A qualified purchaser is an individual, family company, or institutional account holding at least $5 million in investments — or $25 million for a discretionary account — the status that lets a private fund accept unlimited such investors under the Investment Company Act of 1940 without registering with the SEC.
In plain terms
It sounds like a bigger version of accredited investor, and in practice it often travels with it, but it comes from a different law doing a different job. Accredited investor status, under the Securities Act, decides who is allowed to buy an unregistered security at all. Qualified purchaser status, under the Investment Company Act, decides how many of those people a fund can take on before the fund itself has to register with the SEC as an investment company — the same category that covers mutual funds. A fund that limits itself to qualified purchasers can have an unlimited number of investors and still stay private.
How it works
Section 3(c)(1) of the Investment Company Act lets a fund avoid registration if it has 100 or fewer beneficial owners, which caps how much capital it can raise from accredited investors alone. Section 3(c)(7), added in 1996 by the National Securities Markets Improvement Act, removes that 100-investor cap entirely — but only for a fund whose investors are all qualified purchasers.
The qualifying thresholds, set out in Section 2(a)(51) of the Act and implemented by SEC Rule 2a51-1, run on two tracks. A natural person or a family-owned company qualifies by owning at least $5,000,000 in investments. A person or entity investing on a discretionary basis for its own account or for other qualified purchasers’ accounts — the test that captures most institutional allocators — needs at least $25,000,000. Primary residences and the assets of an operating business don’t count toward either figure.
This is the mechanism behind most large hedge funds and private equity vehicles in the United States: a 3(c)(7) fund can raise from thousands of qualified purchasers, while a comparable 3(c)(1) fund is capped at 100 investors and has to turn capital away once it hits that ceiling.
The numbers
- Individual / family company threshold: $5,000,000 in investments.
- Discretionary / institutional threshold: $25,000,000 invested on a discretionary basis.
- Investor cap under 3(c)(1) (accredited investors only): 100.
- Investor cap under 3(c)(7) (qualified purchasers only): none.
- Year the thresholds were set: 1996, implemented by SEC rule in 1997.
- Inflation adjustment since: none. By contrast, the nearby “qualified client” threshold under the Advisers Act was just raised to $1.4 million (assets under management) and $2.7 million (net worth), effective June 29, 2026.
What people get wrong
That “qualified purchaser” is just a stricter version of “accredited investor,” so clearing the higher dollar amount is what matters. The two tests answer different questions for different parties: accredited investor status is about an individual’s legal right to buy a given unregistered security; qualified purchaser status is about a fund’s legal right to have that individual as one of an unlimited number of similar investors. A person can be an accredited investor and still be turned away from a 3(c)(7) fund for falling short of $5 million — and a fund can be full of accredited investors and still be capped at 100 of them. The second surprise cuts the other way: unlike several adjacent wealth thresholds that move with inflation on a set schedule, the $5 million and $25 million qualified purchaser figures have never been adjusted since 1996, even as the SEC periodically raises the separate qualified client threshold.
Related
Read more: Alternative Assets: Investing Beyond Stocks and Bonds · Hedge Funds and Private Equity
See also: Accredited investor · Capital call · LP and GP