Qualified Purchaser
A qualified purchaser (QP) is a person or entity meeting investable-asset thresholds under the Investment Company Act of 1940 — generally $5 million in investments for individuals and $25 million for entities.
Definition
A qualified purchaser (QP) is a designation under Section 2(a)(51) of the US Investment Company Act of 1940. The designation is used by private fund sponsors — hedge funds, private equity, venture capital, private credit, and some secondary vehicles — that rely on the 3(c)(7) exclusion from registration as investment companies.
At a high level, the most common QP categories are:
- Individuals who own at least $5 million in investments
- Family-owned companies that own at least $5 million in investments
- Trusts (not formed for the purpose of acquiring the fund interest) where the trustee and every contributing settlor are qualified purchasers
- Any entity that owns and invests on a discretionary basis at least $25 million in investments
“Investments” is defined specifically in SEC rules and does not mean net worth. It includes securities, cash held for investment, real estate held for investment, commodity interests, and certain financial contracts, net of related debt. Primary residence, personal-use property, and consumer debt are typically excluded.
Qualified purchaser vs accredited investor
The two designations are frequently confused. They are not the same:
| Accredited investor | Qualified purchaser | |
|---|---|---|
| Governing statute | Regulation D (Securities Act of 1933) | Section 2(a)(51) (Investment Company Act of 1940) |
| Individual threshold | $1M net worth (ex-primary residence) or $200K/$300K income | $5M in investments |
| Entity threshold | $5M in assets (various rules) | $25M in investments |
| Used by | 3(c)(1) funds, Regulation D private placements | 3(c)(7) funds |
| Investor cap per fund | 3(c)(1): ≤ 100 beneficial owners | 3(c)(7): ≤ 2,000 beneficial owners |
Most top-tier private funds are structured as 3(c)(7) vehicles and therefore require every investor to be a qualified purchaser. Accredited-investor-only funds exist but typically cap at 100 investors, which limits their AUM.
For a detailed side-by-side, see Accredited Investor vs Qualified Purchaser.
Why the QP designation matters
Access. Most institutional-quality private funds — the ones advisors and family offices actually want allocations in — are 3(c)(7) vehicles open only to QPs. Being a QP is the practical gate to top-quartile private equity, venture, and private credit.
Deal flow. Private secondary platforms, pre-IPO share transactions, and many structured products are limited to QPs as a matter of policy, even when the technical rule would permit accredited investors.
Legal protection. The QP threshold reflects a legislative judgment that investors at that size can evaluate private offerings without the full disclosure regime. Funds and issuers rely on that designation to remain outside registration, which constrains what documents they’re required to provide.
What “investments” means for the QP test
The SEC’s definition of “investments” is specific and narrower than most people assume:
Included:
- Publicly traded securities
- Privately held securities
- Cash and cash equivalents held for investment
- Real estate held for investment (not primary or secondary residence)
- Commodity interests held for investment
- Certain financial contracts
Excluded:
- Primary residence and personal-use real estate
- Personal-use property (cars, jewelry, art unless held as an investment)
- Direct equity in a business where the household actively operates the business
For most post-liquidity founders and family office principals, reaching QP status is straightforward once liquidity is realized. Pre-liquidity founders holding substantially illiquid private stock in their own company generally do not qualify as QPs on the basis of that stock alone, even if its paper value exceeds $5 million — a common surprise.
Related terms and common confusions
- Accredited investor — a lower threshold under a different statute. See Accredited Investor vs Qualified Purchaser.
- Knowledgeable employee — an employee of the fund’s adviser who can invest in a 3(c)(7) fund without being a QP.
- Qualified client — a separate designation under the Investment Advisers Act, governing performance-fee eligibility; not the same as QP.
- Super-accredited investor — colloquial, not a legal term.
On QP List
QP List is written for qualified purchasers and the advisors who sit across from them. Topics, groups, events, and signals on this site assume the reader has cleared the QP threshold and is operating in private markets, private peer communities, and advanced wealth structuring at that scale.
Nothing on this page is legal, investment, or tax advice.