An accredited or sophisticated investor is an
investor
An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some specie ...
with a special status under
financial regulation
Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the stability and integrity of the financial system. This may be handled ...
laws. The definition of an accredited investor (if any), and the consequences of being classified as such, vary between countries. Generally, accredited investors include
high-net-worth individual
High-net-worth individual (HNWI) is a term used by some segments of the financial services industry to designate persons whose investible wealth (assets such as stocks and bonds) exceeds a given amount. Typically, these individuals are defined ...
s,
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s,
financial institutions
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...
, and other large
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
s, who have access to complex and higher-
risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environme ...
investments such as
venture capital
Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which ha ...
,
hedge fund
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
s, and
angel investments.
Laws may require that some types of financial offerings may only be made to
accredited
Accreditation is the independent, third-party evaluation of a conformity assessment body (such as certification body, inspection body or laboratory) against recognised standards, conveying formal demonstration of its impartiality and competence to ...
investors.
Criteria for accreditation
Australia
s 708(8) of the
Corporations Act 2001
The ''Corporations Act 2001'' (Cth) is an Act of the Parliament of Australia, which sets out the laws dealing with business entities in the Commonwealth of Australia. The company is the Act's primary focus, but other entities, such as partners ...
is found in Chapter 6D (
Fundraising
Fundraising or fund-raising is the process of seeking and gathering voluntary financial contributions by engaging individuals, businesses, charitable foundations, or governmental agencies. Although fundraising typically refers to efforts to gathe ...
). It defines "sophisticated investor" so as to exclude them from certain disclosure requirements.
That section provides for an accountant to issue a certificate stating that an individual meets the criteria prescribed in the ''Corporations Regulations 2001'', namely
net assets
Net worth is the value of all the non-financial and financial assets owned by an individual or institution minus the value of all its outstanding liabilities. Since financial assets minus outstanding liabilities equal net financial assets, net ...
of at least
$2.5 million, or a gross income for each of the last two financial years of at least $250,000.
There is a second definition of "sophisticated investor" in s 761GA of the
Corporations Act 2001
The ''Corporations Act 2001'' (Cth) is an Act of the Parliament of Australia, which sets out the laws dealing with business entities in the Commonwealth of Australia. The company is the Act's primary focus, but other entities, such as partners ...
in Chapter 7 (Financial services and markets). It defines sophisticated investors so that they can be treated as wholesale (rather than retail) clients.
According to
ASIC
An application-specific integrated circuit (ASIC ) is an integrated circuit (IC) chip customized for a particular use, rather than intended for general-purpose use, such as a chip designed to run in a digital voice recorder or a high-efficien ...
, a person with a sophisticated investor certificate is a sophisticated investor for the purpose of Chapter 6D, and a wholesale client for the purpose of Chapter 7.
Brazil
On December 17, 2014, CVM issued the Instructions No. 554 and No. 555, which became effective from July 1, 2015 according to
Mondaq
Mondaq Ltd. is a content aggregator service in the legal industry with headquarters in New York, launched in 1994, that operates worldwide, providing free expert financial, and regulatory, and legal information on topics such as employment, tax ...
.
The definition of accredited investors under the
United States SEC’s Regulation D are analogous in Brazil to the combination of two categories of investors, classified by the ''Comissão de Valores Mobiliários'' (CVM) as "''investidor profissional''" (professional investor) and "''investidor qualificado''" (qualified investor) under Instruction 539, articles 9-A and 9-B.
Canada
An "Accredited Investor" (as defined in NI 45 106) is:
# a person registered under the securities legislation of a jurisdiction of
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
, as an adviser or dealer, other than a person registered solely as a limited market dealer under one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland and Labrador); or
# an individual registered or formerly registered under the securities legislation of a
jurisdiction
Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels.
Jur ...
of Canada as a representative of a person referred to in paragraph (a); or
# an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds
$1,000,000; or
# an individual whose
net income
In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, a ...
before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year; or
# an individual who, either alone or with a spouse, has net assets of at least $5,000,000; or
# a person, other than an individual or
investment fund
An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages inc ...
, that has net assets of at least $5,000,000 as shown on its most recently prepared
financial statements
Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity.
