Professional and Sophisticated Investors

[Value Collector]

Yup...have you managed to get one in the last 6-12 months?

no but will be shortly, I will let you now if my accountant has changed his mind.

 

[MovingAverage]

no but will be shortly, I will let you now if my accountant has changed his mind.

Thanks...I’m very curious

 

[Country Lad]

Yup...have you managed to get one in the last 6-12 months?

My accountant renews mine at the end of each financial year instead of the statutory requirement of every 2 years and has been doing so for years. As far as I know she does this for others as well.

 

[MovingAverage]

My accountant renews mine at the end of each financial year instead of the statutory requirement of every 2 years and has been doing so for years. As far as I know she does this for others as well.

Mine used to do that but has just stopped ?

 

[Dona Ferentes]

stay alert, folks

Investors face a renewed threat from scammers and so-called money coaches offering unauthorised advice and perpetrating financial frauds as a growing number of people rely on the internet and home computers during the COVID-19 period.

“This has been a once-in-a-generation opportunity for criminals to target maximum returns,” says Stan Gallo, a partner in charge of forensic services at international consultancy BDO.

Gallo says workplace IT security systems have been stretched by a huge spike in remote accessing and online transactions as unprecedented numbers of employees work from home.

Global regulatory bodies have detected a sharp spike in scams, misinformation and aggressive marketing of risky products, adding to the climate of “extreme volatility” in markets.

BDO’s Gallo says bracket creep means many comparatively modest investors, typically those with gross annual incomes of $250,000 or more for at least two years and net assets totalling $2.5 million, are considered for regulatory purposes to be “sophisticated”.

“That means they may have access to a larger range of investment options but receive less disclosure and protections than ordinary ‘retail’ investors,” he says.

Record low interest rates and sharemarket volatility means more investors are willing to take higher risks to boost returns.

......
Cyber experts claim about 90 per cent of the risks involved with using computers for financial transactions can be eliminated with simple checks. They include:

• Gallo says investors can lower the risk of “phishing”, which is the fraudulent attempt to obtain sensitive information or data, such as passwords or credit card details, by not clicking on links in emails or messages, or opening attachments, from people you don’t know. Also, use a quality security software application. The bogus emails often contain a fake website where individuals are encouraged to enter confidential details.
• Use multi-factor authentication, which ensures a user is granted access to a website or application only after successfully confirming identity credentials via two or more pieces of evidence. Tilley, from Secureworks, says shop around until you find a provider that offers the protection.
• Small businesses and individuals need to be on alert for “business email compromise”, a common form of attack typically involving the authorised access to a legitimate business account. Once accessed, the account will be used to request fraudulent payments, or redirect legitimate payments to alternative bank accounts. In addition to logging and monitoring suspicious activities, have a second person monitoring invoices to identify irregularities, says Gallo.

 

[Dona Ferentes]

the newest incarnation, on the international stage, is that of Family Offices.

The recent blowup of Archegos, dropping $10B of FO money on swaps that went wrong (essentially undisclosed lavish leverage on supercharged speculative bets), has brought these structures to the fore.

Last Thursday, Dan Berkovitz at the US Commodity Futures Trading Commission said oversight of family offices “must be strengthened”, noting that they “can wreak havoc on our financial markets”.

In a report issued a year ago, business school Insead noted that the number of single family offices had grown by 38 per cent between 2017 and 2019, to reach more than 7000. Assets under management stood at some $US5.9trn in 2019, the report estimated. That compares with $US3.6trn in the global hedge fund industry, according to HFR.

Family offices are “growing faster than global wealth, and are increasingly common in all areas”, Insead stated, adding that rich families are also placing a growing share of their wealth in these types of structures.

This is no small-time cottage industry. On average, they control assets worth $US1.6 billion apiece, according to another 2020 study by UBS, and a handful can stretch into hundreds of billions of dollars. Typically, each family office has two or three offices, often in hubs like Singapore, Luxembourg and London. Chief executives are paid something in the order of $US335,000 a year, according to the Insead report.

Despite the size of these investment houses, family offices tend to operate below the regulatory radar. Unlike mainstream pension funds and investment managers catering to the masses, or more highbrow hedge funds, they do not manage external money. This means that they often answer to no one but the family — apart from standard anti-money laundering rules and sanctions compliance.

