Accredited investor, qualified purchaser and qualified client

Three different tests decide who can invest in a hedge fund. They come from three different laws, and a fund may require one, two or all three. Here's what each means as of October 2026.

Accredited investor

Source: Rule 501 of Regulation D under the Securities Act of 1933. Why it matters: almost every hedge fund sells only to accredited investors.

An individual generally qualifies with any one of:

• Income over $200,000 in each of the two most recent years ($300,000 jointly with a spouse or spousal equivalent), with a reasonable expectation of the same this year;
• Net worth over $1 million, alone or jointly, excluding the value of your primary residence;
• A Series 7, 65 or 82 license in good standing;
• Being a "knowledgeable employee" of the fund, for investments in that fund.

Entities generally qualify with more than $5 million in assets or investments, or if all their owners are accredited. The dollar thresholds have not changed since the 1980s. The INVEST Act, passed by the House in December 2025, would add an exam-based route and recognize professional expertise; check its status before relying on it.

Verification: Rule 506(b) funds may rely on your representations. Rule 506(c) funds must take reasonable steps to verify, for example by reviewing tax returns, bank statements or a letter from your accountant or lawyer. Under a March 2025 SEC staff letter, a 506(c) fund may instead rely on a minimum investment of at least $200,000 for individuals ($1 million for entities) plus written representations that you're accredited and not financing the investment for that purpose.

Qualified purchaser

Source: Section 2(a)(51) of the Investment Company Act of 1940. Why it matters: funds that rely on Section 3(c)(7) to avoid registering as investment companies may sell only to qualified purchasers. In return they aren't capped at 100 investors, though most stay below 2,000 to avoid registering under the Securities Exchange Act. 57% of U.S. hedge funds on HedgeMountain use 3(c)(7).

• Individuals (and family companies) owning at least $5 million in investments;
• Entities investing at least $25 million on a discretionary basis for themselves or others.

"Investments" means securities, real estate held for investment, cash held for investment and similar assets, not your home or business.

Funds relying on Section 3(c)(1) instead (38% of U.S. hedge funds) don't need qualified purchasers but are limited to 100 beneficial owners, so they usually sell to accredited investors.

Qualified client

Source: Rule 205-3 under the Investment Advisers Act of 1940. Why it matters: an SEC-registered adviser may charge a performance fee (the typical 20% of profits) only to qualified clients. Since June 29, 2026 the thresholds are:

• At least $1.4 million under management with the adviser immediately after investing (up from $1.1 million), or
• A net worth of more than $2.7 million, excluding your primary residence (up from $2.2 million);
• Qualified purchasers and certain knowledgeable employees also qualify.

Arrangements entered into before June 29, 2026 generally keep the old thresholds; new investors after that date face the new ones.

Side by side

Each fund's HedgeMountain page shows which exemption it relies on under “Who can invest” and “Offering exemption.” See also how to invest in a hedge fund.

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