Regulatory Update: SEC Expands Definitions of Accredited Investors and Qualified Institutional Buyers

Last week, the Securities and Exchange Commission (“SEC”) expanded the definitions of “Accredited Investor” and “Qualified Institutional Buyers,” which could potentially point to a bigger pool of investors for fund managers next capital raise.

The SEC announcement provides the updated definitions as outlined below:

Accredited Investor

  • A new category permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials, or other credentials issued by an accredited educational institution, which the SEC may designate from time to time by order. In conjunction with the amendments' adoption, the SEC designated by order holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons. This approach provides the SEC with the flexibility to reevaluate or add certifications, designations, or credential in the future;
  • Included in the definition of “Accredit 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) to the list of entities that may qualify;
  • A new category for any entity, including 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 with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act; and
  • The term “spousal equivalent” be added to the “Accredited Investor” definition so that spousal equivalents may pool their finances for the purposes of qualifying as accredited investors.

Qualified Institutional Buyers Under 144A

  • Add limited liability and RBICs if they meet the $100 million in securities owned and investment threshold
  • Include institutional investors included in the “Accredited Investor” definition that is not otherwise enumerated in the definition of “Qualified Institutional Buyer,” provided they satisfy the $100 million threshold.

The STRAIT Compliance Team has extensive experience in the alternative investment industry. Reach out to a member of the team to learn more about how the recent regulatory update may affect your fund or to learn more about STRAIT’s comprehensive compliance service offering.