Updated Accredited Investor Definition Expands Investor Access to Private Offerings

WHAT HAPPENED?

On Aug. 26, 2020, the United States Securities and Exchange Commission updated the “accredited investor” definition in the Securities Act. Until this point, “accredited investors” were limited to certain individuals based on income or net worth. With the amendments to the definition, the SEC aims to increase access to private capital markets for previously unqualified market participants.

KEY TAKEAWAYS

The new categories for those who may qualify as accredited investors include:

  • Individuals with certain certifications or credentials; the initial order includes Series 7, Series 65, and Series 82 licenses. However, other certifications and credentials will be added to the definition from time to time, as the SEC sees fit.
  • Individuals investing in private funds who are “knowledgeable employees” of the fund, such as the fund’s key executives or employees participating in investment activities.
  • Certain entities with at least $5 million in corporate or business assets, including limited liability companies, SEC- and state-registered investment advisers, exempt reporting advisers, and rural business investment companies.
  • Entities formed without the specific purpose of investing in offered securities which own at least $5 million in investments, including tribal governments, governmental bodies, funds, and foreign entities.
  • Family offices with at least $5 million in assets under management and their family clients.
  • Spousal equivalents, who may now pool finances for the purpose of qualifying as accredited investors.

WHAT DOES THIS MEAN FOR ME?

With this expanded access to private capital markets, your firm may experience increased interest in private offerings among prospective or existing clients. If your firm manages private placements and you have questions about who may now qualify as an accredited investor, Fairview can offer guidance. Contact us with questions about accredited investor eligibility and what the amended rule could mean for your firm.

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Fairview®
Founded in 2005 with the goal of developing streamlined solutions for investment advisers, Fairview® is now servicing investment advisers, foundations, and funds with nearly $300 billion in collective assets.