Accreditation is a special status given to investors, giving them the ability to invest in the private markets without being registered with regulatory agencies. Accredited investor rules were created as a way to protect the general public and ensure only “sophisticated” investors--those aware of the higher risks associated with investing outside of the public equities market--could gain access to private investments. While net worth and/or income are by no means perfectly reliable proxies for sophistication or fiscal competence, it was deemed the best measure above all others because it could be applied objectively and evenly to everyone.
In the United States, accreditation is part of Regulation D (Reg D), which stipulates who can and cannot access certain opportunities in the private markets. Investors can be considered “accredited” if they meet one of two specifications.
1. Net worth of $1,000,000 (excluding the value of one’s primary residence)
2. Income exceeding $200,000 for the last two years (or $300,000 if married)
Note that accreditation varies for platforms outside of the United State, as most countries follow policies that differ from Reg D. For example, in the EU, accredited investors must have a fully invested portfolio that exceeds EUR 500,000 in value.
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