Accredited investors are individuals or entities that meet specific financial criteria, allowing them access to certain types of investment opportunities that are not available to the general public. The criteria for being considered an accredited investor are typically defined by financial regulators, such as the U.S. Securities and Exchange Commission (SEC) in the United States.
In the United States, an individual is generally considered an accredited investor if they meet one or more of the following criteria:
- Income Test: The individual has an annual income of at least $200,000 (or $300,000 for a married couple) for the past two consecutive years, with the expectation of maintaining the same level of income in the current year.
- Net Worth Test: The individual has a net worth (individually or jointly with a spouse) of at least $1 million, excluding the value of their primary residence.
- Entity Test: Certain entities, such as banks, investment companies, and nonprofit organizations with assets exceeding $5 million, are considered accredited investors.
- Professional Designation: Individuals with certain professional certifications, designations, or credentials may also qualify as accredited investors. For example, a person holding a Series 7, Series 65, or Series 82 license may meet the criteria.
Accredited investor status is important in the context of private placements and certain investment opportunities, including hedge funds, private equity funds, venture capital funds, and other offerings that are not registered with the SEC. The idea is that accredited investors are assumed to have a higher level of financial sophistication and the ability to bear the risks associated with these types of investments.
The regulations and criteria for accredited investors may vary in different jurisdictions, and locations.