Unless they cross thresholds demanding transparency on the size of their stakes in public companies, or they choose to disclose investments, perhaps because of their philanthropic tinge, they do not reveal their bets. They rarely speak to the press and they do not provide updates on performance or holdings.

The knotty issue facing the broader financial system, as Archegos illustrates, is that family offices are not created equal. Many are cautious, seeking only to preserve the wealth they have amassed. Some, however, demonstrate all the speculative aggression typically associated with the most cut-throat hedge fund. Hwang’s Archegos falls into that camp. The banks involved are now investigating whether Hwang misled them, concealing positions held with other banks to rack up vast amounts of leverage in concentrated bets that unravelled alarmingly fast....

Financial Times

 

[over9k]

It's a sales tactic. It massages the client's ego/kisses their ass. It makes them feel like william large penis if they use your product. You'll see it all the time whenever something is described as "exclusive".

Mildly well off people will spend huge money to make themselves look far better off than they actually are. In the right circles, nine times out of ten it's the person with the crappiest car that actually has the most money.

 

[Dona Ferentes]

It's a sales tactic. It massages the client's ego. You'll see it all the time whenever something is described as "exclusive".

Mildly well off people will spend huge money to make themselves look far better off than they actually are. In the right circles, nine times out of ten it's the person with the crappiest car that actually has the most money.

I think it's more than that. "Assets under management stood at some $US5.9trn in 2019". But the beguiling lure of outperformance can usually only be done with taking on risk, and nothing outperforms like a black box, where the risks are disguised until they aren't.

 

[Value Collector]

It's a sales tactic. It massages the client's ego/kisses their ass. It makes them feel like william large penis if they use your product. You'll see it all the time whenever something is described as "exclusive".

Mildly well off people will spend huge money to make themselves look far better off than they actually are. In the right circles, nine times out of ten it's the person with the crappiest car that actually has the most money.

It’s more than that, there is actually certain investments that you can’t invest in unless you are a wholesale investor, the reason for that is basically so they don’t have to jump through all the hoops of get asic approval to make a retail offer.

for example, I was just looking at putting some money into an unlisted property fund recently, there was several that I was looking at, and some the property funds were only open to sophisticated investors, one of them owned nothing but Telstra Exchanges leased back to Telstra on 25 year leases, from the looks of it the deal was put together pretty quickly when it was done so was never put together in a way to make a retail offer, it’s not about making the investors feel good, it’s about putting a deal together easily, and if it’s a deal that’s good enough to get a lot of wholesale support, why go to the extra fuss of offering it to retail clients?

 

[Smurf1976]

it’s not about making the investors feel good, it’s about putting a deal together easily

I can see an element of both to it.

Makes the deal easy as you say.

There'd be at least some for whom being deemed "professional" or "sophisticated" will press their buttons and make them happy even if they don't make any use at all of the benefits it offers.

Regardless of what anyone intends, I can see both applying to varying degrees in practice.

 

[Value Collector]

There'd be at least some for whom being deemed "professional" or "sophisticated" will press their buttons and make them happy even if they don't make any use at all of the benefits it offers.

No doubt some people would get a kick out of that, but I really don't think that's why these the main reason these deals are put together as has been claimed here by others.

I mean the deal I mentioned above for the purchase of the Telstra data centres and exchanges was a $700Million deal, and the minimum investment was $100,000 it was clearly aimed at institutional investors like big industry super funds and other wholesale institutions, allowing the individual investors in is only something they want to do if they are making large investments and don't require them to jump through the ASIC hoops.

When these deals are getting put together the last thing they want it to be tying up man hours dealing with 100's of people looking to invest $1000, and the advertising budget to get it out there and having to write super a detailed PDS that is that would be suitable for release to retail investors.

Hence why it makes sense for these institutions to have a list of "sophisticated/wholesale" investors on their books who they can quickly contact and get a quick no fuss investment from.

I guess a lot of people just have a problem with the term "sophisticated", but I guess they would have a problem with most words you tried to replace it with eg professional investor, experienced investor, high net worth investor I don't know.

Can anyone here think of a better word?

 

[over9k]

Just large sum investors.

There's nothing "sophisticated" about it. It's like a real estate agent describing something as "exquisite". It's ball-greasing.

 

[Value Collector]

Just large sum investors.

There's nothing "sophisticated" about it. It's like a real estate agent describing something as "exquisite". It's ball-greasing.

