Previously, we discussed some of the registration requirements for investment funds looking to raise capital. The purpose of these requirements is to protect investors from unscrupulous issuers looking to prey on those who fall for scams. But regulators have deemed that certain classes of investors do not require protection from themselves. As such, those looking to raise funds can take advantage of the following exemptions if they apply:
- $150,000 minimum investment. The thinking goes that those willing to invest this amount will do their due diligence before investing, and therefore don’t require the same protections as those who make smaller investments
- Investors who make over $200,000 annually, or control over $1 million. Such people can afford to lose their investments, and therefore don’t require protection
- Friends or family of the issuer. Issuers are less likely to rip off their friends and family
- Private Investment Club. Investor groups of 50 members or fewer are free to sell securities without being regulated.
Naturally, hedge funds tend to take advantage of the first two exemptions listed above. This explains why hedge funds are not available to everybody.
Note that this is not a legal document, but rather an oversimplification of certain securities rules. Those wishing to raise capital using these means should endeavour to familiarize themselves with their local securities regulations. (These exemptions in particular form part of National Instrument 45-106, which is what governs in my jurisdiction of British Columbia.)
