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Welcome to OZ INVESTOR - A guide to clever investment for all Australians

Sophisticated Investments

It’s a new financial year and with the volatile 2009/2010 behind you it is time to start looking at ways and means of improving the performance of your investment portfolio into the future. Increases in personal wealth in Australia has resulted in many individuals being classified as 'wholesale' or 'sophisticated' investors but many are still unaware of this fact and may be missing out on investment opportunities.

Those of you familiar with Robert Kiyosaki’s book “Rich Dad Poor Dad” would have heard about these types of limited access investments that are targeted at sophisticated investors and how they can help boost your portfolio returns. What you many investors may not know is that they may already qualify to be classified as a sophisticated investor and to access investments that are not available to the average retail investor.

The current Australian law requires a company that is seeking to raise money to issue a prospectus. The purpose of a prospectus is to disclose information to the investor so that they fully understand the risks involved with the investment. It’s ASIC's role to ensure that a prospectus does just that and as a result the use of a prospectus is the main way that capital is raised for investment in Australia.

However issuing a prospectus is a time consuming and costly exercise and often companies that need to raise capital quickly look for other ways to raise capital. Another method of raising capital that does not require the issue of a prospectus is by promoting the offer directly to Sophisticated Investors or to Professional Investors. As a result, Sophisticated Investors often have access to more investment opportunities than retail investors, often with better rates of return.

Definition of a Sophisticated Investor

Sophisticated investors, as defined by Corporations Law are:

1. Individual entities in respect of whom a qualified accountant has given a certificate in the last 24 months confirming that the individual entity either has net assets of at least A$2.5 million, or has a gross annual income (for each of the last 2 financial years), of at least A$250,000.

2. Individual entities who subscribe for and are allocated at least $500,000 worth of the securities being offered.

3. Individual entities who control for the purpose of investment in securities (that is, shares, debentures, units in managed funds - not property), at least $10,000,000.

4. Individual entities who are licensed dealers subscribing for the securities as principal.

Many investors qualify as sophisticated investors under Definition 1. That is they have an annual gross income of at least $250,000 for each of the last two years and therefore are eligible to participate in offers limited to sophisticated investors. However they are unaware of how to go about participating in these offers.

Some types of investments available to sophisticated investors.

Investment opportunities that have traditionally only been available to sophisticated or professional institutional investors include:

  • Pre-IPO Capital offers
  • Initial Public Offerings, Hybrid and Fixed Interest Securities
  • Capital Raisings
  • Unlisted Shares
  • Structured Investment Funds
  • Private Equity and Hedge Funds


How to become a Sophisticated Investor

If you qualify and wish to access sophisticated investment opportunities, you will need to provide a certificate from a qualified accountant stating that you meet the requirements. This certificate needs to be provided to the organisation that is dealing with you as a sophisticated investor, and it will remain valid for two years.

Over the last twelve months many listed Australia companies have gone to market and raised capital. Most of these deals were underwritten by brokerage houses and sold to sophisticated and professional investors at substantial discounts to the market price. If you were registered as a sophisticated investor you could possibly have participated in these offers.

In these uncertain times I firmly believe that investors need to use all of the tools and options at their disposal to increase their chance of investment success.

Michael Lannon is the Managing Director of 2020 DIRECTINVEST.

The information contained in this article is believed to be accurate. To the maximum extent permitted by the law, 2020 DIRECTINVEST Pty Limited (ACN 069 774 456) (AFSL 244 249) disclaims liability for errors in, or omissions from, this article. In no way should this article be construed as providing securities advice or an endorsement or recommendation of any security or product. In preparing this article we have not taken into consideration your investment objectives or your investment needs and make no representation as to the suitability or otherwise of any product, or security, to you. Before making any investment decision or purchase you should fully satisfy yourself as to the suitability of any security or product you are considering, to your own particular circumstances, and if necessary seek professional fee based investment and tax advice.


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