A qualified purchaser is an individual or entity that meets a higher SEC-defined investment threshold than an accredited investor, generally requiring at least $5 million in investments. Qualified purchaser status unlocks access to certain private funds, including many hedge funds and private equity funds organized under Section 3(c)(7) of the Investment Company Act of 1940.
The category exists for a narrow but important reason: it lets certain private funds accept an unlimited number of investors without having to register as investment companies, so long as every investor in the fund clears this higher bar. That is a meaningfully different structure than a standard 3(c)(1) fund, which is capped at 100 investors regardless of their accreditation status.
Under the Investment Company Act, a qualified purchaser is generally defined as an individual (or family-owned company) with at least $5 million in investments, or an institution with at least $25 million in investments. “Investments” here is a defined term that generally excludes a primary residence and business assets used in an operating trade or business — it is meant to capture true investable assets.
Example: An individual with $6 million spread across brokerage accounts, retirement accounts, and private fund interests would meet the $5 million qualified purchaser bar. A university endowment with $40 million in its investment pool would meet the $25 million institutional threshold.
Category
Accredited investor
Qualified purchaser
Test basis
Income,net worth, or professional licenses
Investment assets specifically
Individual threshold
$200k income / $1M net worth / S7, 65, 82
$5 million in investments
Institutional threshold
Varies (often $5M in assets)
$25 million in investments
Governs access to
Reg D private placements broadly
3(c)(7) funds specifically, exempt from 100-investor cap
Overlap
Every qualified purchaser is typically also accredited
Not every accredited investor meets the qualified purchaser bar
Accredited investor status is based on income or net worth and applies to Regulation D offerings broadly. Qualified purchaser status is based specifically on investment assets and applies to a narrower category of funds — notably 3(c)(7) funds — that are exempt from the 100-investor cap that applies to 3(c)(1) funds.
Status is generally based on demonstrating $5 million or more in investments (for individuals and family companies) held for investment purposes, not including a primary residence or business assets used in a trade. Funds typically verify this through financial statements, brokerage or custodial statements, or third-party verification during onboarding, similar in spirit to how accreditation is verified but calibrated to a higher dollar figure.
For larger private equity and hedge funds that want to raise from an unlimited number of investors while remaining exempt from Investment Company Act registration, requiring every investor to be a qualified purchaser is often the only practical path, which is why the largest, most established managers frequently structure their flagship funds as 3(c)(7) vehicles.
Qualified purchaser status sits one rung above accredited investor status on the private-markets ladder. It doesn’t replace accreditation — it stacks on top of it for a specific slice of larger, more institutionally structured private funds.
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Disclaimer
This content is for informational and educational purposes only. It does not constitute investment advice, legal advice, or a recommendation to buy or sell any security or to pursue any specific investment strategy.
No. It’s a distinct, higher threshold used for a specific subset of private funds, primarily those organized under Section 3(c)(7) of the Investment Company Act.
Generally, securities, real estate held for investment purposes (not a primary residence), cash and cash equivalents held for investment, and interests in other private funds. Operating business assets and a primary home are excluded.
Yes. Family-owned companies with at least $5 million in investments and certain trusts established by qualified purchasers can also meet the definition, alongside individuals.
Because organizing as a 3(c)(7) fund lets them raise from an unlimited number of investors without registering as an investment company, but only if every investor meets the qualified purchaser bar.
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