The Securities and Exchange Commission cannot legally change the definition of "accredited investor" until next summer, so two Republican congressman are pushing the regulator to punch a loophole in the rule.
Currently, a person must have at least $1 million in liquid assets or $200,000 in annual income to qualify to invest in hedge funds, private equity funds and other private investments. But, according to Reps. Patrick McHenry (R-N.C.) and Scott Garrett (R-N.J.), that definition—which the SEC seems more likely to tighten than loosen—excludes "highly-trained financial professionals," including accountants, financial analysts and traders.
"A wealth test, to the exclusion of other methods of evaluation of accredited investors, is tantamount to the government sanctioning a special club—those who have already reached a certain level of wealth and are therefore deemed eligible for membership," the congressman wrote to SEC Chairman Mary Jo White. "While those with substantial wealth or income should be allowed to invest in private offerings, it should not be to the exclusion of other knowledgeable investors."
The SEC plans to release a study on the accredited investor thresholds, which are not linked to inflation, next summer. Currently, according to the Government Accountability Office, there are 8.5 million U.S. households that meet accredited investor standards.
It's not clear how much of an impact McHenry and Garrett's proposal would have on the alternative investments industry, given that most hedge and private-equity funds have minimum investment requirements that close them to people under the current thresholds, anyway. But they might free up such individuals to invest in start-ups and other private offerings now permitted under the JOBS Act.