FrontLine’s Amy Lynch on why opening private markets ups risks for money managers (PitchBook)

New Congressional legislation is seeking to revise the definition of “accredited investor” from high net worth individuals to anyone that can pass a federally mandated exam. If the legislation is passed by the Senate, it would require the SEC to create either a test or certification within a year. Access to private markets would expand beyond institutional investors and wealthy individuals to many more would-be investors currently not meeting the accredited investor definition, which is a net worth of $1 million or an annual income of over $200,000. Amy Lynch, FrontLine Compliance’s Founder and President, comments that ultimately, the money managers themselves must assume more risk from a new group of qualified investors. When private market managers begin to offer products and access to these new investors, she explains, this will prompt the SEC to examine funds and crack down on excessive risk, eventually leading to more regulation. Ms. Lynch further states that GPs will have to increase their due diligence and compliance around onboarding investors to avoid SEC scrutiny. The private fund industry wants to open up to the universe of investors, but this particular bill may not be the best way to approach it, she adds. See PitchBook, “A new bill would expand the definition of ‘LP’”