Understanding Qualified Purchasers: The Elite Investor Classification

When private funds operate without registering as investment companies, they must meet specific investor eligibility standards. One path allows funds to limit ownership to 100 individuals or fewer, while another requires all owners to be “qualified purchasers”—a designation with significantly stricter financial requirements than most people realize.

The Key Distinction: Investment Value vs. Net Worth

The SEC’s definition of a qualified purchaser differs fundamentally from accredited investor status. While accredited investors are evaluated based on net worth or annual income, qualified purchasers are measured by their actual investment portfolio value. This distinction matters considerably when assessing who qualifies for private fund opportunities.

Core Requirements for Qualified Purchaser Status

An investor or organization can achieve qualified purchaser status through one of these pathways:

Individual or Family Business Ownership: Individuals or family-controlled enterprises holding $5 million or more in investments meet this threshold. Critically, such family entities cannot exist solely for the purpose of participating in the fund.

Trust-Based Investments: Trusts managed by qualified purchasers can invest in the fund, provided the trust itself wasn’t established exclusively for this investment opportunity.

Professional Investment Managers and Large Entities: Investors deploying $25 million or more—whether managing their own capital or investing on behalf of clients—qualify. This category typically includes professional money managers and corporate entities. The restriction against formation-for-sole-purpose applies here as well.

Wholly Owned by Qualified Purchasers: Any organization whose entire ownership structure consists of qualified purchasers automatically qualifies.

What Counts as “Investments”

The term “investments” encompasses a broad spectrum: equities, debt instruments, derivative contracts, commodities trading positions, real estate held for investment purposes, financial derivatives, and liquid assets. This expansive definition allows investors to aggregate multiple asset classes when calculating their $5 million threshold.

The “Super-Accredited” Category

The financial bar for qualified purchasers substantially exceeds that for accredited investors. Accredited investors need $1 million in net worth (excluding primary residences) or three consecutive years of earnings exceeding $200,000 individually ($300,000 jointly). Qualified purchasers, by contrast, require $5 million in investments alone—a five-fold multiple at minimum.

This significant gap has led industry participants to label qualified purchasers as “super-accredited” investors, reflecting their elevated standing in the investment hierarchy.

Related but Distinct: Qualified Institutional Buyers

A parallel classification exists for institutional participants: qualified institutional buyers typically hold securities worth $100 million or more, or are banks with audited net worth exceeding $25 million alongside $100 million in securities holdings.

Practical Application: Real-World Scenarios

Consider a private fund seeking to remain unregistered while expanding its investor base. Two prospective investors apply:

The first investor maintains a $7 million stock portfolio supporting an overall net worth of approximately $10 million. This individual clearly satisfies the qualified purchaser definition through direct portfolio ownership exceeding $5 million.

The second applicant is a professional wealth manager directing $20 million in investments on behalf of clients—though not all those clients themselves qualify as qualified purchasers. This manager falls short: they would need at least $25 million deployed on client accounts to meet the professional investor threshold.

Only the first investor qualifies; the second does not.