Although they’re often used interchangeably, the regulatory terms “accredited investor” and “qualified purchaser” do not mean the same thing. For instance, when you’re in the hunt for investment opportunities, there are publicly traded funds and other assets that are available to anyone. However, investments like syndicated real estate have specific qualifications. Why? Well, let’s look.
Accredited investor versus qualified purchaser: what’s the difference?
Just What is an Accredited Investor?
Accredited investors are individuals or organizations that are permitted to trade securities, such as private funds, that lack registration with financial authorities. There are provisos, however. In fact, such sellers may only sell to accredited investors who meet certain requisites including those having to do with net worth, income, governance status, asset size, or financial savvy.
Can You Give Me a Snapshot of an Accredited Investor?
These investors are unregistered sellers who meet specific requirements, have less need for protection from risk, and engage in high-risk investments with potentially high rewards.
What Are the Qualifications for an Accredited Investor?
These qualifications are set forth by the SEC and other regulatory entities:
- An annual income that’s above $200,000; $300,000 for married couples. You must have been earning this much for the last two years, minimum.
- A net worth of more than $1 million, either as an individual or with your spouse. Note that this is on top of the annual income requirement.
- A general partner, CEO, or director of the organization that issues unregistered securities may also be an accredited investor.
- If the assets of private enterprises exceed $5 million, such businesses can also fall into the accredited investor category.
- If an existing entity is comprised of equity owners who each qualify as accredited investors, then that entity can qualify.
- Any individual who has the education or professional experience with unregistered securities may also qualify.
- As of 2016, qualification also extends to registered brokers and investment advisors.
- To allow more engagement with private markets without regard to income levels, the SEC last year amended its definition of an accredited investor to include those with professional experience, knowledge, or certifications.
Just What is a Qualified Purchaser?
A qualified purchaser is basically a person or family-owned company that has at least $5 million in investments. Here you have the chief difference between qualified purchasers and accredited investors: qualifications include investments rather than annual income or net assets.
Can You Give Me a Snapshot of a Qualified Purchaser?
Qualified purchasers own at least $5 million in investments, are benchmarked based on investments, and have certain funds available only to them.
What Are the Qualification Requirements for a Qualified Purchaser?
- At least $5 million in investments, as we’ve discussed.
- Individuals or entities may also qualify if they have invested at least $25 million in private capital, either on their own or on behalf of a qualified purchaser.
- Any trust that is managed and sponsored by qualified purchasers may also qualify.
- An entity wholly owned by qualified purchasers may qualify as well.
The proviso for both categories is that one can’t create an entity for the purpose of private-fund investment.
What Are the Differences Between the Two?
In a nutshell, accredited investors can invest in specific kinds of assets and have a lower financial threshold that combines net assets with annual income. Qualified purchasers, meanwhile, aim to optimize their assets under management, have a higher financial threshold that’s based on investments, and can exclusively engage with funds that have more than 100 investors.
Now you know all about accredited investors and qualified purchasers, and the differences between the two. With that knowledge, you can commence to investing within the category that suits you best.