June 26, 2023
Expanding accredited investors seen by some as lift for private markets, by others as dangerous
House lawmakers have passed several bills on a bipartisan basis in recent weeks aimed at broadening the pool of accredited investors eligible to participate in private markets, but not everyone agrees that it’s a good idea.
Proponents say that sophisticated investors who understand the risks and complexities of private markets investing should be provided with additional avenues to be deemed accredited and invest in the high-performing asset classes. But opponents say the accredited investor designation should be made tougher to achieve in order to protect investors from risky, illiquid investments with insufficient disclosures.
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‘Fraught with risk’
Other stakeholders with different professional backgrounds made similar points.
Laura H. Posner, New York-based partner at Cohen Milstein Sellers & Toll PLLC, said investors who meet financial thresholds should also have to pass a test to gain accredited status. Moreover, the financial thresholds should be tied to inflation, she added.
“It doesn’t really matter whether you have financial acumen or not, it doesn’t protect you from the risks if the investment goes bad,” Ms. Posner said. “You still have to be able to put food on the table, pay your mortgage, put your kids through school and save for retirement. If you can’t do that safely without real risk, it seems to me we shouldn’t be encouraging that kind of risky investment.”