IAA and NASAA Offer Opposing Recommendations on SEC Proposal to Expand Access to Private Capital

The Investment Adviser Association ("IAA") and the North American Administrators Securities Association ("NASAA") offered opposing recommendations to the SEC on its proposal to amend the definitions of "accredited investor" and "qualified institutional buyer."

As previously covered, the SEC proposed amending the definitions of "accredited investor" in Rule 501(a) of Regulation D and "qualified institutional buyer" under Rule 144A to increase accessibility to private capital markets.

Investment Adviser Association

IAA recommended that the SEC expand the types of investors eligible to invest in private offerings by amending the definitions of:

• "accredited investor" to include (i) SEC-registered investment advisers' discretionary clients, (ii) "qualified purchasers" under the Investment Company Act, (iii) "qualified clients" under Rule 205-3 of the Advisers Act, (iv) certain private funds and (iv) "knowledgeable personnel" of an SEC-registered adviser; and
• "qualified institutional buyer" to include (i) discretionary separate account clients of SEC-registered investment advisers and (ii) funds managed by the SEC-registered investment advisers and families of private funds.

North American Administrators Securities Association

NASAA criticized the proposal for "widely miss[ing] the mark in its proposed treatment of natural persons." NASAA recommended that the SEC focus on promoting public markets rather than expanding retail investor access to unregistered securities offerings. NASAA urged the SEC to, among other things, amend the proposal by:

• increasing investor accreditation financial thresholds while excluding certain assets;
• requiring that experience be used as a metric to assess an investor's financial sophistication;
• requiring that financial sophistication be coupled with an ability to bear losses; and
• not extending accredited investor status to clients of financial intermediaries (e.g., registered investment advisers or broker-dealers).