From time to time, clients ask whether being classified as a “wholesale investor” unlocks better investment opportunities. It might sound impressive and exclusive but what does it actually mean in practice? Do very wealthy people have access to a lot better investments?
What is a wholesale investor and what does it mean?
A wholesale investor is a person or entity that meets at least one of the key criteria under the Corporations Act:
- Product value test – they invest at least AUD $500,000 in a single transaction.
- Wealth test – they hold a certificate from a qualified accountant confirming they meet either the income or net asset thresholds:
- Net assets: At least AUD $2.5 million, including superannuation and your family home.
- Income: Gross income of at least AUD $250,000 per year for the past two financial years. Gross income includes all pre-tax income, including that earned through entities under your control.
- Sophisticated investor test – the AFSL licensee is satisfied on reasonable grounds that the person has sufficient experience to assess the merits and risks of the investment. The licensee must provide written reasons, and the client must acknowledge in writing that they have not received a disclosure document. In practice, this route is rarely used as the wealth test is relatively easy to meet.
The wealth test benchmarks were set back in 2001 and are long overdue for an update. ASIC has proposed raising the thresholds to a $450,000 income benchmark and $4.5 million in net assets, excluding the family home. In my view, this proposed change is a no-brainer. Unfortunately, the government has indicated there are no plans to implement it.
What are the consequences of being treated as a wholesale investor?
Wholesale investors do not have the same protections as retail investors. Advisors are not legally required to provide them with key disclosure documents, such as Product Disclosure Statements or a Financial Services Guide. The statutory “best interests’ duty” that applies to retail clients is significantly reduced, and wholesale investors cannot access external dispute resolution bodies like AFCA. Put simply, it’s very much a “buyer beware” environment.
This means the onus is on the investor to conduct a thorough due diligence, ask the right questions, and ensure they have all the information needed to make an informed decision.
From a business perspective, investment product providers and advisory firms are often keen to serve wholesale clients because the compliance burden is lower.
What investments are available only to wholesale investors?
There are many types of investments available to wholesale investors, but most can be grouped into six broad categories.
- Private equity – investing in established, unlisted businesses with the aim of realising returns through a liquidity event such as an IPO or trade sale.
- Venture capital – backing early-stage companies, often pre-profit or even pre-revenue. High risk but potentially high reward if the business succeeds.
- Private credit – lending directly to businesses outside the banking system, typically seeking higher yields. Often accessed through unlisted private credit funds for diversification.
- Infrastructure funds – investing in large-scale assets such as toll roads, airports, or renewable energy projects. These are capital-intensive but can deliver stable, long-term cash flows.
- Property syndicates and unlisted property trusts – pooling investor capital to acquire large commercial properties, giving access to assets that individual investors could not purchase alone.
- Hedge funds – unlisted vehicles with broad mandates to invest across many asset classes and use strategies such as leverage, derivatives, and short-selling. Their goal is to generate positive returns in all market conditions by anticipating market trends.
Some potential downsides of wholesale investments
Whilst these investments can have some appeal, they also come with inherent downsides that investors must consider carefully:
- Higher risk – Many of these investments carry substantially more risk than traditional listed assets. For instance, research suggests that only 1 in 5 private equity investments achieve their expected returns. The reality is that a relatively high proportion simply don’t work. To my mind, the aim of investing is not to maximise risk but to earn an acceptable return with the least risk possible. Put differently, maximise the probability of building wealth. If you can achieve an average annual return of 7% to 10% p.a., your portfolio will double every 7 to 10 years – which is more than acceptable for most investors, so there’s rarely a need to take such high risk.
- Illiquidity – Capital is usually locked up for many years. This inflexibility can become a problem if your personal circumstances change unexpectedly, leaving you unable to access funds when you need them.
- Lack of transparency – Listed securities benefit from daily price discovery and strict reporting requirements, which provide clarity on current market value. By contrast, unlisted investments are far less transparent. You often don’t know the true value until you sell, and reporting on fees and conflicts of interest may be limited.
- Lack of control – As a minority investor, you typically have no influence over decisions. While this may not be a major issue, it becomes more problematic when combined with illiquidity. At least with listed assets, you can exit if you become uncomfortable – but with unlisted assets, you may end up being stuck in an investment you are unhappy with.
- High fees – Unlisted investments usually come with much higher costs, including management fees of 0.7% to 2% p.a., transaction fees, and performance fees (often 20% of returns above a benchmark). With multiple parties involved, fees can compound and materially erode net returns.
Potential upsides
The main attraction of wholesale investments is the potential for extraordinary returns, such as a 10x gain. And of course, that prospect is appealing to any investor.
The marketing mirage
Beyond the potential for returns, much of the attraction of wholesale investments is fuelled by psychology and marketing. Labelling something as “wholesale only” creates a sense of exclusivity, giving investors the feeling of being insiders, which is a powerful appeal to the ego.
For some, participation is as much about status as it is about returns. The unspoken message becomes: “I’m wealthy and sophisticated, so my investments should reflect that. I have access to something you don’t.” The fancy boardrooms, glossy pitch decks, and boozy lunches are all part of that signalling.
Of course, there are examples of successful wholesale investments. But the truth is, much of this industry leans more on storytelling than substance. Often, what’s really being sold is a narrative of exclusivity and superiority, rather than consistently superior returns.
Investment, business or speculation – which is it?
There are three ways to make money: through pure investing, speculation, or business. Sometimes an opportunity has elements of more than one, but it’s important to be honest with yourself about which it is. Wholesale investments often sit somewhere between investing and speculation, and in some cases lean more towards speculation.
My focus, both personally and for clients, is on pure investing. Anything that feels too speculative doesn’t interest me, because I don’t believe most people need to take on that level of risk to achieve their goals.
While I’m sure all our clients would qualify as wholesale investors under the wealth test, we use wholesale investments very sparingly. We include a few, but they are not a core part of our portfolios.
Here’s an exact quote from Warren Buffett’s 2013 letter to his shareholders:
“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”
Take it from someone that has an abundance of investment opportunities!
Core-satellite investing strategy
Listed investments come with a host of advantages that are hard to ignore. They are highly liquid, so you can buy or sell at any time, and they offer full transparency with daily pricing and strong disclosure. They provide instant diversification across thousands of companies or bonds, all at very low cost, and are backed by solid regulatory protections. Most importantly, they have a long, evidence-based track record of delivering good compounding returns.
What sets them apart is that they don’t depend on slick marketing or exclusivity. Instead, they are grounded in logic, rules-based investing, and data. Listed investments may not feel exciting, but in wealth building, “boring” is often what works best. That’s why we believe they should form the core of most portfolios. For those who want to take on additional risk, wholesale investments might play a role at the edges, but they should remain satellites, not the foundation.
