Market Information

Market Information

What is a Wholesale Investor

Tuesday, November 27, 2018

When it comes to investors, there are different tiers out there, and all of them have their use in the greater ecosystem of finance. For example, an angel investor with a smaller level of assets and money may be ideally suited for seed money for startups with a smaller earnings cap. However, many would-be investors want to take their potential returns to another level.

Becoming a wholesale investor is a good example of this. Chances are that you’ve probably seen examples of certain investment groups  and syndicates that are specifically available to “wholesale investors.” Here’s what you need to know about what separates these people from the rest , and whether you want to elevate yourself to that level.

Wholesale Investors Explained

Contextually, most people think of wholesale investors as the top tier of investors, those who have proven themselves to have the savvy and financial assets in order to make major, long-term decisions. In order to be considered a wholesale investor, one of four conditions has to be met.

  1. Making an investment of $500,000 or more in a trust.
  2. Investing less than $500,000 in a trust, but also getting a certificate from a qualified accountant within the last two years that clearly states that you have either net assets of at least $2.5 million or a gross income of at least $250,000. Note that if you go this route, the certificate needs to be renewed every two years.
  3. Being defined as a “professional investor” via the Corporations 2001 Act. This category includes superannuation funds, financial services licensees, as well as any person or entity who controls gross assets of at least $10 million.         
  4. Being defined as an “sophisticated investor.”  This category covers people who have significant dealings and exposure to investment with unlisted property trusts. Again, a certificate is required to prove this.

Wholesale Investors Vs. Retail Investors

The point of all four of these different options is to prove not only that wholesale investors have the money to be able to make these larger deals, but also the financial savvy to make the right deals. By comparison, retail investors are single individuals who are generally purchasing things for their personal accounts rather than on behalf of larger institutions, like a bank or venture capital firm. This is also reflected in the channels that they use, like retail brokers or smaller investment clubs.

With their savvy and assets proven, many of the differences between wholesale investors and retail investors lie in financial services law. The majority of financial services laws on the books revolve around consumer protections. However, a proven wholesale investor is able to show that they know how to develop and protect their interests. This means less consumer protection laws apply, which may sound like a negative at first until you realise that these help wholesale investors make larger decisions more quickly.

Here’s one good comparison: A retail management fund will need a product disclosure statement to be issued to all potential investors, containing information that may impact their decision to invest. For a wholesale management fund, this form isn’t needed. In essence, think of wholesale investing as investing with the “training wheels” off. You can go further, but there is technically more of an element of risk. However, you can’t take the wheels off without mastering that risk first.

If you manage to gain the skill and effort necessary to build yourself into a wholesale investor, you’re not only opening up your opportunities but also the potential platforms you have to find new opportunities on. This is where companies like PrimaryMarkets come in, serving as a global independent marketplace that lets wholesale sophisticated investors take part in secondary trading of securities and investments. In addition, we also help unlisted companies and trusts to raise new capital.

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