Valuations in Focus: Retailization and the Rising Regulatory Bar

Introduction 

The push to democratize access to private markets has gained undeniable momentum. What was once a space limited to institutions and ultra-high-net-worth investors is rapidly opening up to a broader base, thanks to new fund structures, digital platforms, and growing demand for yield and diversification. 

But this expansion comes with rising scrutiny. As more retail money enters illiquid markets, regulators on both sides of the Atlantic are dialing up oversight—particularly around how these assets are valued. For fund managers, especially those offering semi-liquid products or engaging with new investor types, valuation is one of the most visible—and regulated—components of their operating model. 

This post explores how retailization is impacting valuation expectations, what the SEC and FCA are signaling for 2025, and how emerging technologies like AI are shifting the conversation even further. 

Retailization: A Structural Shift with Operational Implications 

Retailization is not a passing trend, it’s a structural evolution in capital formation. In the U.S., we’re seeing significant growth in interval funds, tender offer funds, and evergreen BDCs targeting accredited or mass affluent investors. In the UK, the Long-Term Asset Fund (LTAF) framework has opened the door for defined contribution pension schemes and select retail investors to access traditionally illiquid assets like private credit and infrastructure. 

These vehicles bring new operational demands—chief among them: valuation frequency, governance, and transparency. Unlike traditional closed-end structures where valuations occur quarterly and behind the scenes, retail-facing products often require monthly or even daily NAVs and public disclosures. The demand for more frequent redemption periods increases the complexity of valuing illiquid, infrequently traded, and interest rate-sensitive holdings—especially in volatile or rapidly changing market environments. 

Regulatory Requirements: Scrutiny Is Growing 

In 2025, both the SEC and the FCA made it clear that valuation is a regulatory priority, especially as it relates to protecting retail investors and ensuring fair and accurate fund reporting. 

Valuation Governance and Independence 

Valuation isn’t just about methodology, it’s about process. Both regulators are pushing for stronger governance frameworks to mitigate conflicts of interest, especially where managers have discretion over valuations that impact fees or performance. 

The FCA’s multi-firm review in 2024 found that while valuation approaches were broadly consistent, firms often lacked independent oversight and clear documentation around ad hoc or stress valuations. Similarly, the SEC’s enhanced Rule 2a-5 requires funds to assign valuation responsibility to a designated board or officer, with documented processes for assessing inputs, managing pricing service oversight, and addressing valuation risks. 

This governance burden intensifies when products promise liquidity (e.g., monthly redemptions) but hold inherently illiquid assets. Managers need to prove that their valuation approaches are robust, repeatable, and adaptable to rapidly changing market conditions. 

Interest Rate Sensitivity and Market Conditions 

In today’s macro environment, valuation accuracy is not static—it’s dynamic. The SEC has flagged concerns about how rising interest rates are impacting private assets, particularly in credit-heavy portfolios where changes in discount rates or default risk assumptions can materially affect NAVs. 

Managers must be prepared to adjust models mid-cycle when interest rate assumptions or market comparables shift. Failing to do so risks misstated values that could result in unfair treatment of redeeming shareholders, or misaligned fees. This has implications not just for internal valuation teams, but for fund boards and third-party valuation agents who must be equipped to defend or revise marks in real time. 

Retail Protection and Disclosure 

With broader investor participation comes a higher bar for transparency. The SEC’s regulations under the Investment Company Act of 1940 require registered investment companies, including BDCs, mutual funds and ETFs, to provide regular disclosures to investors. This includes the requirement for periodic statements detailing fair value, the realized/ unrealized gains derived from the valuations and other material risks. Additionally, these funds are subject to comprehensive reporting obligations, ensuring that investors receive essential information to make informed investment decisions. Meanwhile, the FCA now treats LTAFs and similar products as “high-risk investments”, subjecting them to appropriateness assessments, mandatory disclosures, and targeted distribution channels. 

These requirements aren’t just legal guardrails—they’re reshaping how valuation outputs are presented, explained, and defended. Fund managers must now treat valuations not only as internal accounting exercises but as investor-facing products—subject to questions, scrutiny, and regulatory audits. 

AI in Valuations: Innovation Meets Accountability 

As regulatory expectations increase and asset complexity grows, many firms are turning to artificial intelligence (AI) and machine learning to augment traditional valuation processes. AI is being used to ingest and analyze vast datasets—from deal comps and credit spreads to macroeconomic indicators and even ESG signals—offering the potential for more frequent, data-driven valuation updates. 

But with that innovation comes a warning: regulators are paying close attention. 

Explainability and Oversight 

Both the SEC and FCA have flagged concerns around “black box” AI models, particularly in contexts where they impact investor outcomes. Prior to his departure, SEC Chair Gary Gensler emphasized that models must be explainable and auditable, especially if they influence pricing, liquidity, or investment decisions. The FCA echoes this sentiment, citing AI explainability as a cornerstone of responsible innovation. 

In valuation contexts, that means any model—no matter how sophisticated—must be: 

• Tested and validated across scenarios 

• Governed by humans with override authority 

• Documented clearly, with rationale for key drivers 

• Transparent, at least at a high level, in investor-facing disclosures 

Firms using AI to support valuation must be able to defend the outputs—not just to regulators, but to investors and fund boards. If an AI model suggests a sharp valuation movement, fund leadership should be able to explain what data triggered the change and whether it aligns with observed market dynamics. 

Used responsibly, AI and automation tools can help firms scale valuation processes, reduce latency, and enhance responsiveness in volatile markets. But it must be paired with the same governance rigor applied to traditional valuation methods. For many managers, that will mean integrating AI into existing committee frameworks, building internal “explainability” tools (the ability to understand how a model arrives at a particular decision or output), and maintaining audit trails that stand up to regulatory scrutiny. 

Conclusion 

Retailization is changing the game—and valuation is at the center of the board. What was once a quarterly back-office task is now a front-line regulatory focus and a key trust driver for investors. 

Fund managers must be prepared to operate in a world where: 

• Valuation cycles are faster 

• Governance expectations are higher 

• Investor disclosures are deeper 

• AI is both a tool and a risk vector 

The convergence of retail finance and private markets is ushering in a more transparent, technologically-enabled, and regulated era for alternative investments. Firms that move with these currents – leveraging their deep asset expertise plus new tools and robust controls – will not only satisfy regulators, like the SEC and FCA, but likely outperform peers by gaining the confidence of a broader investor audience. The regulatory spotlight may feel intense at times, but it ultimately helps illuminate a path toward a more sustainable and inclusive private markets ecosystem.  

Contact Alpha Alternatives 

As trusted advisors in this domain, we stand ready to help our private market clients navigate these changes, implement best-in-class solutions, and seize the opportunities that arise when innovation and regulation progress hand in hand. For more information, please contact Taylor Giesler tgiesler@lionpointgroup.com.  

Stay tuned for Part 2 in our Valuations Series, where we’ll explore ‘System Selection for Valuation Technology Platforms.’