The term sophisticated investor is actually a legal term invented by the USA financial regulator the SEC, not salespeople. it is meant to describe someone with more investment knowledge than average, capable of assessing deals more throughly or at least of a large enough size to be able to absorb added risk.

If look up what sophisticated means, you will see it just means having experience and knowledge or something that is developed to a higher degree of complexity.

for example you could describe a computer system as a “highly sophisticated computer system”, you wouldn’t be trying to “grease it balls” you would just be describing the fact it is more complex than average and capable of things that more standard computers aren’t.

But as I said before it’s a legal term, but if it makes you personally uncomfortable, maybe use professional investor, wholesale investor, accredited Investor etc in its place.

 

[over9k]

Do you think they actually mean it in the legal sense though?

Ostensibly you're correct, but in reality...

It's like how a "significant investment" has a legal definition (which I think is actually 250k iirc) but the term can be used in far more meanings other than the legal.

 

[Value Collector]

Do you think they actually mean it in the legal sense though?

Ostensibly you're correct, but in reality...

It's like how a "significant investment" has a legal definition (which I think is actually 250k iirc) but the term can be used in far more meanings other than the legal.

Yes, it’s illegal for them to offer these deals to people that don’t meet the sophisticated investor criteria, hence why they want written proof from your accountant before they will talk to you.

There is strict legal rules and restrictions about what sort of investment schemes can be offered to retail investors, and there is far looser rules about what can be offered to sophisticated investors.

 

[over9k]

Yes, I'm aware...

We were talking about how the term is actually used in reality, not the legal stuff.

 

[Value Collector]

Yes, I'm aware...

We were talking about how the term is actually used in reality, not the legal stuff.

Such as? Where are you seeing it being used where the legal side doesn’t apply?

The only places I can recall seeing the Term mentioned is in the marketing material of the actual deals where you need to quality to take part, or from banks and brokers that want sophisticated investors as clients because they are hoping to market these deals to them, but can’t legally unless you qualify.

 

[Smurf1976]

Can anyone here think of a better word?

Haven't got a better term for it but I think it's one of those things where the term will in practice be taken to mean different things by different people.

Other words like that include professional, experienced, rich, hot, cold, large, small etc they're all open to interpretation. What's a small house to some is normal or even large to others. etc.

But if someone's offering me something that isn't available to everyone and it uses terms that imply I'm in some way superior, highly regarded, have achieved something etc well then wrongly or rightly that does look like an attempt to appeal to certain traits that I don't really care about.

Ultimately though it's much like petrol. "Premium" is just a name and means it meats a particular technical specification, that's all and much the same with "sophisticated investors", it just means they meet some specific criteria. Depending on circumstances that might be good, bad or completely irrelevant.

 

[over9k]

Such as? Where are you seeing it being used where the legal side doesn’t apply?

The only places I can recall seeing the Term mentioned is in the marketing material of the actual deals where you need to quality to take part, or from banks and brokers that want sophisticated investors as clients because they are hoping to market these deals to them, but can’t legally unless you qualify.

I never said the legal side doesn't apply. The OP was essentially questioning why the word sophisticated is being used and I'm pointing out that whilst it has a legal definition, the actual term "sophisticated" is used in place of something more mundane like "large sum" or whatever to describe that 250k+ customer for a reason.

You're really keen for an argument, aren't you?

 

[Value Collector]

I never said the legal side doesn't apply. The OP was essentially questioning why the word sophisticated is being used and I'm pointing out that whilst it has a legal definition, the actual term "sophisticated" is used in place of something more mundane like "large sum" or whatever to describe that 250k+ customer for a reason.

You're really keen for an argument, aren't you?

The original post asked why they use the term sophisticated, The reason it is being used is because it has a legal definition, and only because of the legal restrictions.

The people putting the deals together know that their deal doesn’t meet the qualifications to allow them to offer it to retail investors, hence they say something like “open to sophisticated investors only”, remember it was the government that invested the term.

if you are on the ski slopes, and you see a sign saying “experienced skiers only” or it’s marked as a double diamond slope, they are not trying to make the slope seem exclusive, they are letting you know it’s not designed for beginners and might not have the normal safety barriers you expect of the beginner or intermediate slopes, it’s exactly the same with investing.

while you might be interpreting that as them trying to make the deal appear exclusive, it’s actually a legal requirement, and if anything should be seen as more of a “buyer beware” sign.