Sophisticated Investor Israel: Eligibility and Regulations
By David Brummer
An accredited investor in Israel — also known locally as a “sophisticated investor” — is a person or entity meeting criteria established by the Israel Securities Authority (ISA), enabling them to participate in security offers not listed on a public stock exchange. These criteria typically consider income, net worth, or professional expertise in financial matters. For additional info read our article: Accredited Investor 101: Definition, Requirements, and FAQs.
Note: This article is up-to-date at the time of publication. Remember that regulations may change and we will attempt to update this information accordingly.
Key Highlights:
- Becoming a sophisticated investor in Israel involves meeting certain criteria set by the Israel Securities Authority (ISA).
- Depending on whether you are an individual, or an entity such as a trust or corporation, there are different criteria for becoming a sophisticated investor.
- The need to become a sophisticated investor in private markets is intended to safeguard less experienced investors from the elevated risks linked to these investments.
What Qualifies You a Sophisticated Investor in Israel?
Under Israeli legislation, only sophisticated investors have the right to take part in private security investments. To become a sophisticated investor you must satisfy at least one of the criteria detailed below.
How to Become a Sophisticated Investor in Israel
In Israel, attaining accreditation typically involves meeting certain criteria outlined by the ISA. This regulatory body categorizes investors into various classifications, including "qualified investors" and "sophisticated investors." To become a sophisticated investor in Israel, individuals typically need to meet one or more of the following criteria:
Financial Thresholds – Individuals must have a certain level of financial assets or income to demonstrate their financial sophistication. This may include possessing a certain amount of investable assets or earning a minimum income threshold.
Investment Experience – Individuals may qualify as sophisticated investors if they have sufficient investment experience or knowledge in financial matters. This may be demonstrated through past investment activities, professional experience in the financial industry, or holding relevant certifications or qualifications.
Professional Qualifications – Holding specific professional qualifications or licenses in finance, such as being a licensed financial advisor or investment manager, may qualify individuals as sophisticated investors.
Investment Size – Individuals who have made substantial investments in the past or regularly invest large sums of money may be considered sophisticated investors.
How much Money do you Need to be a Sophisticated Investor in Israel?
The rules governing how much money one needs to become accredited in Israel can appear confusing, but this article seeks to shed some light on this issue. Individuals must meet at least one of the following criteria:
Individual Accreditation
Liquid Assets: You own liquid assets (including stocks, bonds, mutual investment funds, and "kranot hishtalmut") worth over ILS 9,411,809.
Annual Income: Your annual income for each of the previous two years exceeds ILS 1,411,772.
Liquid Assets and Annual Income: You own liquid assets worth in total more than ILS 5,882,380, and your annual income for each of the previous two years is at least ILS 705,885.
Entity Accreditation
Equity Requirement: The investor is an entity with equity exceeding ILS 50,000,000 (excluding entities formed solely for purchasing securities in a specific offering).
Qualified Investor Ownership: The investor is an entity fully owned by entities and/or individuals who meet the Qualified Investor criteria specified in Art. 15A(b)(1) and Schedule 1 of the Securities Law. Each shareholder (individual or entity) must complete Investor Qualification Forms to verify their eligibility.
Israeli Entity Classification: The investor is one of the following entities organized under the laws of Israel:
a). Portfolio Manager: A portfolio manager as defined in the Regulation of Investment Advice, Investment Marketing, and Investment Portfolio Management 5755-1995, purchasing for themselves or on behalf of clients who are investors listed in section 15A(b) of the Securities Law.
b). Investment Advisor: An investment advisor as defined in the Regulation of Investment Advice, Investment Marketing, and Investment Portfolio Management 5755-1995, or an investment marketing agent purchasing for themselves.
To understand the different rules and regulations for gaining accreditation in other countries, check out our similar articles for:
What are the Benefits of Becoming a Sophisticated Investor?
Becoming a sophisticated investor typically comes with broader investment options, with benefits that include:
Potentially Higher Returns – Sophisticated investors are assumed to have a higher level of financial sophistication and risk tolerance. This can make them eligible for investments that potentially achieve higher returns, albeit with higher risk.
Participation in Private Placements – Sophisticated investors in Israel may have the opportunity to participate in private placements of securities, which can offer access to potentially lucrative investment opportunities.
Access to Private Investments – Sophisticated investors often have access to a wider range of investment opportunities, including private equity, venture capital, hedge funds, and other alternative investments that may not be available to non-accredited investors.
What is the Purpose of Investor Accreditation?
Becoming a sophisticated investor aims to limit access to private market investments, such as venture capital, to financially robust individuals who can endure potential risks and losses. This is granted to those demonstrating significant financial sophistication or substantial wealth.
How is a Sophisticated Investor’s Net Worth Calculated in Israel?
To be considered a sophisticated investor in Israel, an individual’s net assets (including stocks, bonds, mutual investment funds, and “kranot hishtalmut” or “training funds”) must be worth at least ILS9,411,809.
The calculation takes multiple factors into consideration, such as a range of financial and non-financial assets, including cash, investments, real estate (excluding the primary residence), vehicles, and valuable personal possessions such as jewelry, which are offset against any outstanding debts, loans, mortgages, or other liabilities.
What are the Challenges Associated with Becoming a Sophisticated Investor?
While being a sophisticated investor comes with certain benefits, there are also potential risks to be aware of. These challenges may vary depending on individual circumstances and investment goals, but here are some general points to consider:
Lack of Liquidity – Many alternative investments, which sophisticated investors may have access to, lack liquidity compared to more traditional investments like stocks and bonds. This means it may be challenging to sell or exit an investment quickly, potentially tying up capital for an extended period.
Limited Regulatory Protections – Some alternative investments are subject to fewer regulatory protections compared to traditional investments. Sophisticated investors may have fewer legal avenues for recourse in case of investment disputes.
High-Risk Investments – Sophisticated investors often have access to a wider range of investment opportunities, including those with higher risks. Investing in venture capital can be riskier than more traditional investments, and there is a potential for significant financial loss.
Market Volatility – Investments in certain asset classes, especially those with higher potential returns, may be more volatile. Sophisticated investors should be prepared for greater market fluctuations and be able to withstand short-term losses.
Higher Fees – Alternative investments, often come with higher fees compared to traditional investments. These fees can significantly impact overall returns.
How do I apply to be a Sophisticated Investor with OurCrowd?
The most straightforward way of securing accreditation with OurCrowd is via the following method:
Third-Party Accreditation Letter – Submit a letter from a lawyer or Certified Public Accountant (CPA) confirming your accreditation. Alternatively, request a template letter via EchoSign.
Take advantage of our exciting investment opportunities.
BECOME AN INVESTOR TODAY!