3(c)(1) vs 3(c)(7) funds

A hedge fund pools money and invests in securities, so on its face it would have to register as an investment company like a mutual fund. Hedge funds avoid that by relying on one of two exclusions in the Investment Company Act of 1940: Section 3(c)(1) or Section 3(c)(7). Each fund reports which one it uses on its Form D.

Section 3(c)(1): up to 100 investors

A 3(c)(1) fund may have no more than 100 beneficial owners and may not make a public offering. Investors are usually accredited, and because most managers charge a performance fee, they must also be qualified clients. The 100-owner cap makes 3(c)(1) the usual choice for smaller and newer funds.

Section 3(c)(7): qualified purchasers only

A 3(c)(7) fund may sell only to qualified purchasers: generally individuals with at least $5 million in investments, and most entities with at least $25 million. In return there is no 100-owner cap. Funds still usually stay under 2,000 holders of record to avoid registering under the Securities Exchange Act.

What the data shows

3(c)(7) funds are much larger by amount raised and ask for higher minimums, reflecting their wealthier investor base. Many established managers run both: a 3(c)(1) fund for accredited investors and a 3(c)(7) fund for larger ones, or a 3(c)(7) master fund with feeders.

Which matters to an investor?

• If you are accredited but not a qualified purchaser, you can invest only in 3(c)(1) funds.
• A 3(c)(1) fund near its 100-owner limit may turn away smaller tickets or raise its minimum.
• The exclusion says nothing about strategy, risk or quality. It only defines who may invest.

Every HedgeMountain fund page shows "Who can invest" based on the fund's exclusion.

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Figures are HedgeMountain calculations from the latest Form D of each of the 8,516 U.S.-based hedge funds that filed between Oct 1, 2024 and Oct 29, 2026. They describe what funds reported, not what investors earned.

Education, not advice. This guide explains general rules and market practice. It is not legal, tax or investment advice, not an offer or solicitation, and not a recommendation of any fund. Rules change; confirm details with the SEC and a qualified professional. Disclosures