Legislation has been reintroduced to update the list of certifications that can qualify an investor as accredited, giving them access to a wider range of private and alternative investments.
The bill's reintroduction comes as the Securities and Exchange Commission begins to open up private fund investments to investors who are not accredited investors.
The bill, The Accredited Investor Definition Review Act, is sponsored by Rep. Bill Huizenga, R-Mich., and was first floated in 2023, when it passed the House.
"The idea of recognizing an existing credential or designation as a proxy for sophistication and ability to withstand loss is one of the most attractive" ways put forward to modernize the definition, said Michael Canning, principal and founder of the LXR Group, a public policy consultancy in Washington.
The bill’s "main virtue is that it punts the key question of which credential or designations will be recognized," Canning said — the bill "doesn’t resolve it definitively."
For instance, Canning continued, "I think almost everyone would agree that a chartered financial analyst — which requires passage of three famously hard exams, 36 months, a minimum 4,000 hours of relevant industry experience, etc. — is a sophisticated investor."
However, "what about a CFP? What about someone like me who holds the FINRA CRCP designation? What about someone with a B.A. in economics? Where do you draw the line?" Canning said. "That's the challenge."
The Securities and Exchange Commission could "answer this [question] to a degree in the course of thorough rulemaking that has the benefit of notice and comment," Canning added.
New SEC Proclamation
SEC Chairman Paul Atkins said in late May that SEC staff will no longer require retail closed-end funds to limit their investments in private funds to 15% of their net assets.
Prior to Atkins' comments, SEC staff required closed-end funds that proposed to invest more than 15% of their net assets in private funds to limit the sale of their shares to investors who are “accredited investors,” as defined in Regulation D’s Rule 501(a) under the Securities Act and whose initial investment was at least $25,000.
Nomura Capital Management took advantage of the new SEC requirement and filed a supplement to its prospectus Wednesday for the Nomura Alternative Income Fund stating that investors in the fund will not be required to certify that they are an accredited investor.
"This is good news as it provides more access to alternative products," Robert Stark, Nomura Capital Management's CEO, said in a statement.
"There is no change to our investment process, target allocations or how we underwrite. However, education continues to be of utmost importance," he said. "We are excited to continue to help investors gain more diversified exposure and access to private credit."
Natasha Greiner, director of the SEC's Division of Investment Management, said Thursday that the agency is working with registrants on an "appropriate path forward with respect to the potential of further opening" of private investments to retail investors.
"Our understanding of private markets has increased significantly over the past several years, as have disclosure practices by both registered and private funds," Greiner said. "As a result, I believe it is appropriate to consider under what circumstances private fund investments should be available to investors who are not accredited investors or qualified purchasers, through these registered fund vehicles."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.