The Importance of Eligibility and Requirements for Investors

Increasing minimum asset requirements for investors

Most people think of hedges and mutual funds when discussing minimum investment amounts. However, minimum investments can apply to other types, such as fixed-income securities, collateralized mortgage obligations, and limited partnerships. These investments usually require a certain minimum amount of capital, which varies from hundreds of thousands to millions of dollars

Expanding disclosure requirements to more companies

While the US and EU regulators are working to establish mandatory disclosure standards, there are many differences between the US and EU requirements. While the EU has a more comprehensive disclosure requirement, the US relies on a more straightforward and narrower definition of materiality. The proposed EU regulations will focus on five significant domains and include sector-specific metrics. Companies in each sector will need to comply with different disclosure requirements. The concept of materiality is the cornerstone of federal securities laws. According to a Supreme Court precedent, a company must disclose certain information if it affects the interests of an investor. The proposed rules require companies to discuss climate-related risks with investors over short-, medium-, and long-term time horizons.

The proposed disclosure rules include emissions that occur up and down the companys value chain. These emissions may be produced by its suppliers, customers, or employees. The SEC also requires disclosure of emissions tied to financial relationships, such as oil exploration firms with bank loans. The new rules are likely to broaden the definition of accredited investors. Most companies that file 10-K forms this year will likely be covered under the new rules.

Increasing asset requirements on investors

Recent findings from the US Government Accountability Office indicate that investment firms owned by women and people of color control less than one percent of the $70 trillion in assets under management in the US. The report also finds that these groups comprise over 70% of the US population. Despite the increasing demands for equity, minority investors are eager to receive more capital. This disparity is particularly troubling, considering that most investors are white men. We still have a long way to go in changing our societys perception of who counts as an investor. This is why the growing diversity of Americas population does not reflect our diversity in the financial sector. The discrepancy is enormous. The total assets managed by firms owned by people of color and non-white-identifying individuals are equivalent to the GDP of Mexico.

Racial equity is a critical part of financial inclusion. Despite the high proportion of innovative startups created by people of color, just one percent of venture-backed entrepreneurs were black in 2019. To avoid missing high-alpha opportunities, impact investors must check their implicit and unconscious biases. They can do this by contacting their banks to verify whether the companies they are investing in lend to entrepreneurs of color.

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