Change to definition of "accredited investor"

[Amy Wan]

Big news, syndicators: This morning, the SEC adopted amendments that expand the definition of 'accredited investor'. This has been a LONG time coming. The changes will be effective 60 days after publication in the Federal Register:

According to the SEC, the amendments to the accredited investor definition in Rule 501(a):

• --add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials, including the Series 7, Series 65, and Series 82 licenses as qualifying natural persons. (The Commission will reevaluate or add certifications, designations or credentials in the future);
• --include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund;
• --clarify that limited liability companies with $5 million in assets may be accredited investors and add SEC- and state-registered investment advisers, exempt reporting advisers and rural business investment companies (RBICs);
• --add a new category for any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries;
• --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.

They did not index income/wealth thresholds to account for inflation, which would have decreased the number of individuals that qualify as an accredited investor.

Not everyone is happy with the changes ( https://www.sec.gov/news/public-statement/lee-crenshaw-accredited-investor-2020-08-26) but syndicators should be.

[Mack Benson]

I just saw this come across. 

I was pleasantly surprised because I had heard that they would change the net worth requirement because some say it has not kept up with inflation. For me the first two are big deals. Accepting individuals with expert knowledge of investments is a great change. To me it has always been odd that a financial advisor who may not have the income or the net worth was unable to invest in a syndication. 

It's also nice to see that "knowledgeable employees" of a private fund can now invest alongside the firm they work for. This can show a huge alignment of interests within an organization.