Dear Members and Friends,
In an open meeting earlier today, the Securities and Exchange Commission (SEC) proposed amendments to the accredited investor definition that would allow more individuals and entities to invest in Regulation D offerings and participate in the private capital markets, including portfolio diversifying investments (PDIs). You can read the SEC’s full press release with an overview of the proposed rules here. As stated in the release, the public comment period will remain open for 60 days following publication in the Federal Register.
Expanding the accredited investor definition has been a cornerstone of the IPA’s advocacy initiatives, arguing just recently in the IPA’s Comment Letter on its Harmonization Concept Release that the current thresholds exclude sophisticated and otherwise qualified investors from pursuing opportunities currently available only to accredited investors. The IPA argued, for example, that the SEC should expand the definition to include certain licensed individuals such as those that have Series 7, 65 or 82 licenses. We are encouraged that the SEC included this suggestion in its proposal, along with the consideration of “other credentials issued by an accredited educational institution.” We look forward to reviewing the proposal in greater detail and providing support for these recommendations, as well as additional comments and suggestions to the Commission.
Highlights of the proposal include:
- The proposed amendments to the accredited investor definition would add new categories of natural persons based on professional knowledge, experience, or certifications.
- The proposed amendments would also add new categories of entities, including a “catch-all” category for any entity owning in excess of $5 million in investments. In particular, the proposed amendments to the accredited investor definition would:
- add new categories to the definition that would permit natural persons to qualify as accredited investors based on certain professional certifications and designations, such as a Series 7, 65 or 82 license, or other credentials issued by an accredited educational institution;
- with respect to investments in a private fund, add a new category based on the person’s status as a “knowledgeable employee” of the fund;
- add limited liability companies that meet certain conditions, registered investment advisers and rural business investment companies (RBICs) to the current list of entities that may qualify as accredited investors;
- add a new category for any entity, including Indian tribes, owning “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered;
- add “family offices” with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act; and
- add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.
The IPA will share the text of the proposed amendments as soon as it is available.
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives