Can non-accredited investors invest in a hedge fund?
Friends & family · Video 1 of 8 · 0:43 ·
Yes, in limited numbers. Under Rule 506(b), an offering can include any number of accredited investors plus up to 35 who aren't. Each non-accredited investor must understand the risks, alone or with an adviser's help, and you need a real basis for believing that before they invest. They're also owed more information than accredited investors.
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
- Rule 506(b) allows up to 35 non-accredited purchasers in an offering.
- Each must be sophisticated, alone or with a purchaser representative.
- A purchaser representative, such as a lawyer or adviser, must be acknowledged by the investor in writing.
- You need a reasonable belief in that before the sale; writing down why is good practice.
- Non-accredited investors must receive specified disclosure before they invest.
- A 3(c)(1) fund still has a 100-owner limit overall.
Transcript
Founder: My cousin makes $70,000, and she wants into my fund. Is that even allowed?
Operator: It can be. Rule 506(b) has room for people like her.
Operator: The offering can include any number of accredited investors...
Operator: ...plus up to 35 who aren't.
Founder: So any 35 friends.
Operator: Not any 35. Each one has to understand the risks, on their own or with an adviser helping them.
Founder: And if they don't understand the risks?
Operator: They can lean on a purchaser representative: a lawyer or adviser who does, and who they name in writing.
Founder: How would I show that?
Operator: Have a real basis before they invest, and write it down. Their experience, and who advised them.
Operator: And they're owed more information than accredited investors.
Founder: So my cousin who makes $70,000...