Investment Advisers, Family Offices, and Larger Entities Qualify as “Accredited Investors”
The SEC has expanded the accredited investor definition to include SEC and state registered investment advisers, exempt reporting advisers, certain credentialed natural persons, and sizeable family offices. Taking action following its 2019 concept release, the SEC has expanded the universe of potential investors in private funds. Eligible investors will include banks, broker-dealers, investment advisers, exempt reporting advisers, registered investment companies, and public plans and employee benefit plans with $5 Million to invest. The new definition also includes any person with a Series 7, 65 or 82 license and allows the SEC to accept additional professional certifications or designations upon request. Other new categories include family offices with $5 Million in AUM (and their family clients) and any entity that owns at least $5 Million in investments and not specifically formed to invest in securities. The revised definition does not change the income ($200,000) and net worth ($1,000,000) tests.
We have long advocated for an accredited investor definition focused more on financial knowledge and sophistication rather than category. Ideally, we believe that issuers should be able to rely on investor representations that the investor is sophisticated enough to purchase privately-offered securities. If there is a need for a more objective standard, the SEC could develop a financial test that would assure and certify sufficient knowledge. Perhaps, some enterprising person or group will develop such a course of study that the SEC could designate as a qualifying certification?