As laid out in Section 708 of the Corporations Act 2001 (Cth), the term Sophisticated Investor describes a category of investor that can be offered securities without needing a prospectus or other regulated disclosure documents.
The rationale behind this classification is that Sophisticated Investors — also often referred to as "high net worth individuals" and "s708 investors" — are considered to have sufficient investment knowledge and experience to make informed decisions regarding a new offer of securities without requiring the protection of a prospectus.
What Criteria is used to Identify Sophisticated Investors?
To satisfy the requirements for being classed as a Sophisticated Investor, you will have either:
- A gross income for each of the last two financial years of at least $250,000; or
- Net assets of at least $2.5 million.
What are the Benefits of Being a Sophisticated Investor?
Ultimately, qualifying as a Sophisticated Investor means increased access to opportunities.
As a Sophisticated Investor, you can be offered investment opportunities that aren't usually available to retail investors. These deals can come in the form of pre-IPO offers, hedge funds, property syndicates, and unlisted securities like capital raisings or seeding opportunities for private companies.
These offers are also often priced at a discount to the current share price.
These kinds of early stage opportunities have the potential to deliver high returns, but it should be noted that they are also often higher risk.