Sophisticated and Accredited Investment
Before receiving investment materials or beginning to make investments, you should ensure that you are self-certified as either a High Net Worth or Sophisticated Investor, as defined by the FCA under the Financial Services and Markets Act 2000 (FSMA).
As an individual under the FCA Financial Promotions Order you are entitled to receive business plans and make investments through your own decision, provided that you are able to certify yourself as either a High Net Worth Individual or a Sophisticated Investor.
High Net Worth Individual
You confirm that you either:
• have a net income in excess of £100K or
• have net assets in excess of £250K beyond your pension fund assets and your private residence
Certified Sophisticated Investor
You confirm that you have been one of the following:
• A director of a company turning over at least £1 million within the last two years
• Have made more than one investment in an unlisted company in the last two years
• A member of a network or syndicate of business angels for at least six months
• Have worked in the past two years in a professional capacity in the private equity sector or in the provision of finance for small and medium enterprises
Marketing a Private Equity Fund is regulated in most jurisdictions (by the FCA in the UK and the SEC in the U.S., for example) and any cross-border fundraising will need to comply with various local regimes.
In the UK, FCA authorisation is not required for promoting a Fund when the promotion is only to a limited class of investors such as investment professionals, high net-worth companies and sophisticated or high net-worth individuals.
Retail clients requesting treatment as 'elective' professional clients (as defined by Markets in Financial Instruments Directive (MiFID) must satisfy at least two of the following quantitative criteria in assessing the client's expertise, experience and knowledge:
the client has carried out trade transactions, in significant size (at least EUR 50,000), on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds EUR 500,000;
the client works or has worked in the financial sector for at least one year in a professional position which requires knowledge of the transactions or services envisaged.
United States of America
To be considered an accredited investor, one must have a net worth of at least $1,000,000, excluding the value of one's primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year. The term "accredited investor" is defined in Rule 501 of Regulation D of the U.S. Securities and Exchange Commission (SEC) as:
a bank, insurance company, registered investment company, business development company, or small business investment company;
an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
a charitable organization, corporation, or partnership with assets exceeding $5 million;
a director, executive officer, or general partner of the company selling the securities;
a business in which all the equity owners are accredited investors;
a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, or has assets under management of $1 million or above, excluding the value of the individual's primary residence;
a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes."