Private investments have historically provided investors with outsized returns compared to public markets, without the angst of daily volatility. That said, securities laws that provide access to private investment opportunities are generally restricted to investors who meet certain net worth and/or minimum asset thresholds. The reason being is that those investors would likely be able to bear the risk of a loss without the protections of SEC registration. Therefore, prospective investors of private market investment opportunities are generally required to qualify as one or more of the following investor categories: accredited investor, qualified client, and/or qualified purchaser.
Generally, the type of investor class determines which investment opportunities one can pursue. Below is a summary of the three types of investor classes, who qualifies for each, and the benefits/opportunities that they provide:
Accredited Investor: Accredited investors can access many private market investment opportunities that are not typically available to retail investors in the public markets. This investor category includes individuals (or couples) with a net worth of at least $1 million (excluding a primary residence). It can also include any person whose income has been more than $200,000 (or $300,000 in combination with a spouse) for each of the past two years and expects to earn the same in the current year. Further, an accredited investor includes but is not limited to institutions such as banks and broker dealers; as well as limited liability companies and other legal entities such as trusts, with at least $5 million in assets.
Qualified Client: These investors generally have a net worth of at least $2.2 million (excluding their primary residence) and have at least $1.1 million under management by an investment advisor following their investment in an applicable fund. Qualified purchasers (described below), automatically qualify as qualified clients. It is important to note that the Dodd-Frank Act requires the SEC to analyze the thresholds to be a qualified client every five years to account for inflation.
Qualified Purchaser: The definition of a qualified purchaser is based on the amount of investable assets a person or legal entity has, rather than net worth. Typically, a qualified purchaser is an individual or married couple with at least $5 million in investable assets (excluding a primary residence).
Trusts, on the other hand, may qualify under several circumstances: the trust has at least $5 million of investable assets and was created by or for two or more family members, the grantor and trustee (or person authorized to make investment decisions on behalf of the trust) are qualified purchasers, or the trust has at least $25 million of investable assets. In all cases, the trust cannot have been established for the specific purpose of acquiring the securities being offered.
A qualified purchaser that is a legal entity has discretionary control over at least $25 million in assets for a business or family enterprise. While the investment requirements for qualified purchasers are higher than those for accredited investors or qualified clients, that also means that qualified purchasers often have access to investment opportunities unavailable to the other investor categories. Additionally, the higher capital threshold required of qualified purchasers means that they automatically qualify as accredited investors or qualified clients. In other words, a qualified purchaser can access any investment opportunity that requires one to be an accredited investor or qualified client (in addition to having access to opportunities restricted to qualified purchasers only).
To learn more about Private Investment Opportunities, please contact us Invest@cressetpartners.com
Cresset refers to Cresset Capital Management, LLC and all of its subsidiaries and affiliates. Cresset Asset Management, LLC provides investment advisory, family office, and other services to individuals, families, and institutional clients. Cresset Partners, LLC provides investment advisory services strictly to investment vehicles investing in private equity, real estate and other investment opportunities. Cresset Asset Management, LLC, and Cresset Partners, LLC are SEC registered investment advisors.