Definition
Qualified Purchaser
An investor classification under the Investment Company Act used primarily for private funds that rely on the qualified-purchaser exemption. A natural person generally must own at least $5 million in investments, while the institutional route generally requires owning and investing at least $25 million on a discretionary basis.
An individual with $5.4 million in securities and other qualifying investments may invest in a private fund limited to qualified purchasers, even if the individual has substantial noninvestment property that does not count toward the threshold.
Students often confuse qualified purchaser with accredited investor or qualified client. Qualified purchaser status is generally based on investments owned, not income, net worth, or assets managed by a particular adviser.
How is Qualified Purchaser tested on the exam?
- Identifying the $5 million individual and $25 million institutional investment thresholds
- Distinguishing investments owned from net worth, income, and assets under management
- Recognizing that qualified-purchaser private funds may have an unlimited number of investors
- Comparing qualified purchaser, accredited investor, and qualified client standards
- Determining which assets count toward the investments-owned test
Regulatory limits
Regulatory Limits
| Description | Limit | Notes |
|---|---|---|
| Natural person threshold | $5,000,000 or more in investments | Based on investments owned, including qualifying investments held jointly with a spouse |
| Family-owned company threshold | $5,000,000 or more in investments | The company cannot be formed for the specific purpose of acquiring the fund interest |
| Institutional discretionary-investment threshold | $25,000,000 or more in investments | The person must own and invest the amount on a discretionary basis for its own account or the accounts of other qualified purchasers |
Qualified purchaser means investments, not income: remember 5 for a person, 25 for the institutional route.
Practice questions
Test your understanding with the questions below. Pick an answer to reveal the explanation.
Morgan owns $5.2 million in securities and cash held for investment, plus a $2 million primary residence. A private fund accepts only qualified purchasers. Which fact is most relevant to whether Morgan qualifies?
Morgan owns more than $5 million in qualifying investments. The natural-person test focuses on investments owned. The primary residence is not counted as an investment, income is a separate accredited-investor test, and the investments do not have to be managed by a particular adviser.
The Series 65 exam tests whether candidates can separate an investments-owned threshold from income, net-worth, and adviser-managed-assets tests.
What investment threshold generally applies to a natural person seeking qualified purchaser status?
The natural-person threshold is at least $5 million in investments. The $1 million figure belongs to the accredited-investor net-worth test, qualified-client thresholds serve the performance-fee rules, and $25 million generally applies to the institutional discretionary-investment route.
The Series 65 exam may test the three investor classifications together, making the correct dollar amount and measurement base equally important.
Taylor owns $3.8 million in marketable securities, $900,000 in investment real estate, $500,000 in a primary residence, and $400,000 of personal property. Ignoring liabilities, how much counts toward the qualified-purchaser investments-owned test?
The qualifying investments total $4.7 million. Add $3.8 million in securities and $900,000 in investment real estate. The primary residence and personal-use property do not count as investments, so Taylor does not reach the $5 million threshold.
The Series 65 exam can turn the threshold into an asset-classification problem by mixing investments with personal-use property.
All of the following statements about qualified purchasers are accurate EXCEPT
The $200,000 income test does not establish qualified purchaser status. That is an accredited-investor standard. Qualified purchaser status generally turns on investments owned, with a $5 million natural-person threshold and a $25 million institutional discretionary-investment threshold.
The Series 65 exam frequently tests whether candidates can match each investor classification to its correct measurement base.
Which statements accurately describe qualified purchaser status?
1. A natural person generally needs at least $5 million in investments
2. A $5 million primary residence alone satisfies the natural-person test
3. The institutional route generally requires at least $25 million in discretionary investments
4. The standard is associated with private funds that accept only qualified purchasers
Statements 1, 3, and 4 are accurate. A natural person generally needs at least $5 million in investments, the institutional route generally uses a $25 million discretionary-investment threshold, and the classification is central to qualified-purchaser private funds. A primary residence is personal-use property, not an investment for this test.
The Series 65 exam may combine the thresholds, asset definition, and private-fund use in one question.
What concepts relate to Qualified Purchaser?
This term is part of this cluster :
Where does Qualified Purchaser appear on the Series 65 exam?
This term is tested in the following Series 65 exam topics: