The Hedge Fund Association (HFA) has welcomed the passing of the Fair Investment Opportunities for Professional Experts Act by the US House of Representatives 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 US Securities and Exchange Commission (SEC). The HFA, an international not-for-profit organisation 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 HR 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," says Mitch Ackles (pictured), 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," says 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.
