Understanding Accredited Investors
An accredited investor refers to any individual or entity authorized to invest in securities that are not registered with financial regulatory bodies.
The primary financial regulatory organization in the United States is the U.S. Securities and Exchange Commission (SEC).
The term “accredited” implies that specific criteria must be met for an entity to qualify as such an investor.
Accreditation is determined based on asset size, net worth, and income standards for individual investors.
Corporate entities must also meet specific governance requirements.
Qualifying as an Accredited Investor in the US
Each country has its own rules for defining accredited investors, established by the respective regional financial regulators.
In the US, the SEC sets the requirements for accreditation.
Benefits of Being an Accredited Investor
Being an accredited investor offers several benefits, including:
- Investment Possibilities: Private placements, where companies raise funds privately instead of going public, often provide higher returns than public markets. Being an accredited investor simplifies access to these higher-yield capital markets.
- Opportunities for Investment in Small Businesses: Accredited investors can support startups at any growth stage, and seed-funding platforms connect them with small enterprises that align with their goals.
- Diversity in Investment Portfolios: Investment portfolios relying solely on public markets may stagnate when interest rates rise. Accredited investors have a wider range of investment opportunities, allowing them to reduce systematic risk and exposure by investing in non-correlated alternative assets and debt instruments.