Tuesday, October 09, 2007

Hedge Fund Changes

The US Securities and Exchange Commission is considering raising the financial requirements to participate in certain high risk investments (such as hedge funds). Currently to be an accredited investor, one must have $1 million in net worth to participate in such investments. If many in the SEC have their way, this amount will rise to $2.5 million.

Such actions happen in an effort to protect individuals from losing a disproportional amount of money. Such funds are largely unregulated and uninsured. So there is a belief that it makes sense to limit access to the fund, if they are not going to put limits on the fund itself.

Unfortunately, often the best funds available are those that require being an accredited investor. Robert Kiyosaki has pointed out that the vast majority of investments available to smaller investors (he calls them "retail investments") may be safer, but they have the smallest returns. Thus, the changes being proposed to raise the requirements for hedge funds are only making it more difficult for people to reach serious wealth.

People are smart, they will get part ownership of some lucrative investments for sweat equity when they don't qualify as investors, but it seems to me there needs to be a better way for individuals to have access to the best opportunities.
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