On August 26th, the Securities and Exchange Commission (“SEC”) adopted amendments to the “accredited investor” definition in Rule 501(a) of Regulation D, a key determinant for eligibility to invest in unregistered securities.
The amended definition expands access to private capital markets to a broader swath of potential investors, such as “knowledgeable employees” (with respect to investments in a private fund), those holding certain professional credentials or licenses (Series 7, 65 and 82, Chartered Financial Analysts and others that the SEC may designate from time to time), SEC and state registered investment advisers, exempt reporting advisers, as well as any entity, including limited liability companies, Native American tribes, funds and entities organized under foreign law, that own investments in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered, and family offices (and their “family clients”) with investments of at least $5 million, among others. The amended definition also adds the term “spousal equivalent” for purposes of clarifying who can pool their finances to qualify as an accredited investor.
Notably, the net worth and income standards for individuals and entities under the definition were not updated – which is interesting given the focus in recent years over updating such amounts to take into account inflation – consistent with the thrust of the current amendments to expand access to investors not only based on their personal wealth, but also based on their level of financial sophistication.
These changes follow decades of growth in private capital markets and are expected to facilitate capital raising for early stage companies and private funds.
These amendments become effective 60 days after publication in the Federal Register.
See this link to the SEC’s press release for more information regarding the amended “accredited investor” definition.