If you have had success in the stock market, you might think of yourself as a sophisticated investor but you may not be from a legal standpoint. For one thing, being a sophisticated investor in Australia means you get access to deals that are not available to retail investors.
So what are the qualifications to become one?
We spoke with Roberto, our Trading Operations Manager, for a first-hand perspective. Roberto explains:
"A sophisticated investor, or a wholesale investor, is an individual or entity who is allowed to participate in deals which come with less due diligence than normal (restricted deals). These include Pre-IPOs, capital raises and unlisted equity."
On a regular basis, Barclay Pearce Capital has access to investment opportunities that are only available to Wholesale Investors (as defined under Section 708 of the Corporations Act).
Having a 708 certificate can be beneficial to investors as they are able to participate in these deals at a lower valuation than normal, potentially providing a greater reward in the process.
A Pre-IPO is at a discount rate to the usual IPO price, and on-market capital raise is also at a discount price but limited information is given to you and you need to rely on your own Due diligence process.
The legal definition of a sophisticated investor is defined under Corporations Regulation (2001) 6D.2.03, which in turn is made under the Corporations Act.
The rules governing how sophisticated investors can participate in capital raisings are outlined in s708(8) of the Corporations Act:
Sophisticated investors
(1) For subparagraph 708(8)(c)(i) of the Act, $2.5 million is specified.
(2) For subparagraph 708(8)(c)(ii) of the Act, $250,000 is specified.
Note: Under subsection 708(8) of the Act, an offer of a body's securities does not need disclosure to investors under Part 6D.2 of the Act if it appears from a certificate given by a qualified accountant no more than 6 months before the offer is made that the person to whom the offer is made:
(a) has net assets of at least the amount specified in regulations made for the purposes of subparagraph 708(8)(c)(i); or
(b) has a gross income for each of the last 2 financial years of at least the amount specified in regulations made for the purposes of subparagraph 708(8)(c)(ii).
In other words, a sophisticated investor needs to have at least $2.5 million in net assets OR $250,000 or more in gross income per annum in each of the previous two financial years.
A normal IPO has a prospectus, which is sometimes a 200+ page document detailing everything about a company, where a Pre-IPO has nothing more than a presentation, and a term sheet. "An investment into a Pre-IPO also comes with more risk, as it's not liquid and tradable. Therefore, a 708 certificate is an acknowledgment that you understand the risks involved", Roberto added.
If you believe you qualify as a sophisticated investor, please fill in the form below and hand it to a verified qualified accountant to confirm the Wholesale Investor status.
If you don't meet the criteria of the 708 regulations but have adequate experience in risk opportunities, you can fill out the Sophisticated Investor Questionnaire (SIQ) form, detailing the risk experience and if deemed adequate, are allowed to participate into these restricted deals.
General Advice Warning
Any advice provided by Barclay Pearce Capital including on its website and by its representatives is general advice only and does not consider your objectives, financial situation or needs, and you should consider whether it's appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) including the Privacy Statement to understand the features, risks and returns associated with the investment.
