The SEC Proposes to Expand the Definition of Accredited Investor to Allow More Access to Private Offerings

20th December 2019

The Securities and Exchange Commission (“SEC”) recently proposed amendments to the definition of “accredited investor” and the definition of “qualified institutional buyer” in order to expand the list of people and institutions currently capable of investing in the private capital markets, which includes fast-growing startups, private equity funds, hedge funds and venture funds.

Currently, the SEC defines “accredited investor” as a person who has at least $200,000 in annual income (or a combined $300,000 in shared annual income between spouses) or a net worth of at least $1 million, not including the value of his/her home. The SEC’s new proposal would open up the definition to also include individuals with Series 7, 65 and 82 broker and adviser licenses; “knowledgeable” employees of private funds who might not currently meet the SEC’s income or net worth test under the existing rule; family offices with at least $5 million in assets under management and their family clients; and “spousal equivalents” who could pool their assets for the purposes of qualifying as accredited investors. The SEC also proposes adding certain entities to the new definition.