Investing At A New Level

Once the exclusive playground of the rich and connected, alternative investments are going mainstream. In just 15 years, alternatives grew from 6% to 12% or $13.4 trillion of the global market in 2018 and are expected to grow between 18-24% by 2025. CAIA Association, “The Next Decade of Alternative Investments: From Adolescence to Responsible Citizenship” (2020).

The mainstreaming of alternatives is the culmination of a variety of factors. On the investor side, retail investors tired of Wall Street volatility and institutional investors seeking diversification are turning more and more to the private markets for stable above-market returns.

Much of the attention to private alternatives is the result of recent regulatory changes that have made private investments more accessible and expanded the pool of investors qualified to invest in private offerings. One of the watershed moments that opened the floodgates of private investments to the investing public was the JOBS Act.

Passed in 2013, one of the hallmark features of the JOBS Act was the loosening of the rules on the advertising of private offerings. The result has been not only a surge in the number and quality of private offerings but also in public interest in these investments. In fact, according to an August 2018 SEC report, capital raised through private offerings outpaced registered offerings since the launch of the JOBS Act.       

Advertising has not been the only change that has brought more attention to private offerings. The pool of potentially eligible investors in these exclusive private investments has also expanded through the change in the definition of an Accredited Investor.  

Because most private offerings are made through an exemption from registration under the SEC regulations and because more exempt offerings are restricted to investors meeting certain eligibility requirements – namely qualification as an Accredited Investor – the definition of an Accredited Investor is vital to the matter of who qualifies to invest in these offerings.  

Most private offerings are conducted under Reg D of SEC regulations governing private offerings, and although technically, Non-Accredited Investors may participate in offerings under Reg. D, aggregate investments in exempt offerings in which Non-Accredited Investors participated represented less than one percent of investment in all exempt offerings. This is due to additional onerous compliance and disclosure requirements, including audited financial statements when retail investors participate. Hodgson Russ Attorneys, “Private Offerings Update” (2021).

Up until recently, for individuals, an “Accredited Investor” was defined as any individual:

  • Having a net worth exceeding $1 million individually or combined with a spouse (excluding the value of the primary residence); or
  • Have earned income exceeding $200,000 ($300,000 if combined with a spouse) during the last two calendar years, with a reasonable expectation of maintaining these income thresholds during the current year.

If you don’t qualify as an Accredited Investor under the income or net worth requirements, there’s still hope. As of September 2020, there are other ways to achieve Accredited Investor status. SEC, Amendments to Accredited Investor Definition.”

Professional certifications and designations, and other credentials.

Individual investors who hold, in good standing, certain professional certifications and designations and other credentials designated by the Commission as qualifying for accredited investor status.

The Commission designated three certifications and designations administered by the Financial Industry Regulatory Authority, Inc. as qualifying for accredited investor status, including those holding Series 7, Series 65, or Series 82 securities licenses.

Knowledgeable employees.

Individual investors who are knowledgeable employees of certain private funds may qualify as an Accredited Investor. To qualify as an Accredited Investor under this category, an investor must be a “knowledgeable employee,” as defined in Rule 3c–5(a)(4) under the Investment Company Act of 1940 (the “Investment Company Act”), of the private fund issuer of the securities being offered or sold.

Family clients of family offices.

A natural person may also qualify as an accredited investor based on his/her status as a family client of a family office.

There’s a reason for all the recent attention put on private investments. Those fortunate enough to have participated in private offerings for years have long known the financial benefits of investing in assets insulated from Wall Street volatility and which don’t follow the traditional risk-return spectrum – often providing above-market returns but at a reduced risk from public offerings.

The opportunities for investors once shut out of the private markets are now more accessible due to regulatory changes and advertising.

Private alternatives are going mainstream but are you as an individual investor ready to seize on this opportunity to invest at a whole new level?


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Logan Freeman

Building generational wealth with alternative investments