Relevant financial information is presented in a structured manner and in a form which is easy to un ...
; or
# a
trust company
A trust company is a corporation that acts as a fiduciary, trustee or agent of trusts and agencies. A professional trust company may be independently owned or owned by, for example, a bank or a law firm, and which specializes in being a trust ...
or
trust
Trust often refers to:
* Trust (social science), confidence in or dependence on a person or quality
It may also refer to:
Business and law
* Trust law, a body of law under which one person holds property for the benefit of another
* Trust (bus ...
corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable
legislation
Legislation is the process or result of enrolled bill, enrolling, enactment of a bill, enacting, or promulgation, promulgating laws by a legislature, parliament, or analogous Government, governing body. Before an item of legislation becomes law i ...
in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be; or
# an investment fund that distributes or has distributed its securities only to (i) a person that is or was an accredited investor at the time of the distribution, (ii) a person that acquires or acquired securities in the circumstances referred to in sections 2.10 of NI 45 106
inimum amount investmentor 2.19 of NI 45 106
dditional investment in investment funds or (iii) a person described in paragraph (i) or (ii) that acquires or acquired securities under section 2.18 of NI 45 106
nvestment fund reinvestment
# a person acting on behalf of a fully managed account managed by that person, if that person is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction; or
# a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors (as defined in NI 45 106); or
# an investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser.
Note that as of 2016, many provinces in Canada now allow non-accredited investors to invest in private markets – under specified limits.
European Union
Retail clients requesting treatment as 'elective' professional clients (as defined by
Markets in Financial Instruments Directive
Markets in Financial Instruments Directive 20142014/65/EU commonly known as MiFID 2 (Markets in financial instruments directive 2), is a legal act of the European Union. Together with Regulation (EU) No 600/2014 it provides a legal framework fo ...
(MiFID)) must satisfy at least two of the following ''quantitative'' criteria in assessing the client's expertise, experience and knowledge:
* the client has carried out trade transactions, in significant size (at least €50,000), on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
* the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds €500,000;
* the client works or has worked in the
financial sector
Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, ...
for at least one year in a professional position which requires knowledge of the transactions or services envisaged.
Israel
# An investment trust or fund manager.
# A management company or Provident fund as defined in the Israeli Provident fund law.
# An insurance company.
# A banking corporation and auxiliary corporation as defined in the Israeli Banking law (Licensing), other than a joint services company.
# A registered (licensed) investment adviser.
# An exchange member.
# An underwriter qualified to under section 56(c) of the Israel Securities Act.
# Corporation (except a corporation incorporated for the purpose of receiving investment advisory services, investment marketing or portfolio management) with equity of more than ₪50 million. See foreign accounting rules, international accounting standards and generally accepted accounting principles in the United States as defined under Sections 17(b)(1) and 36 of the
Israel Securities Act for the definition of "
Equity
Equity may refer to:
Finance, accounting and ownership
* Equity (finance), ownership of assets that have liabilities attached to them
** Stock, equity based on original contributions of cash or other value to a business
** Home equity, the dif ...
".
# A natural person that gave consent in writing to be considered eligible for the purposes of this Law and that meets at least one of the three criterion below:
#* Owns a total value of cash, deposits, financial assets and securities, as defined in Section 52 of the Israel Securities Act, which exceeds ₪8 million.
#* Has an annual income of at least ₪1.2 million for each of the last two years (or, together with a spouse, have had an annual income totaling ₪1.8 million for each of the past two years).
#* Owns a total value of cash, deposits, financial assets and securities as defined in Section 52 of the Israel Securities Act worth, in total, more than ₪5 million and have had an annual income of at least ₪600,000 for each of the past two years (or, with a spouse, having a combined annual income totaling ₪900,000 for each of the past two years).
# A corporation which is wholly owned by accredited investors based on the criteria above.
# A corporation incorporated abroad whose activities are similar to those of the corporations set out above.
New Zealand
s 5 of the Securities Act (1978) defines a sophisticated investor in New Zealand for the purposes of subsection (2CC)(a), a person is wealthy if an independent chartered accountant certifies, no more than 12 months before the offer is made, that the chartered accountant is satisfied on reasonable grounds that the person
(a) has net assets of at least
$2,000,000; or
(b) had an annual gross income of at least $200,000 for each of the last two financial years.
