Quick Answer
A qualified purchaser is a natural person or entity that clears its own investment-ownership threshold under the Investment Company Act, typically $5,000,000 for individuals and family-owned companies, or $25,000,000 for institutions. A fund owned exclusively by qualified purchasers can rely on the qualified-purchaser fund exclusion, which carries no cap on the number of investors.
Qualified purchaser is a separate legal status from accredited investor and qualified institutional buyer (QIB), built for a different purpose: letting a private fund avoid Investment Company Act registration while still raising money from more than the 100 investors a narrower exclusion allows.
Who Qualifies as a Qualified Purchaser?
| Purchaser type | Threshold |
|---|---|
| Natural person | Owns at least $5,000,000 in investments. A spouse's investments, or investments shared as community property, can be counted toward the figure |
| Company owned by two or more family members (siblings, spouses, lineal descendants, or trusts, estates, foundations, or charitable organizations for their benefit) | Owns at least $5,000,000 in investments |
| Qualifying trust not formed to acquire the securities offered, where the trustee or other decision maker and each contributing settlor is itself a qualified purchaser | No separate dollar test beyond the underlying persons |
| Institutional buyer, acting for its own account or the accounts of other qualified purchasers | Owns and invests, on a discretionary basis, at least $25,000,000 in investments |
Think of it this way: The trust row has no dollar figure of its own because the test runs one level down. A trust qualifies only if the people actually making its decisions, the trustee and every settlor who contributed assets, are each independently qualified purchasers.
What Does the Qualified-Purchaser Fund Exclusion Do?
- A fund whose outstanding securities are owned exclusively by qualified purchasers, each at the time it acquired its interest, and that is not making or proposing to make a public offering, is excluded from the Investment Company Act's definition of "investment company."
- For this exclusion, "qualified purchaser" reaches a person who actually meets the threshold and a person the fund reasonably believes meets it. Reasonable belief is written into the term, not bolted on beside it.
- Because the fund is excluded, it is not subject to the Act's registration and structural requirements.
- Unlike the 100-investor cap that limits the separate exclusion for funds sold to a small group regardless of wealth, the qualified-purchaser fund exclusion has no cap on the number of investors.
Exam Tip: Gotchas
- The qualified-purchaser fund exclusion covers only the fund's own registration status under the Investment Company Act. It does not exempt the fund's securities offering from the Securities Act; the fund still needs its own separate exemption to sell interests without registering that offering.
- The no-cap benefit only holds if every investor is a qualified purchaser, or is one the fund had a reasonable basis to believe was a qualified purchaser. An investor who meets neither test breaks the exclusion for the whole fund, not just for that one investor's interest.
- Some interests keep counting as qualified-purchaser-owned without any dollar threshold. Where a person received the interest from a qualified purchaser as a gift or bequest, or through a legal separation, divorce, death, or other involuntary transfer, those securities are deemed owned by a qualified purchaser. The deeming covers that holding, not the person generally.
What Should You Check on Exam Day?
- Confirm the threshold matches the purchaser type: $5,000,000 for a natural person or family-owned company, $25,000,000 for an institutional buyer.
- Check a trust scenario by testing the trustee and every settlor individually, not the trust's own asset size.
- Remember the qualified-purchaser fund exclusion removes the investor-count cap but does not remove the requirement that every investor qualify, by threshold or by deeming.
- Watch for a fund claiming the qualified-purchaser fund exclusion as though it also exempted its offering from Securities Act registration; the exclusion answers only the fund's Investment Company Act status, and a fund making a public offering cannot hold it.