Glossary · Operations and rules

What is an accredited investor?

An accredited investor is a person or institution that meets SEC income or net worth tests, or holds certain professional licenses, and so may invest in private offerings.

In practice

The status comes from Regulation D under the Securities Act, so it appears in subscription agreements, investor questionnaires and offering documents for private placements. Individuals usually qualify on income or net worth, or by holding certain licenses; entities qualify on assets or ownership. It is often confused with the narrower qualified purchaser test, which funds relying on the 3(c)(7) exemption must apply.

An example

Round numbers, not a real fund

Say a fund is offered only to accredited investors. A manager must confirm each of its 40 buyers meets the SEC’s tests before it accepts their money.

Why it matters

It decides who can be sold a private fund, and who is shut out of them.

In the news

Related terms

Rule 506(b)Rule 506(b) of Regulation D lets a fund raise unlimited money privately, without general solicitation, from accredited investors and up to 35 sophisticated non-accredited ones.
Rule 506(c)Rule 506(c) of Regulation D lets a fund advertise publicly, but only accredited investors may buy, and the fund must take reasonable steps to verify they are accredited.
AML and KYCAML rules aim to stop money laundering. KYC, know your customer, is the checking of who an investor is and where its money comes from before a fund accepts it.
Limited partnerA limited partner, or LP, is an investor in a fund. It supplies most of the capital, takes no part in running it, and typically risks only its commitment.
PPMA private placement memorandum, or PPM, is the offering document that tells prospective investors about a fund’s strategy, terms, risks and manager.

The terms, in the news each morning.

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