A Qualified Purchaser is a specific type of investor defined by the U.S. Securities and Exchange Commission (SEC) under the Investment Company Act of 1940. Qualified Purchasers are individuals or entities that meet certain financial criteria, allowing them to invest in certain private investment funds.
What Is a Qualified Purchaser?
A Qualified Purchaser is an investor who meets one of the following criteria:
- Individual with at least $5 million in investments, either alone or jointly with a spouse.
- Family-owned companies with at least $5 million in investments.
- Trusts with at least $5 million in investments, where the trustee is a qualified person.
- Any entity, including investment companies and business development companies, with at least $25 million in investments.
Examples of Qualified Purchasers
Examples of Qualified Purchasers include:
- High-net-worth individuals with substantial investment portfolios.
- Family offices managing significant assets for wealthy families.
- Hedge funds and private equity firms with large investment capital.
Why Is It Important?
Being a Qualified Purchaser grants investors access to certain private investment funds that are not available to retail investors. This allows qualified investors to explore additional investment opportunities and diversify their portfolios.
Qualified Purchasers and The Investment Company Act of 1940
The Investment Company Act of 1940 defines Qualified Purchasers as individuals or entities meeting specific financial thresholds. This classification exempts certain private investment funds from registration and regulation under the Act.
Qualified Purchaser Requirements for Owned or Managed Investments
Qualified Purchasers must have at least $5 million in investments owned individually or jointly, or have at least $25 million in investments managed by an investment adviser.
Accredited Investor Requirements for Net Worth and Annual Income
Accredited Investors, another category of qualified investors, must meet net worth or annual income criteria defined by the SEC.
3(c)(1) & 3(c)(7) Funds
3(c)(1) and 3(c)(7) funds are private investment funds that can only accept Qualified Purchasers. 3(c)(1) funds have up to 100 investors, while 3(c)(7) funds can have an unlimited number of qualified investors.
Qualified Purchaser Criteria
Qualified Purchasers must meet specific financial thresholds set by the SEC to be eligible for participation in certain private investment funds.
Determining Qualified Purchaser Status
Investors can determine their Qualified Purchaser status by calculating their investment assets, either individually or jointly, and ensuring they meet the minimum requirements set by the SEC.
Benefits of Qualified Purchaser Status
Qualified Purchasers enjoy several benefits, including access to exclusive investment opportunities and the ability to invest in certain private funds unavailable to retail investors.
What Is an Accredited Investor?
An Accredited Investor is an individual or entity that meets specific income or net worth requirements defined by the SEC. Accredited Investors have access to certain private investment offerings.
Benefits of Accredited Investor Status
Accredited Investors can explore investment opportunities typically reserved for qualified investors, providing greater diversification and potential for higher returns.
Qualified Purchaser vs. Accredited Investor
While both Qualified Purchasers and Accredited Investors are considered qualified investors, they have different financial criteria. Qualified Purchasers typically have higher financial thresholds compared to Accredited Investors.