SEC Adopts Expanded Definition of Accredited Investor Providing Investors More Access to Private Markets

3 September 2020
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Key takeaways:
  • Last week, the Securities and Exchange Commission (the “SEC”) adopted, largely as proposed, its final amendments (the “Final Amendments”) to the definition of “accredited investor” under the Securities Act of 1933 (the “Securities Act”).
  • The Final Amendments expand the definition of an “accredited investor” by adding new categories for (i) natural persons with certain professionals certifications (the SEC has designated the Series 7, Series 82 and Series 65 as the initial qualifying certifications); (ii) knowledgeable employees; (iii) family offices and family clients; (iv) exempt and registered investment advisers; (v) rural business investment companies; and (vi) limited liability companies (which were widely accepted by the SEC before the Final Amendments but are now formally codified) and any additional entities not already included in the definition that are not formed for the specific purpose of acquiring the securities offered and own investments in excess of $5 million.
  • While these changes likely will not provide private fund sponsors with significant new sources of capital, the Final Amendments should increase opportunities for employees of private fund sponsors to invest in the sponsor’s private funds and provide family offices with greater flexibility in structuring their investments in private funds and other private issuers. As such, private fund sponsors may wish to review and update their subscription agreements and other documentation to reflect the Final Amendments.