The SEC Investor Advisory Committee is set to vote later today on a revised definition for an accredited investor in a landmark moment for the $1.3 trillion private placement market.
Under the current definition only investors with an income of at least $200,000 ($300,000 for couples) or a net worth of at least $1 million (excluding their primary residence) are permitted to invest in private securities, a threshold that accounts for approximately 9% of all U.S. households. Any change to this threshold may result in seismic shifts to the market as access to capital is either restricted or expanded.
In our letter to the SEC we made two recommendations on how to revise the definition in order to create minimal disruptions to the U.S. market for private capital.
- We recommend no immediate increase to the financial thresholds for being an accredited investor, allowing for a re-evaluation of this issue in four years once the market is more mature.
- We recommend tying any increase to the financial threshold requirements to the Consumer Price Index (CPI) to keep pace with inflation, and also implementing an investor sophistication test for qualification as an accredited investor.
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