Next OpenAIs and Anthropics may come straight to retail market. Here's what to know before investing

Amid ongoing hype around tech darlings going public, from Anthropic to OpenAI, many retail investors are chomping at the bit for access to private stock markets.

Investing in private companies has traditionally been reserved for more sophisticated investors, but there are ways retail investors can participate. This goes beyond being lucky enough to work for a private company that's doling out shares or participating in an investment round for friends and family.

The trend is set to accelerate as the Securities and Exchange Commission commits to a policy of offering more ways for retail investors to access investments traditionally off limits to them. This week, SEC chairman Paul Atkins said that in response to investor demand, the SEC is issuing new proposals to make sure that these investments are "not be reserved for the wealthiest or for those deemed to be the most sophisticated."

The SEC proposals include permitting registered investment advisers to charge performance fees of up to 20% on public funds — a level comparable to fees historically used in the hedge fund and alternatives space. The SEC is also considering new ways for individual investors to qualify for access to private market investments associated with "accredited investors" — including passing an exam.

Already, there are about two dozen publicly available closed-end funds focused on private equity or venture capital, according to Morningstar Direct. "It's a way to get private market exposure without getting too much exposure to one company," said Emily Zheng, senior research analyst at PitchBook, a Morningstar company.

There are also ETFs in the market that straddle the line between public stock holdings and private companies.

Here's what investors need to know about investing in these types of funds, and what they can learn from these funds about a future in which more of what has been traditionally private becomes accessible to more of the investing public.

Private equity generally focuses on established businesses looking for restructuring or growth capital, whereas venture capital targets high-growth-potential early-stage startups. Either way, these investments are inherently risky and have longer investment timelines.

The private companies held within publicly traded funds are illiquid, and there can be a disconnect between the worth of the underlying securities and what individual investors are willing to pay for the funds. Some of the funds are only available through select brokerages, and investment minimums may apply. Though there's a lot of focus on how to make money by investing in private companies right now, investors have to be careful, financial advisors say.

Which fund or funds you buy can depend on what your brokerage offers.

Sofi, for example, offers access to certain funds that may not be available through other brokerages. Private and venture funds on Sofi's platform include the ARK Venture Fund (ARKVX), the CAZ GP Stakes Fund (CZGIX) and the Cashmere Fund (CSHMX). Other funds, like the Robinhood Ventures Fund 1 (RVI), the Destiny Tech100 Closed End Fund (DXYZ) and the Fundrise Innovation Fund (VCX) can be purchased at brokerages such as Robinhood and Fidelity.

Before buying a private equity or VC fund, it's important to check which companies the funds hold, especially if you want access to certain well-known private companies on the verge of going public or that have expressed plans for an eventual IPO. ARK Venture, for example, held OpenAI and Anthropic as part of its top-10 holdings as of Aug. 31. Robinhood Ventures Fund 1's top holdings include fintechs Ramp and Revolut, and OpenAI.

Keep in mind, you won't have financials to look at for many of the portfolio holdings because they're private companies, and often, there's not a lot of public information on the companies within these funds, especially if they are early start-ups. "You can find a lot more information about OpenAI than a company that's just starting out," Zheng said.  "You have to be okay with that and know it's a risk you're taking."

Because the assets in these funds aren't liquid, an investor's timeline is an important consideration, said Adrianna Adams, head of financial planning at New York-based financial planning firm Domain Money. "They are meant to be long-term investments," she said. "If you want liquidity the next year, the investment hasn't really had the chance to get going yet."

With any fund under consideration, investors should check the policies for cashing out. Can they buy and sell like any other stock, or only a certain percentage each quarter?

On the debt side of things, that has been a big issue in private credit this year, with many investors stampeding for the exits and being blocked by big alternative investment fund managers based on prospectus rules for redemptions.

Investors should also consider their goals for the money and whether they can afford to lose their investment. Also, can they stomach the volatility associated with these funds? If clients have enough income to recover from a loss and it wouldn't hurt their goals, Adams said she wouldn't object to them investing.

Investors need to be aware that fees in private equity and VC funds are typically significantly higher than index funds or ETFs made up of public company stocks, said Rami Sarafa, chief executive at Cordoba Advisory Partners in New York. Expense ratios for these funds can be in the 3% to upper 4% range. Also, some investors may pay higher fees depending on the brokerage they purchase the fund from, Sarafa said.

Among ETFs that can give investors some exposure to private companies, it remains minimal  comparatively, based on SEC rules limiting net assets in illiquid investments to no more than 15% of a public fund.

One option is the KraneShares Public-Private AI & Technology ETF (AGIX). It's got an expense ratio of 1%, but its top 10 holdings were all public companies as of Sept. 30, but it has exposure to both Anthropic and Polymarket among its top private holdings. Most of the holdings in the ERShares Private-Public Crossover ETF (XOVR) are also publicly traded companies — its top private holding is a special purpose vehicle tied to SpaceX shares before it went public. Its expense ratio is 0.75%.

How much of an allocation is appropriate will vary based on an investor's risk tolerance, time horizon, liquidity needs and other factors, said Daniel Milan, managing partner at Cornerstone Financial Services in Southfield, Michigan.

Retail investors generally shouldn't invest more than 10% of their asset allocation in alternative investments, a category that includes private equity and VC funds as well as private credit, cryptocurrency and real estate. So, depending on the makeup of your portfolio, your allocation to private equity and venture capital funds could be significantly less, maybe 2% to 5%. 

"Regardless of your overall level of wealth, the more cash or liquidity that you already have and the longer your time horizon is, the greater your pro rata percentage could potentially be," Milan said.

Many advisors don't like to recommend private equity or venture capital funds to less sophisticated investors. Rather, they generally only recommend them to clients with net worth over $1 million and who have income exceeding $200,000 individually or $300,000 with a spouse or partner.

Adams said while more access these days is great, that doesn't always mean it's a good investment or opportunity. She had clients saving for college in a brokerage account who were considering putting some money into a private equity fund. But since those funds were needed within a few years to pay for a child's college education, it was too risky to tie up that money. However, once college tuition is behind them and they have extra funds while continuing to save for retirement, they might have the ability to take on the liquidity risk and be in a better position to do so. But remember, "Just because it's accessible doesn't mean it's in your best interest," Adams said.

—CNBC's Sharon Epperson and Hugh Leask contributed to this report.