Are you a Sophisticated or Wholesale Investor?

By Reuben Buchanan, Managing Director – Axstra Capital Pty Ltd

With the increase in personal wealth in Australia, many individuals who are classified as ‘wholesale’ or sophisticated’ investors don’t even know it. More importantly they could be missing out on some very lucrative investment opportunities.

Legal definition
The Corporations Act 2001 defines a sophisticated investor as someone who meets at least one of the following tests:

  • Has net assets of more than $2.5m;
  • Has income of more than $250k over the last two financial years;
  • Is investing $500k or more into the opportunity

If you don’t meet at least one of the above, you are deemed as a retail investor.

Advantages of being a Sophisticated/Wholesale Investor
By virtue of a sophisticated/wholesale investor’s net assets and experience, they are more knowledgeable when it comes to investing. In addition, they will have access to a larger number of investment opportunities.  This is partly due to the fact that a number of investment products are only available to wholesale or sophisticated investors. Such products are more complex than the average IPO or managed fund.

Another reason why those opportunities are only available to wholesale investors, is because wholesale investors are exempt from the 20/12 rule. The 20/12 rule limits the number of retail investors who can invest into a particular opportunity to 20 within a 12 month period.

There is no limit to the number of wholesale investors who can invest, which is why they are preferred by certain promoters of opportunities.

Also, the fact that wholesale investors can usually contribute large quantities of money makes them all the more attractive to promoters.

Some of the opportunities available to wholesale investors are:

Pre-IPO offers
This is where a company completes a capital raising usually within 12 to 18 months prior to a public listing. Shares are usually offered at a discount to those offered in an IPO – usually between 20% to 50%.

These opportunities are available through certain brokers, investment banks and corporate advisory firms. It pays to be on the newsletter list of a trusted advisory firm to be ‘kept in the loop’ with these sorts of offers.

Private Placements
This is where a publicly listed company wants to raise more funds, usually for expansion or for an acquisition and do not want to go through a formal process of a capital raising requiring the issue of a prospectus (partly due to the higher cost of such process).

By way of an example, a company may want to raise $10m by a private placement.  A certain portion will be placed via their existing shareholder base through what is called a Rights Issue. The only other kind of investors that can participate in this investment opportunity are Wholesale and Sophisticated investors. The benefit for the investor is that, in many cases, they receive their shares at a discount to the current trading price. Say the stock is trading at $1.00 on market, the private placement may be priced at $0.80 resulting in 20% return on day one.

There are certain funds that are only available to wholesale investors. Private Equity funds are one such example. They are specifically set up to accept money from high net worth individuals and institutional investors. These funds have a target IRR of around 25% pa.

To learn more about wholesale or sophisticated investor opportunities, contact your stockbroker or private wealth manager or establish a relationship with an investment banking or corporate advisory firm who specialises in these opportunities.

IMPORTANT: This information is general and should not be taken as specific advice. Readers should always seek their own professional advice. For more information, please email

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