What entity is considered an institutional investor?

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According to investment dictionaries an encyclopedias, any organization that trades large volumes of securities is considered to be an institutional investor. The current regulations do not define an institutional investor, they however define Institutional Manager and Accredited Investor, terms that may be treated as synonyms. Institutional Investment Manager According to the regulations dealing with SEC 13F filings, an institutional investment manager is an entity that either invests in, or buys and sells, securities for its own account; or an entity that exercises investment discretion over accounts owned by any other natural person or entity. A natural person who exercises investment discretion over his or her own account is not an institutional investment manager. Entities deemed to be investment managers include:
  • registered investment advisors (RIAs) exercising discretion over client accounts,
  • banks,
  • broker/dealers and insurance companies that trade in their own accounts,
  • corporations and pension funds that manage their own investment portfolios,
  • investment advisors to hedge funds and mutual funds
  • other private (not registered) investment advisors with discretion power,
  • trustees of trusts that invests in, or buys and sells, securities
Accredited Investor Rule 506 of Regulation D under the Securities Act of 1933 defines accredited investors to whom private placements of non-exempt securities may be made without registering the offerings with the SEC. The rule identifies these investors as:
  • a bank, insurance company, registered investment company (generally speaking, a mutual fund), business development company, or small business investment company;
  • an employee benefit plan, within the meaning of the ERISA Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
  • a charitable organization, corporation, or partnership with assets exceeding $5 million;
  • a director, executive officer, or general partner of the company selling the securities;
  • a business in which all the equity owners are accredited investors;
  • a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase;
  • a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
  • a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
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