February 26, 2007
To Whom It May Concern:
I believe that the Commission should retain the existing definition of accredited investor as it relates to natural persons, with a modification providing a limit on the percentage of a natural person's assets that can be held in a private investment vehicle.
The Commission's own analysis has indicated that an inflation adjusted level of the initial $1 million asset limit would be less than $2 million in today's dollars. This neither analyzes whether the initial amount was appropriate nor whether there is a nominal dollar amount of assets that indicated financial sophistication. It simply provides a baseline percentage of eligible participants in the population.
A percentage of assets cap at the time of initial investment is a clean standard for how much economic risk an individual places in a private investment vehicle. It limits individuals' value at risk from such vehicles and encourages diversification.
Also, the argument that fewer individuals should qualify for private investment vehicles as in 1982 because of the increasing sophistication of financial products is erroneous. These products, though complex by prior standards, are likely not difficult to understand by an increasing proportion of the population, as evidenced through the increasing number of MBA degrees.
Furthermore, individual financial sophistication is not a function of net assets. Instead, it is a function of experience and education. For example, most students of financial markets know that a passively managed index fund will likely outperform an actively managed mutual fund.
I strongly urge you to modify your proposed changes to these rules which will meet the Commission's purpose interest of providing an objective standard.