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Accredited investor rules: who may buy private deals
Reg D 1982· Law or rule
Fact, law or dataA rule, statute, definition or measured number.
The SEC's income-or-wealth test that decides who may buy private, unregistered investments such as PE, hedge funds and real-estate syndications.
See it on the Money & Finance map →How it works
Under Regulation D (1982), companies can raise money without registering with the SEC if they sell mainly to accredited investors. Individuals qualify with income over $200,000 ($300,000 with a spouse) in each of the last two years, or net worth over $1 million excluding their home. Since 2020, holders of Series 7, 65 or 82 licenses qualify too. The dollar thresholds have never been indexed for inflation. Rule 506(c), from the 2012 JOBS Act, allows advertising if every buyer is verified.
Why it matters
It is the gate between public markets, with full disclosure, and private deals, with less disclosure, higher fees and often higher risk.
Think of it like
Like a lender demanding proof of net worth and liquidity from a guarantor: wealth stands in for the ability to absorb a loss.
Facts, rules and data
SEC Rule 501(a) sets the definition; a 2023 SEC staff review estimated about 18% of US households qualified in 2022, up from under 2% in 1983, because thresholds stayed fixed.
Debates and risks
Whether wealth is a good proxy for sophistication is debated; Congress has weighed letting people qualify by passing an exam, or indexing the thresholds.
Connections (2)
▸Accredited investor rules: who may buy private deals limits who can invest in Private equity and leveraged buyoutsFact, law or data
The connection
PE funds raise money privately under Regulation D, skipping the costly public registration mutual funds need. In exchange they may sell only to accredited investors, and the larger funds only to 'qualified purchasers' with at least $5 million in investments. Most people get exposure indirectly: through pensions, shares of listed PE firms, or newer lower-minimum 'evergreen' funds.
When and why
Regulation D's Rule 506 (1982) and the Investment Company Act's private-fund exemptions: Section 3(c)(1) and Section 3(c)(7), added in 1996.
How we know
Investors must certify their status in subscription documents, and Form D filings on the SEC's EDGAR database list private offerings.
Debates and risks
Whether opening PE to ordinary savers, via 401(k)s and low-minimum funds, widens opportunity or exposes them to high fees and opaque valuations.
▸Accredited investor rules: who may buy private deals limits access to Hedge fundsFact, law or data
The connection
Hedge funds avoid the 1940 Act's limits on leverage, short selling and fees by staying private, which means selling only to accredited investors or qualified purchasers. To charge performance fees, their clients must also be 'qualified clients', with over $2 million in net worth. Advertising was banned until the 2012 JOBS Act allowed it when every buyer is verified.
When and why
Alfred Winslow Jones's 1949 fund relied on private-offering exemptions; Regulation D followed in 1982; the SEC's Rule 506(c), allowing advertising, took effect in 2013.
How we know
SEC rules, including Advisers Act Rule 205-3 on qualified clients, and Form ADV and Form PF filings showing hedge funds' investor bases.
Debates and risks
Whether wealth tests protect anyone is debated: many of Bernie Madoff's victims were wealthy investors and funds who easily met them.