A qualified purchaser is an investor meeting the thresholds of Section 2(a)(51) of the Investment Company Act of 1940 — principally an individual (or family-owned company) owning at least $5 million in investments, or an entity managing at least $25 million in investments. Qualified purchaser status is the admission ticket to 3(c)(7) private funds, the tier above accredited investor.
The definition
The statute counts investments, not net worth — a narrower measure than the accredited investor tests. Securities, funds, investment real estate, commodity interests, and cash held for investment count; a primary residence and property used in a business do not. The main categories:
- Individuals (including joint ownership with a spouse) with at least $5 million in investments.
- Family-owned companies owning at least $5 million in investments, held for the benefit of relatives.
- Trusts not formed for the specific purpose of the investment, where the trustee and each settlor are themselves qualified purchasers (certain $5 million trusts also qualify).
- Entities acting for others — investment managers and companies — owning and investing at least $25 million in investments on their own behalf or for other qualified purchasers.
- Knowledgeable employees of the fund, by rule, and entities owned entirely by qualified purchasers.
Why the tier exists: 3(c)(1) versus 3(c)(7)
Private funds avoid Investment Company Act registration through one of two exemptions, and the qualified purchaser definition is the dividing line. A 3(c)(1) fund is capped at 100 beneficial owners (250 for smaller venture funds) and, in practice, sells to accredited investors. A 3(c)(7) fund faces no owner cap — but every investor must be a qualified purchaser. Congress created the second path in 1996 on the theory that investors at this scale can fend for themselves; managers use it because unlimited capacity beats a 100-slot ceiling once a fund can fill its book with $5M+ investors.
The practical consequence for advisors: client eligibility determines fund universe. Institutional-caliber hedge funds, flagship private equity vehicles, and many feeder-platform offerings are 3(c)(7) and simply unavailable below the QP line, while the accredited-only client shops the 3(c)(1) and registered-product shelf — interval funds, non-traded BDCs, DSTs, and 3(c)(1) feeder funds built precisely to aggregate sub-QP capital. Status is certified in the subscription agreement, with documentation standards set by the fund.
One further tier confuses the map: the qualified client standard under the Advisers Act, which governs whether an adviser may charge performance fees — inflation-adjusted every five years, and set in 2026 at $1.4 million under management with the adviser or $2.7 million in net worth. The hierarchy runs accredited investor → qualified client → qualified purchaser, and a qualified purchaser satisfies all three.
FAQ
What is a qualified purchaser in simple terms?
An investor with at least $5 million in investments ($25 million for institutions investing for others) — the eligibility level required by the most exclusive private funds.
What's the difference between accredited investor and qualified purchaser?
Accredited is the lower gate ($200K income or $1M net worth) for private placements generally; qualified purchaser ($5M in investments) unlocks 3(c)(7) funds with no investor-count limits. The QP test also counts only investments, not total net worth.
Does a primary residence count toward the $5 million?
No — the test measures investments, which exclude a primary residence and business-use property.
What is a 3(c)(7) fund?
A private fund exempt from Investment Company Act registration because all its investors are qualified purchasers. It can accept unlimited investors, unlike a 3(c)(1) fund’s 100-owner cap.
Related terms
Accredited Investor · Hedge Fund · Feeder Fund · Private Placement · Subscription Agreement
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