Qualified Purchaser
A high-net-worth individual or institution with at least $5 million in investments that is eligible to invest in private funds exempt from the Investment Company Act.
What is Qualified Purchaser?
A qualified purchaser (QP) is a category of sophisticated investor defined under Section 2(a)(51) of the Investment Company Act of 1940. Individuals must have at least $5 million in investments (not including a primary residence); family companies must have at least $5 million in investments; and institutional investors must manage at least $25 million in investments. The qualified purchaser standard is more demanding than the accredited investor standard used under Regulation D. Investment funds that sell exclusively to qualified purchasers — called '3(c)(7) funds' — can have an unlimited number of investors and are exempt from registration as investment companies. This exemption enables hedge funds, private equity funds, and venture capital funds to operate without SEC registration as investment companies while still operating freely.
Example
A hedge fund structured as a 3(c)(7) fund can raise unlimited capital from qualified purchasers — those with $5M+ in investments — without registering as an investment company. In contrast, a 3(c)(1) fund is limited to 100 accredited investors (net worth above $1M or income above $200K). Many large hedge funds choose the 3(c)(7) structure to accommodate institutional investors without a cap.