Most non-traditional investments are structured as limited partnerships and are not registered. They are private investments offered directly to investors instead of being “registered securities.” Eligibility for investing in an unregistered security is established by federal law and here is a summary of those definitions:
An Accredited Investor, in the context of a natural person, includes anyone who: earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
There are other categories of accredited investors, including the following, which may be relevant to you: any trust, with total assets in excess of $5 million, not formed specifically to purchase the subject securities, whose purchase is directed by a sophisticated person, OR any entity in which all of the equity owners are accredited investors. In this context, a sophisticated person means the person must have, or the company or private fund offering the securities reasonably believes that this person has, sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment.
A Qualified Purchaser generally means an investor that meets any of the following criteria:
- (i) an individual or family-owned business not formed for the specific purpose of acquiring the interest in the fund that owns $5,000,000 or more in investments;
- (ii) a trust not formed for the specific purpose of acquiring the interest in the fund which is sponsored by and managed by qualified purchasers;
- (iii) an individual or entity not formed for the specific purpose of acquiring the interest in the fund which owns and invests at least $25,000,000 in investments (or someone who is acting on account of such a person); or
- (iv) an entity, of which each beneficial owner is a qualified purchaser.
A Qualified Client generally means an individual or entity that:
- (i) has $1,000,000 or more of assets under management with the investment adviser after the investment in the fund;
- (ii) has a net worth of $2,100,000 prior to the investment in the fund (excluding the value of his or her primary residence);
- (iii) is a “qualified purchaser” (see the next section); or
- (iv) is an officer or director of the fund manager or is an employee who participates in the investment activities of the investment adviser and has been doing so for 12 months.