Accredited Investor

Private investments, such as hedge funds, private equity funds, venture capital funds and private company shares, are often exempt from the detailed registration and disclosure requirements of public offerings. To protect less experienced investors, regulators limit who can invest in many of them.

In the United States, individuals generally qualify based on high income or net worth thresholds set by the Securities and Exchange Commission, or by holding certain professional licences. Institutions such as banks, insurers, large companies and certain trusts also qualify.

For example, a start-up raising money privately might accept investments only from accredited investors, allowing it to avoid the costs of a public offering.

The idea is that accredited investors can bear the risk of loss and evaluate investments without the full protection of public disclosure. Critics argue that wealth is a poor proxy for financial knowledge. Other countries use similar concepts, such as sophisticated or high-net-worth investors in the United Kingdom and professional investors in the European Union.