PRINT THIS PAGE Accessing Individual Investors15/06/2005. Source: SJ Berwin. 
 Private equity has typically raised most of its funds from institutional investors across the world and, for a variety of reasons, retail investors have never been a particular focus, says SJ Berwin. Although there has always been a smattering of high net worth individual investors around, the minimum commitment level sought by most funds - especially the larger ones - has put the asset class out of the reach of most.
But - although there has not been a dramatic shift - there is a growing supply of individual investors. A surge of interest during the bubble years was followed by a return to normality after the crash but, in the wave of fundraising now underway, there may be more interest from wealthy individuals.
That is certainly true in the smaller funds, and in some of the government-sponsored initiatives to stimulate investment in early stage ventures. The growth in funds of funds is also a catalyst.
Yesterday in the UK, new rules came into force that should make it easier for certain private equity funds (not, unfortunately, including funds of funds) - and indeed early stage companies themselves - to promote themselves to this group of prospective investors.
Complex regulation - which aims to protect the public from higher risk, and less stringently regulated, investments - has been one of the main stumbling blocks in the past for those seeking to access this pool of capital.
Protection is clearly necessary, but it has been hard for the rules to differentiate between the "widows and orphans" in real need of protection, and the sophisticated and wealthy investors who would benefit from a sensibly diversified portfolio. In the past, the balance has been wrong, and rules have been too widely drawn. An attempt a few years ago to redress that balance largely failed, because the new exemptions were cumbersome to operate in practice.
This week's rule-change is an attempt to make the exemptions for high net worth individuals and sophisticated investors easier to use. The stated aim of the UK Government is to "bridge the equity gap": in other words, to stimulate investment into the small and medium-sized enterprise sector of the UK economy. But the impact of the change goes beyond that.
The most significant change is to the exemption for marketing to "wealthy" individuals (defined as £100,000 of gross annual income and/or £250,000 of assets after certain deductions, such as the value of one's home). Here the old rules required an employer's or accountant's certificate of wealth.
Now the regulation permits an individual to self-certify, an approach that has been very successful in the US. Similar changes apply to the exemption for "sophisticated" investors, although here the exemption is more narrowly drawn and supplements, rather than replaces, the existing one (which requires a third party certificate).
Basically, certain persons will be able to self-certify on grounds that, for example, they are part of a business angel network or have worked within the private equity sector for a period of time.
The new rules are a genuine attempt to get the balance right for companies seeking "business angel" finance, and for European funds that would want to admit some UK-based individuals. They will not herald a radical change, but they should assist a developing trend.
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on its services to the private equity industry please contact Simon Witney in its London office +44 (0)20 7533 2222 or visit their website at www.sjberwin.com
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