Weekly, except daily during five 

business days preceding a 

repurchase request deadline; 

each day investors 

purchase/redeem shares

Daily

Continuously offered No; shares trade on exchange 

after IPO

Typically Typically Yes

Redemptions N/A; Market demand on 

secondary market

At the discretion of the board Periodic Daily

Repurchase 

Frequency

N/A At the discretion of the board Intervals of 3, 6 or 12 months; 

monthly with exemptive relief

Required to meet all daily 

requirements

Repurchase Amount N/A At the discretion of the board Between 5% and 25% Required to meet all daily 

redemption requests

Timing of Payment of 

Repurchase Proceeds

N/A Paid "promptly" Paid within 7 days of repurchase 

pricing date

Paid within 7 days of request

Illiquid Assets 

allowed

Up to 100%, however private 

investment companies limited to 

15% of net assets (unless sales 

limited to accredited investors 

and fund not traded on an 

exchange)

No liquidity requirements, but 

must be able to fulfill tenders 

"promptly"

Liquidity restrictions apply during 

period between notice of 

redemption and redemption 

pricing date

Up to 15% of net assets

Repurchase Fees N/A Maximum 2% for early withdrawal Maximum 2% of proceeds for 

repurchase expenses

Permissible under SEC Rule 22c-2 

and as stated in prospectus

Performance Fee No performance fee permitted 

based on capital appreciation. 

Adviser may be paid based on 

"fulcrum fee" arrangement or 

performance fee based only on 

dividend/interest income.

No performance fee based on 

capital gains unless sales limited 

to "qualified clients." Fund with 

retail investors may charge 

"fulcrum fee" or performance fee 

based only on dividend/interest 

income.

No performance fee based on 

capital gains unless sales limited 

to "qualified clients." Fund with 

retail investors may charge 

"fulcrum fee" or performance fee 

based only on dividend/interest 

income.

No performance fee based on 

capital gains unless sales limited 

to "qualified clients." Fund with 

retail investors may charge 

"fulcrum fee" or performance fee 

based only on dividend/interest 

income.