Qualified purchasers under the Investment Company Act: What you should know
Qualified Purchasers are able to invest in a wider range of investment opportunities than those available to Accredited Investors.
The designation of Qualified Purchasers depends on the value of their investment holdings, while Accredited Investors are defined by meeting certain income or net worth benchmarks. A Qualified Purchaser can invest in both 3(c)(1) and 3(c)(7) funds, whereas Accredited Investors are typically allowed to only invest in 3(c)(1) funds. Funds under 3(c)(7) are allowed to include as many as 2,000 such Qualified Purchasers. In contrast, 3(c)(1) funds are limited to having no more than 100 Beneficial Owners (final holders when tracing through the ownership chain of its investors).
To paraphrase the requirements under Section 2(a)(51) of the Investment Company Act an investor can be identified as a Qualified Purchaser if they meet one of the following:
An individual or married couple with $5 million or more in investments or joint investments* (not including primary residence and/or business property).
A Family Office that has at least $5 million or more in investments*.
Investment managers who manage at least $25 million in investments* for qualified purchasers.
A trust where all who created the trust (“settlors”) are qualified purchasers. Some trusts with at least $5 million may also qualify.
A representative of an entity, of which each beneficial owner is a qualified purchaser.
*Investments as described above generally mean:
Securities, including stocks, bonds and notes, other than securities of an issuer that is under common control with the qualified purchaser.
Real estate held for investment purposes. (Not primary home or business property.)
Commodity futures contracts, options or commodity futures and options on physical commodities traded on a contract market or board of trade, held for investment purposes.
Physical commodities (e.g., gold and silver), with respect to which futures contracts are traded on a contract market or board of trade, held for investment purposes.
Financial contracts (e.g., swaps and similar individually negotiated financial transactions), other than securities, held for investment purposes.
For an investment company or a commodity pool, any binding capital commitments.
Cash and cash equivalents held for investment purposes. Neither cash used by an individual to meet everyday expenses nor working capital used by a business is considered cash held for investment purposes.