Can a trust or company invest in a hedge fund as an accredited investor?
Advanced · Video 10 of 16 · 0:42 ·
Yes, but the entity needs its own test, because the entity is the investor. A revocable trust its grantors can amend or revoke counts as accredited if every grantor is accredited. Other trusts need over $5 million in assets, can't be formed just to invest, and must have a sophisticated person directing the investment. An LLC or company qualifies with over $5 million in assets and not formed for the purpose, or when every owner is accredited.
Everything here is for educational purposes only and is not legal, tax or investment advice, or an offer to buy or sell any security. Laws and thresholds change and depend on your facts, so talk to a qualified attorney before acting.
Key facts
- The investing entity needs its own accredited status.
- Revocable trust: accredited if every grantor is accredited (SEC C&DI 255.04).
- Other trusts: over $5 million in assets, not formed to invest, directed by a sophisticated person (Rule 501(a)(7)).
- LLCs and companies: over $5 million in assets and not formed to invest (501(a)(3)), or every equity owner accredited (501(a)(8)).
Transcript
Founder: My investor wants to come in through his family trust. Does the trust need to be accredited?
Operator: Yes. The investor is the trust, so the trust needs its own test.
Operator: A revocable trust, one its owners can change or cancel any time, is the simple case. If every grantor is accredited, the trust counts as accredited.
Founder: And if it's irrevocable?
Operator: Then it needs over $5 million in assets, can't be set up just for this, and a sophisticated person has to direct the investment.
Founder: What about an LLC or a company?
Operator: Over $5 million in assets and not set up just for this. Or every one of its owners is accredited.
Operator: Whichever it is, check the entity, not just the person behind it, and keep the record.
Founder: So my investor wants to come in through his trust...