What is Wholesale Investing?
Wholesale investing refers to a category of investment where individuals or businesses are required to meet certain financial thresholds, which allows them to access investment opportunities that aren’t available to the general public. Wholesale investing offers experienced and sophisticated investors the opportunity to invest in higher-quality assets, often with higher return potential, enhanced customisation, and fewer regulatory restrictions.
Key Things Every Wholesale Investor Should Know About Wholesale Investing
Wholesale investing opens the door to exclusive and coveted opportunities in private markets, property syndicates, and private credit. However, with access comes responsibility. Whether you are considering wholesale investment opportunities or looking to refine your existing strategy, here are 5 key things every wholesale investor should keep in mind to preserve capital, unlock more value, and invest with confidence.
1. Understanding the Eligibility Criteria
There are several tests that can be taken to qualify as a wholesale investor. To qualify as a wholesale investor, a person must meet one of the following tests:
- Individual Wealth Test: You are an individual with net assets of $2.5 million or gross income of $250,000 or more per year for the last two financial years.
- Product Value Test: Under the product value test, an investor must pay at least $500,000 for the securities. If the investor already holds securities of the same class, the combined amount previously paid for those holdings plus the new investment must total at least $500,000.
- Sophisticated Investor Test: You have been accepted by the holder of an Australian Financial Services Licence as having the necessary relevant industry experience, qualifications and knowledge to understand and make your own assessment of the wholesale investment opportunity.
- Professional Investor Test: You are a professional investor, e.g., the holder of an Australian Financial Services Licence, or you are a bank, super fund, insurer, or another regulated entity.
2. Broader Investment Opportunities
As a wholesale investor, you are able to access exclusive, potentially higher-return opportunities in sectors such as private equity, venture capital, unlisted assets, and private credit and infrastructure deals. These opportunities can come with higher risk; however, they also have the potential for much higher rewards than traditional retail structures
3. Wholesale Investors Have Fewer Protections
With the potential for high return, also comes higher risk and fewer protections under financial services law for wholesale investors. Due to the expected knowledge level and financial capital of investors, wholesale investments are subject to fewer regulations and therefore offer fewer protections than standard retail investments. While wholesale investments offer unique investment opportunities, they also demand a higher level of financial literacy and accountability.
4. Certification and Ongoing Compliance
As previously mentioned, to qualify for wholesale investment opportunities, individuals and entities must meet one of the Wholesale Investor Tests. Under the Individual Wealth Test, certification requirements are based on assets or income. It is important to note, certification by an accountant or authorised professional is not a one-off. Your certification as a wholesale investor must be maintained and renewed periodically, as eligibility can change over time with shifts in financial circumstances.
Summary
Wholesale investing can be an exciting and rewarding pathway for experienced investors. The ability to access a broader range of opportunities, participate in faster and more flexible transactions, and diversify beyond traditional asset classes can be a significant advantage. However, these benefits come with added responsibility and important considerations.
Understanding the eligibility requirements ensures you meet necessary thresholds and recognising that wholesale investing is less legally protected highlights the need for thorough due diligence on every deal. With assistance from our trusted advisors and industry leaders at Prime, you can make confident strategic decisions that position you to take full advantage of what the wholesale market has to offer, while managing the risks that come with it. Reach out to us today to hear more about wholesale investment opportunities.
The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.
