Articles Tagged with Accredited Investors

The U.S. Securities and Exchange Commission (SEC) has put out a report assessing the definition of who qualifies as an accredited investor. The 2010 Dodd-Frank Act mandates that this definition be reevaluated every four years.

Accredited investors are allowed to take part in investment opportunities that are typically not available to non-accredited investors. The definition helps to identify who has the financial sophistication to get involved in such investments, as well as handle the possible risks involved in investing in hedge funds, private companies, venture capital funds, private equity funds, and other such investments.

Currently, anyone who has a yearly income over $200K or a total net worth greater than $1M is allowed to qualify as an accredited investor. (As of 2010, an investor’s main residence may no longer be included in the calculation of his/net worth.) In the report, prepared by staff from the Divisions of Corporation Finance and Economic Risk and Analysis, the Commission is asked to consider a number of suggestions, including revising the financial threshold qualifications for natural persons who meet the accredited investor definition, as well as modifying the list-based approach that allows entities to satisfy the definition. Other suggestions:

– Subject to investment limitations, keeping the current thresholds for net worth and current income as criteria for who can qualify.
– Establish new thresholds for inflation-adjusted income and net worth that are not impacted by investment limitations.
– Allow spousal equivalents to put together their money to qualify as accredited investors.
– Modify the accredited investor definition as it applies to entities by using a $5M investments test instead of a $5M assets test.

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