The Hedge Fund Association (“HFA”) is pleased to report that on February 1, 2016 the U.S. House of Representatives passed H.R. 2187, the Fair Investment Opportunities for Professional Experts Act, which incorporates the addition of a knowledge and education-based category of accredited investors. The House bill would amend Section 2(a)(15) of the Securities Act of 1933, the definition of “accredited investor” that determines which investors may participate in private securities offerings not registered with the U.S. Securities and Exchange Commission (SEC). The HFA, an international not-for-profit organization representing the interests of investors, hedge funds and service providers, believes that the bill provides a much needed practical update to the current definition, while promoting capital formation.
“The Hedge Fund Association applauds the bipartisan passage of H.R. 2187. HFA will continue to support reasonable changes by Congress and the SEC to the accredited investor definition, and the private offering exemptions in general, provided such changes enhance investor protection and promote capital formation without further limiting investor access to alternative investment funds,” said Mitch Ackles, HFA President.
The proposed revisions would incorporate the income and net worth requirements for natural persons found in the SEC’s Rule 501(a) of Regulation D, and add language requiring the SEC to adjust these dollar thresholds for inflation every five years, based on the Consumer Price Index. Significantly, the House bill also expands the list of accredited investors to include the following individuals, regardless of whether they meet the income or net worth requirements:
- brokers or investment advisers licensed or registered with the SEC, FINRA or other self-regulatory organization (SRO) (e.g., NFA), or any state regulatory authority; and
- any other natural person the SEC determines by rule to have professional knowledge related to an investment and whose education and job experience is verified by FINRA or another SRO.
“HFA supports the practical solution passed by the Financial Services Committee and the House (each on a bipartisan vote) but cautions against more radical changes to financial thresholds that would narrow the universe of investors,” commented Jim Van Horn of HFA’s Regulatory Affairs Committee and Partner at Hirschler Fleischer. Updating the accredited investor definition has been an important goal for both Congress and the SEC since the passage of The Dodd-Frank Act Wall Street Reform and Consumer Protection Act. An official report released by the SEC staff in December 2015 included 11 possible revisions to Rule 501(a). The HFA previously encouraged the SEC to make sensible changes to the accredited investor definition and avoid revisions that are disruptive to the capital markets.
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The Hedge Fund Association, HFA, is a leading global nonprofit trade and nonpartisan lobbying organization devoted to advancing transparency, development, education and trust in alternative investments. HFA’s global presence spans 5 continents. Membership in HFA includes hedge fund firms, global financial institutions with hedge fund offerings including private banks, asset management firms and broker dealers, investors including funds of hedge funds, family offices, public and private pension funds, endowments and foundations, high-net-worth individuals, allocators and service providers including prime brokers, administrators, custodians, auditors, attorneys, risk managers, technology firms, third party marketers and other industry consultants. To learn more please visit the www.HedgeFundAssoc.org.
Note about Accredited Investors: Income and net worth requirements for natural persons found in the SEC’s Rule 501(a) of Regulation D are annual income of $200,000 individually, or $300,000 jointly with a person’s spouse, in each of the two most recent years, with an expectation of reaching the same income level in the current year; net worth of $1 million individually or jointly with a person’s spouse, excluding the positive equity in such person’s primary residence.