Investments for wholesale and eligible investors

Wholesale investors are defined in law and, broadly speaking, are people or organisations who have sufficient previous investing experience that means they don’t require disclosure.

You can either be a wholesale investor for all offers of financial products, or just for a particular offer.

Wholesale investors for all offers of financial products

An investor is a wholesale investor for all offers of financial products if:

• they are an investment business (for example, an entity whose main business is investing in financial products, a registered bank, or a financial adviser);
• they meet the investment activity criteria specified in law to essentially qualify as a habitual or experienced investor;
• they are ‘large’ (the investor has net assets or turnover exceeding $5 million for the last two completed financial years); or
• they are a Government Agency.

Wholesale investors for a particular offer of financial products

An investor is a wholesale investor in relation to a particular offer of financial products if:

• they are an eligible investor in relation to that offer (see below);
• the minimum investment amount payable by the investor is $750,000;
• the investment amount, plus any amounts previously invested by the investor for the same financial products from that provider add up to at least $750,000;
• it is proposed that the investor will acquire the financial products under a bona fide underwriting or sub-underwriting agreement (typically relevant to investment banks or other financial institutions and not individual investors); or
• in relation to an offer of a derivative, the notional value of the derivative is at least $5 million.

Eligible investors

You can self-certify yourself to be an ‘eligible investor’ (which is a type of wholesale investor) in relation to a particular transaction if you have sufficient experience in acquiring or disposing of financial products to be able to assess:

• the merits of the transaction
• your own information needs in relation to the transaction; and
• the adequacy of the information provided by any person involved in the transaction.

That certification requires a financial adviser, a qualified statutory accountant, or a lawyer to sign the certification stating they are satisfied you have been sufficiently advised of the consequences of self-certification and have no other reason to consider the self-certification is incorrect or that further information or investigation is required.

The FMA has a range of powers we can use in relation to retail investment offers, and we can intervene where necessary. However, we have little oversight of wholesale investment offers.

Investing in a wholesale offer may mean you:

• Do not receive a product disclosure statement (PDS) for the offer. The PDS sets out the key characteristics, risks and features of the investment, in clear, concise and effective language that is aimed at a prudent but non-expert investor. A PDS is not required for wholesale offers.
• Are not dealing with a firm licensed by the FMA (this is particularly relevant for offers of managed investment products and derivatives). Licensing gives us the ability to monitor the activities of the firm.
• Do not have access to a free independent dispute resolution scheme if things go wrong.
• Do not receive information about the investment’s ongoing performance
• Won’t have a licensed supervisor (an entity that looks after the interests of investors) in the case of debt securities such as bonds and managed investment schemes.

While offers to wholesale investors are not regulated in the same way as offers to retail investors, the offeror must still comply with ‘fair dealing’ requirements. This means the person making the offer cannot:

• engage in misleading or deceptive conduct in relation to the offer
• make false or misleading statements in their offer documents or advertising
• make unsubstantiated representations.

Wholesale offers can seem attractive, offering high returns or access to opportunities not available to retail investors (for example venture capital). If you qualify, ask yourself these questions first:

Am I really sufficiently experienced?
Wholesale investors are assumed to be experienced, sophisticated investors. How do I qualify to be experienced? Does a certain amount of money really make me experienced or sophisticated? Do I feel experienced? Why does this product require me to be experienced?

Am I happy with fewer protections?
I will have fewer protections with this investment (including less disclosure about risk), than I would with other investments. How do I feel about that? What is so appealing about this investment that I am prepared to volunteer to be less protected?

Do I understand the risks of this investment?
What are the risks of this investment? Where are they disclosed or explained and, if they are not – or they are difficult to find – why is that? Are they larger or more varied than with other investments? What does the provider say when I ask them?

Do I understand the basis for the advertised returns?
If specific returns are forecast or expected as part of the advertising and disclosure, what is the basis for that? And what are the risks of the return being less, or nothing?