Qualified Purchaser
A Qualified Purchaser is an individual or family company that owns at least $5 million in investments, or an institution managing at least $25 million for its own account, meeting a higher standard than the accredited investor threshold and unlocking access to the most restrictive tier of private funds.
The qualified purchaser designation, defined under Section 2(a)(51) of the Investment Company Act of 1940, represents the most demanding wealth-based investor classification in US securities law. While the accredited investor standard focuses primarily on income and net worth, the qualified purchaser standard focuses specifically on the size of an individual's investment portfolio — excluding the primary residence, personal property, and assets pledged as debt collateral from the qualifying calculation.
The practical significance of qualified purchaser status is that funds relying on the Section 3(c)(7) exemption from Investment Company Act registration may accept an unlimited number of qualified purchaser investors. By contrast, funds relying only on the Section 3(c)(1) exemption are capped at 100 beneficial owners who need only be accredited investors. The most elite hedge funds and private equity funds typically operate under 3(c)(7), effectively requiring all investors to meet the qualified purchaser standard. This creates a meaningful gate that excludes most accredited investors from the most restrictive private fund structures.
For individuals, the $5 million threshold must be met by investments held for their own account and the accounts of family members who live in the same home. Investments include stocks, bonds, cash and cash equivalents, futures, real estate held for investment purposes, and interests in investment companies. Critically, a primary residence does not count, nor does a vacation home or property used personally — only property held as an investment qualifies.
Institutions qualify as qualified purchasers if they own and invest on a discretionary basis at least $25 million in investments. This covers entities such as endowments, foundations, and certain corporate entities. A trust sponsored and managed by qualified purchasers, or one not formed for the specific purpose of investing in the fund, may also qualify under related provisions.
Investors sometimes confuse qualified purchaser with 'qualified eligible person' (QEP) under CFTC rules, which governs access to certain futures-based vehicles, or with 'qualified institutional buyer' (QIB) under SEC Rule 144A, which allows large institutions to trade restricted securities. These are distinct standards used in different regulatory contexts, though there is significant overlap in the sophisticated investor population that meets all three.