On August 26, 2020, the SEC adopted amendment to the “Accredited Investor” definition, which determines who can participate in most offerings in the private capital markets.

While the definition historically limited access to individual investors who met a specific income or net worth test, the amended definition now allows investors with sufficient knowledge and expertise to participate in private offerings and further diversify their portfolios.  “For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication,” said Chairman Jay Clayton.

The amendment adds a new category to the definition permitting natural persons to qualify as accredited investors based on certain professional certifications, designations, or credentials, which the SEC may designate from time to time.  The first designations to qualify such natural persons are the Series 7, Series 65, and Series 82 FINRA licenses. Stay tuned for more designations as the SEC qualifies them!

Another important expansion for natural persons adds “spousal equivalents” for those wishing to pool their finances to qualify under the income or net worth tests.

In addition, the SEC also clarified a few other institutional entities which qualify as accredited investors, such as limited liability companies holding at least $5 million in assets, family offices with at least $5 million in assets under management and their “family clients,” and Indian tribes, governmental bodies, and other entities that own investments in excess of $5 million.

The expanded definition will become available 60 days after the final rule is posted in the federal register.

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