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SEC Modernizes the Accredited Investor Definition

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Re: SEC Modernizes the Accredited Investor Definition

#21

Post by tathougies »

This is a wonderful change. Before, you had to be rich to invest in funds. Now, the SEC has opened up the ability to participate simply after having met certain educational thresholds. The Series 65 exam can be undertaken by members of the public, without any requirements.

Great news for small investors! And a vital change for minority and marginalized communities, who are often forced to seek capital outside their community, because it is incredibly difficult to meet accredited investor requirements otherwise.

Re: SEC Modernizes the Accredited Investor Definition

#22

Post by tboyd47 »

The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into a business unless the government deems you Smart Enough (c) (tm) to do so. If the vast majority of citizens here are not smart enough to invest our own money, then what is all the higher education for?

This change sounds like a good one but there's not enough information to know if it will really open up any opportunities for regular people.

Re: SEC Modernizes the Accredited Investor Definition

#23

Post by woah »

chowells wrote: post #19

This is great for employees of private funds and other things like that. It makes no difference at all to the average person complaining about the accredited investor rules preventing them from investing in sure-fire wins. It really doesn't matter how much of a genius you are at recognizing investment wins. If you can't give them enough cash to finance their operations for a significant period of time, the company is…

If the company has a process set up to accept investment, they don’t have to deal with each individual one at a time

Re: SEC Modernizes the Accredited Investor Definition

#24

Post by topkai22 »

nrmitchi wrote: post #15
CalChris wrote: post #12

So these are 'smart' people who somehow can't meet the relatively low traditional income requirements ($200k/yr) but who are now assumed to be financially sophisticated enough to take on the risk of these securities without the protection provided by normal regulatory disclosure filings. This strikes me as insanely stupid akin to the ownership society nonsense which precipitated the housing crisis. VC follows a power…

> relatively low traditional income requirements ($200k/yr) $200k/year may be "relatively low" in certain areas, but it borderline unattainable in many parts of the country. People can be smart, and perfectly capable of understanding the risks with offerings in their own industry, without making 200k/year. Don't automatically discredit people with airquotes based on their salary alone. There are also many people who…

Yeah, the $200k/year threshold excludes something like 97% of individual income earners (https://dqydj.com/income-percentile-by-age-calculator/). That's not relatively low, its a significant barrier to entry. Worse, a $200k income in SF or NYC (where an outsized portion of those income earners live) is a different beast when it comes to disposable income if compared to Johnson City, Tennessee.

Matt Levine has it right- just peg the total amount of investments in these sorts of vehicles to 10% of cash, stocks, and bonds, until the investor crosses the $X million dollar mark.

Re: SEC Modernizes the Accredited Investor Definition

#25

Post by tathougies »

chowells wrote: post #19

This is great for employees of private funds and other things like that. It makes no difference at all to the average person complaining about the accredited investor rules preventing them from investing in sure-fire wins. It really doesn't matter how much of a genius you are at recognizing investment wins. If you can't give them enough cash to finance their operations for a significant period of time, the company is…

The average person can now take the Series 65 exam for $60 or so and, if they pass, become an accredited investor. This is a huge change. Taking the wealth requirement from 1 million dollars to $60.

EDIT: It's not $60, but $175, still a far cry from a million.

Re: SEC Modernizes the Accredited Investor Definition

#26

Post by Alex3917 »

throwawaygh wrote: post #3

The two big changes: 1. permitting natural persons who have "professional certifications" or "credentials issued by an accredited educational institution". 2. include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund. Most of the other changes fill in gaps that shouldn't have existed: expanding the definition of spouse and adding orgs…

What's the definition of a "knowledgeable employee" of a fund? E.g. would any GP be assumed to qualify as long as the fund wasn't specifically created as a vehicle for them to qualify, or are there specific requirements?

Re: SEC Modernizes the Accredited Investor Definition

#27

Post by CalChris »

JumpCrisscross wrote: post #20
CalChris wrote: post #17

Earlier quoted context omitted.

It says in conjunction which means that yeah, stock brokers can now invest. But it also said certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution . These educated folks don't necessarily need even a Series 7. Yes, I would like to read Matt Levine rip this apart.

> certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution After specifying that "holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons," the bullet point adds that the SEC chose this "approach [to provide] the Commission with flexibility to reevaluate or add certifications, designations, o…

"which the Commission may designate from time to time by order".

Re: SEC Modernizes the Accredited Investor Definition

#28

Post by woah »

CalChris wrote: post #12

So these are 'smart' people who somehow can't meet the relatively low traditional income requirements ($200k/yr) but who are now assumed to be financially sophisticated enough to take on the risk of these securities without the protection provided by normal regulatory disclosure filings. This strikes me as insanely stupid akin to the ownership society nonsense which precipitated the housing crisis. VC follows a power…

These rules aren’t meant to stop anybody from losing their life savings. You can do that very easily with options in the stock market with no accreditation. They are meant to slow down the growth of Ponzi schemes etc. From that perspective, adding a few accountants and junior lawyers to the mix isn’t going to change anything.

Re: SEC Modernizes the Accredited Investor Definition

#29

Post by refurb »

tboyd47 wrote: post #22

The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into a business unless the government deems you Smart Enough (c) (tm) to do so. If the vast majority of citizens here are not smart enough to invest our own money, then what is all the higher education for? This change sounds like a good one but there's not enough…

like the most anti-free-market law I've ever heard of

Do you know why the SEC created these rules? If you understand the history it makes a lot of sense.

Re: SEC Modernizes the Accredited Investor Definition

#30

Post by [deleted] »

tboyd47 wrote: post #22

The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into a business unless the government deems you Smart Enough (c) (tm) to do so. If the vast majority of citizens here are not smart enough to invest our own money, then what is all the higher education for? This change sounds like a good one but there's not enough…

[deleted]
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