The Securities and Exchange Commission (SEC) has recently proposed to amend the definition of “accredited investor”. Qualifying as an accredited investor may enable an investor to participate in private investment opportunities that are generally not available to the general investment public, such as investments in certain hedge funds and private equity funds. Specifically, the SEC proposes to add the following new categories to the definition of “accredited investor”:
natural persons with certain professional certifications and designations (such as a Series 7, 65 or 82 license), or other credentials issued by an accredited educational institution;
“knowledgeable employees” of a private fund;
limited liability companies that meet certain conditions, registered investment advisers and rural business investment companies (RBICs);
any entity owning in excess of $5 million in investments, provided such entity was not formed for the specific purpose of investing in the securities offered; and
“family offices” with no less than $5 million in assets under management (AUM) and their “family clients”.
In addition, the proposed rule adds a new term “spousal equivalent” to the accredited investor definition, which allows spousal equivalents to pool their finances for the purpose of qualifying as accredited investors. “spousal equivalent” is “a cohabitant occupying a relationship generally equivalent to that of a spouse”.
According to the SEC, the proposed rule would more effectively identify knowledgeable individuals and sophisticated institutional investors to participate in private investments. The proposed rule is currently open for public comments until February 16, 2020 and is available at here.