By: Kirsten Bartholomew & Ferran Arimon
On Wednesday, the Securities and Exchange Commission (“SEC”) adopted several amendments to the definition of “accredited investor.” The amendments are intended to improve the definition of “accredited investor” to more effectively identify individual investors and institutions that have the knowledge and expertise to invest in private markets by adding defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth.
Amendments to the accredited investor definition include:
- addition of a new category that permits natural persons with certain professional certifications/designations or other credentials issued by an accredited educational institution, which the SEC may designate from time to time by order (in conjunction with the adoption of the amendments, the SEC designated holders in good standing of the Series 7, Series 65 and Series 82 licenses as qualifying natural persons);
- for private funds, addition of natural persons who are “knowledgeable employees” of the fund;
- clarification that limited liability companies with $5 million in assets may be accredited investors;
- addition of a new category for any entity that own “investments” (as defined in Rule 2a51(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;
- addition of “family offices” with at least $5 million in assets under management and their “family clients” (as such term is defined under the Investment Advisers Act); and
- addition of the term “spousal equivalent” to the accredited investor definition, allowing spousal equivalents to pool their finances for the purpose of qualifying as accredited investors.
These amendments will become effective 60 days after publication in the Federal Register. The complete text for the amendments can be found here.
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