The Hedge Fund Association (HFA) has submitted a comment letter to the US Securities and Exchange Commission (SEC) as the regulatory agency considers proposed changes to the definition of an “accredited investor” under Rule 501 of Regulation D.
The HFA is urging the SEC to reject an increase in the current requirements, originally set in 1982, to account for inflation. The definition was already significantly narrowed when the value of an investor’s primary residence was excluded under The Dodd–Frank Wall Street Reform and Consumer Protection Act.
“While the HFA fully appreciates and shares the SEC’s goal of protecting investors from making investments which are beyond their financial sophistication, the HFA believes using net worth or income as a litmus test for investor sophistication is outdated,” says David Friedland, HFA chairman.
The HFA favours a number of alternatives, such as (i) a knowledge or education-based standard, (ii) a requirement that a non-sophisticated investor engage an independent registered investment professional to review and approve the investment, or (iii) limiting the maximum percentage of net worth that any investor may contribute.
“The HFA believes that changes to the net worth requirements would fundamentally undermine the private placement market which infused nearly USD50 billion into the US’ economy in 2013 and will materially and negatively impact small business growth by reducing the number of accredited investors in the US by more than half,” says Ron S Geffner, HFA vice president.
