Wall Street has a problem, and it wants you to solve it-with a helping hand from the government.

Giant investors like pensions and endowments have stuffed themselves so full of private equity, venture capital and other nontraded "alternative" funds that many are suffering indigestion. Private-equity funds are sitting on trillions of dollars in companies they haven't been able to sell for years. The stocks of major alternative-fund sponsors have fallen 12% to 36% this year. Meanwhile, 2-year Treasurys have recently offered yields of almost 5%, making riskier alternatives less attractive.

And this week the Securities and Exchange Commission proposed new rules that would open the floodgates for individual investors to buy private funds.

Among other things, the proposals would enable managers to take a hefty percentage of a fund's profits and make some less-liquid funds easier to trade.

Introducing the SEC proposals, Chairman Paul Atkins made the agency's objectives clear. "Exposure to the full dynamism of our markets should not be reserved for the wealthiest or for those deemed to be the most sophisticated," he said. "At its core, this is a question of freedom and fairness."

Freedom and fairness for whom? If you're a libertarian, you could argue that people should be free to invest in whatever they want as long as they understand the risks, and that's only fair. If you're a skeptic, you might wonder whether freedom and fairness create risks many people shouldn't take.

I asked Robert Plaze, a veteran fund attorney and former deputy director of the SEC's investment-management division, how he would describe the proposed changes. "These new rules aren't about giving retail investors more access to private funds," he said with a dry laugh. "They're about giving private-fund sponsors more access to retail investors."

Most important, the proposed regulations, which are subject to revision after a two-month public-comment period, would lift the SEC's decades-old prohibition on performance-based fees in many funds. That would enable something like the notorious "2 and 20" structure, in which private-fund managers take 2% annual fees plus up to 20% of any gains, to apply in funds available to the general public. (The proposal puts a 20% hard limit on performance fees.)

The reasonable-sounding idea is to level the playing field: Smaller investors haven't had access to the best alternative managers because those managers have naturally stuck to private funds, where they aren't constrained from earning performance fees.

But what about the elephant stampede that has been under way for the past few years? Gigantic alternative managers such as Apollo and Blackstone have been racing to offer funds to individual investors, often without larcenous performance fees. Why add the ability to charge higher costs?

And I have a more fundamental problem with all this. In theory, everyone should have access to the same set of investment opportunities, including private assets. In practice, it's a bad idea.

Private assets differ from publicly traded investments on four major dimensions: fees, valuation, conflicts and liquidity.

Alternative funds often charge annual fees and expenses hundreds of times higher than those of market-tracking mutual funds and exchange-traded funds.

They use private estimates, rather than public prices, to value their portfolios-resulting in sometimes freakish results, like 1,000% gains in a day.

They're rife with potential conflicts of interest, like the payment of performance fees on gains a fund hasn't even earned yet.

Above all, alternative funds hold assets that seldom trade, so you in turn may have to hold them for years-and might not be able to get your money out when you need it.

Investors in funds holding private assets have gotten stuck, unable to withdraw their money when they wanted to, over and over and over again in recent years. The SEC proposals would give interval funds, one type of vehicle that holds alternative assets, more flexibility in how and when they let investors cash out.

Brian Daly, head of the SEC's investment-management division, says the rule proposals aren't meant to prop up an industry struggling to find new sources of growth.

"While rulemakings always have today's market in mind," he says, "they're intended to be durable and even generational, to apply 10, 20 or 30 years down the road as well as now."

True enough, but in my view the rule proposals ignore the basic distinction between institutional and individual investors.

Pensions and endowments have near-perpetual horizons, billions in assets, multiple sources of income and legions of in-house analysts, giving them access to the best private managers-and the ability to lock money up for years, even decades at a time.

Even so, institutions are backing away after they, too, needed liquidity these funds don't provide.

Individual investors, by contrast, have finite lives, limited assets, only a few sources of income, and no expertise or experience in analyzing these complex investments.

For individuals, not being able to get your money out when you need it isn't an inconvenience; it's potentially catastrophic.

So, if you want to invest like Yale, you need to be like Yale. Many individual investors do have sufficient wealth, endurance and experience to make alternative investments an appropriate choice.

Most don't.

That's one reason why, in 1982, the SEC implemented its "accredited investor" standard, which generally requires individuals buying private offerings, including funds, to have annual income exceeding $200,000 or at least $1 million in net worth. (Since 2011 the net-worth definition has excluded the value of the investor's primary residence.)

Adjusted for inflation, the rough equivalents today would be more than $700,000 in income and net worth of $6.6 million.

In my opinion, people who have almost $7 million in assets and earn more than $700,000 are plausible candidates to be able to withstand the illiquidity and other risks of private funds. People with $1 million in assets and $200,000 in income usually aren't. Those with even less, fuhgeddaboudit.

Regulations can change how funds are structured. They can't change who should buy them-or that these particular rules are about selling, not buying.