Accredited investor
An investor who meets the SEC's wealth or professional tests to invest in private funds.
For individuals the tests include income above 200,000 dollars a year, or 300,000 with a spouse, or net worth above one million dollars excluding the primary residence. Certain licensed professionals and larger entities also qualify.
Individuals also qualify if they hold certain professional licences in good standing, such as the Series 7, 65 or 82, or if they are knowledgeable employees of the private fund. Entities generally qualify with more than $5M in assets or investments, or if all their owners are accredited.
Income must meet the threshold in each of the two most recent years with a reasonable expectation of the same in the current year. Net worth excludes the primary residence and, in most cases, the mortgage on it.
Worked example
A married couple earned $310,000 and $320,000 in the last two years and expect the same this year, so they qualify on joint income. A single investor with $900,000 of net worth excluding her home and $150,000 of income does not qualify on either test unless she holds a qualifying licence.
Common questions about accredited investor
What are the accredited investor requirements for individuals?
Income above $200,000 in each of the last two years, or $300,000 jointly with a spouse or partner, with the same expected this year; or net worth above $1M excluding the primary residence; or holding a Series 7, 65 or 82 licence in good standing.
How do funds verify accredited investor status?
Under 506(b), usually through an investor questionnaire. Under 506(c), by reasonable verification steps such as reviewing tax returns or bank statements, a letter from a lawyer, accountant or adviser, or a high minimum investment with written representations.