Navigating the landscape of private equity investments requires a thorough understanding of due diligence processes, especially when considering firms like Huron Capital Partners. For individual investors, Huron Capital Partners employs a preliminary due diligence questionnaire to ensure alignment and suitability. This document outlines key definitions critical to understanding this process. It’s designed to clarify essential terms such as “Entities,” “Accredited Investor,” and the specifics of calculating “Net Worth” and “Individual Income” as they pertain to potential investors.
Within the context of Huron Capital Partners’ evaluations, the term “Entities” is broadly defined. It encompasses various forms of organizations beyond just corporations. This includes partnerships, limited liability companies (LLCs), trusts, and any other structured entity. This broad definition ensures that Huron Capital Partners can engage with a diverse range of investment vehicles and structures that individual investors might utilize.
A crucial aspect of the questionnaire revolves around the definition of an “Accredited Investor.” This term, as defined by the Securities Act, outlines specific financial benchmarks that individuals must meet to participate in certain investment opportunities. These benchmarks are designed to protect investors by ensuring they possess a degree of financial sophistication and the capacity to bear the risks associated with private investments. The criteria to qualify as an accredited investor are multifaceted, encompassing:
- Net Worth Threshold: An individual, either alone or jointly with a spouse, must possess a net worth exceeding $1,000,000.
- Income Criteria: Alternatively, an individual must demonstrate an individual income exceeding $200,000 annually for the past two years, with a reasonable expectation of maintaining this level in the current year. This threshold increases to $300,000 for joint income with a spouse under the same conditions.
- Professional Licensing: Individuals holding specific and active financial licenses, such as a General Securities Representative license (Series 7), Private Securities Offerings Representative license (Series 82), or Investment Adviser Representative license (Series 65), also qualify.
- Family Office Clients: Natural persons who are considered “family clients” of a “family office” may also be classified as accredited investors under specific conditions related to the family office’s assets under management and investment expertise.
Delving deeper into the financial qualifications, the questionnaire clarifies the calculation of “net worth.” This is defined as the total fair market value of assets, excluding the value of the primary residence. From this total, liabilities are subtracted, with a specific treatment for primary residence debt. Specifically, while mortgage debt up to the primary residence’s fair market value is excluded from liabilities, any additional indebtedness incurred within 60 days of the investment, not related to acquiring the residence, is included as a liability.
Furthermore, the definition of “individual income” is tailored for investment qualification purposes. It starts with the adjusted gross income reported for U.S. federal income tax, excluding income attributable to a spouse or spousal property. This base income is then adjusted by adding back certain items such as tax-exempt interest income, losses claimed as a limited partner, depletion deductions, and any reduction in income from long-term capital gains prior to the Tax Reform Act of 1986. These adjustments provide a more comprehensive view of an individual’s financial capacity for investment purposes.
Understanding these definitions is crucial for individuals considering investment opportunities with Huron Capital Partners. The preliminary due diligence questionnaire serves as a foundational step in ensuring that potential investors meet the necessary criteria and are well-suited for the types of investments offered by Huron Capital Partners. This structured approach to due diligence reflects Huron Capital Partners’ commitment to responsible investment practices and investor protection.
