Subject: File No. S7-25-06
From: Kevin Hoffmeyer

January 17, 2007

Imposing additional restrictions to the definition of Accredited Investor, unfairly and unjustifiably restricts an investors ability to construct a truly diversified portfolio. Modern Portfolio Theory ( posits that hedge funds and private equity investments can provide substantial benefits to a diversified portfolio. Specifically, an allocation of capital to each of these asset classes (along with ownership of stocks, bonds, etc) helps achieve TWO important goals: 1) REDUCE overall portfolio volatility and 2) INCREASE the overall expected return of the portfolio. By further restricting the availability of this asset class, the SEC is hindering an investors ability to achieve the benefits noted above.

Furthermore, additional restrictions to the Accredited Investor standard will only help to perpetuate the wealth gap that exists in this country. Academic research suggests that investments in private equity are one of the most successful ways to achieve long-term, tax-advantaged capital appreciation ( By further restricting a persons ability to invest in this asset class, the SEC would effectively perpetuate the wealth gap that already exists in our country ( ). Under the SEC's proposed rule, only the "rich" will be given the right to seek returns greater than what the public equity markets provide. The rest of us, must take what is given to us.

Finally, I take issue with the suggestion that certain venture capital vehicles will be exempt from the additional restrictions imposed by the new rule. Among the private equity sub-classes (angel, vc, late stage, etc) venture capital investments are by far the riskiest. Assuming for a moment that investors do need additional protection from private equity (which I strongly dispute), venture capital is the one asset class that would merit further restriction. Exempting venture capital from the additional restrictions is entirely inconsistent with the rule's stated purpose.

In sum, the SEC should not focus it's efforts on imposing arbitrary restrictions, but instead should work to improve informational transparency for private equity and hedge funds so that investors can make more informed investment decisions.