There is a further section that follows stating that an eligible investor (experienced or sophisticated) is one who has satisfied a financial investor that they meet certain criteria.
Singapore
In Singapore, Accredited Investor is defined in Section 4A(1)(a) of the Securities and Futures Act (SFA), Chapter 289.
# NET Personal assets exceeding
$2 million (or equivalent in foreign currency). Or
# Income in preceding 12 months of not less than $300,000 (or equivalent in foreign currency). Or
# A corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by — (A)the most recent audited balance-sheet of the corporation; or (B)where the corporation is not required to prepare audited accounts regularly, a balance-sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance-sheet, which date shall be within the preceding 12 months;
# The trustee of such trust as the Authority may prescribe, when acting in that capacity; or
# Such other person as the Authority may prescribe.
United States
In the United States, to be considered an accredited investor, a
natural person
In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the bro ...
must have a net worth of at least
$1,000,000, excluding the value of one's
primary residence A person's primary residence, or main residence is the dwelling where they usually live, typically a house or an apartment. A person can only have one ''primary'' residence at any given time, though they may share the residence with other people. A ...
, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year, or must otherwise be a holder of a specific license in good standing.
More broadly, the term "accredited investor" is defined in Rule 501 of Regulation D of the
U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC) as:
# a bank, insurance company, registered investment company, business development company, or small business investment company;
# an employee benefit plan, within the meaning of the
Employee Retirement Income Security Act
The Employee Retirement Income Security Act of 1974 (ERISA) (, codified in part at ) is a U.S. federal tax and labor law that establishes minimum standards for pension plans in private industry. It contains rules on the federal income tax eff ...
, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
# a
charitable organization
A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being (e.g. educational, Religion, religious or other activities serving the public interest or common good).
The legal definitio ...
,
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
, or
partnership
A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments o ...
with assets exceeding $5 million;
# a director, executive officer, or general partner of the company selling the securities;
# a business in which all the equity owners are accredited investors;
# a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, or has
assets under management of $1 million or above, excluding the value of the individual's primary residence;
# a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year
# a
trust
Trust often refers to:
* Trust (social science), confidence in or dependence on a person or quality
It may also refer to:
Business and law
* Trust law, a body of law under which one person holds property for the benefit of another
* Trust (bus ...
with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
# a
natural person
In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the bro ...
who has certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time. Presently holders in good standing of the
Series 7 Series 7 may refer to:
*The seventh season of any of many shows or series; see and
*Series 7 exam, officially the General Securities Representative Exam, the most comprehensive financial securities exam offered by the FINRA
*'' Series 7: The Conte ...
, Series 65, and Series 82 licenses.
#
natural person
In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the bro ...
s who are "knowledgeable employees" of a fund with respect to private investments.
# limited liability companies with $5 million in assets may be accredited investors.
#
SEC and state-registered investment advisers, exempt reporting advisers, and
rural business investment companies (RBICs) may qualify.
# Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own "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.
#
Family offices
A family office is a privately held company that handles investment management and wealth management for a wealthy family, generally one with at least $50-$100 million in investable assets, with the goal being to effectively grow and transfer ...
with at least $5 million in assets under management and their "family clients", as each term is defined under the
Investment Advisers Act.
# "Spousal equivalent" to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.
Opportunities
Accredited investors have the legal right to buy securities that are not registered with regulatory bodies such as the SEC. Accredited investors also have privileged access to venture capital, hedge funds and transactions involving complex and riskier investments and instruments.
[{{Cite web, title=Accredited Investor Defined: Understand the Requirements, url=https://www.investopedia.com/terms/a/accreditedinvestor.asp , accessdate=2022-11-03, work=investopedia.com]
See also
*
Institutional investor
An institutional investor is an entity which pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linked co ...
*
Big boy letter A big boy letter is a pre-sale agreement in connection with a private sale of securities (such as in a PIPE transaction) not to sue over non-disclosure of material inside information that is not disclosed, entered into between two sophisticated pa ...
References
Investment
Financial regulation