Two SEC-defined investor tiers govern access to most private fund offerings: the accredited investor and the qualified purchaser. Same idea — protect unsophisticated investors from illiquid, non-public deals — at very different thresholds. Understanding which tier a fund requires explains a lot of why the LP base looks the way it does.
Accredited investor — the floor
- Accredited investor
- For individuals: $200k annual income (or $300k joint), $1M+ net worth excluding primary residence, or holding a Series 7, 65, or 82 license. For entities: $5M in assets, or all owners are themselves accredited.
Almost every private fund in the US is open to accredited investors. The accreditation thresholds haven't been adjusted for inflation since they were set in 1982 — meaning the population of accredited households has grown from a few percent of the US population to roughly 20% today. Critics argue this has eroded the protective intent of the rule; defenders argue it's opened access to wealth-building vehicles. Both readings have merit.
Qualified purchaser — the higher tier
- Qualified purchaser
- For individuals (and family offices): owns $5M+ in investments, excluding primary residence and certain operating-business assets. For institutions: $25M+ in investments under management.
Qualified purchaser status is a meaningfully higher bar than accreditation — most accredited investors are not qualified purchasers. The reason it matters: funds relying on Section 3(c)(7) of the Investment Company Act are permitted to have an unlimited number of investors, but every single one must be a qualified purchaser. Funds relying on 3(c)(1) are capped at 100 investors but can accept accrediteds below the QP threshold.
Why the distinction shapes the fund universe
The choice of exemption directly drives who can invest:
- 3(c)(1) funds. Up to 100 investors. Open to accrediteds. Common for emerging managers and smaller institutional funds where 100 investors is the natural cap. Some venture funds use 3(c)(1).
- 3(c)(7) funds. Unlimited investors, all must be QPs. Common for large institutional funds, mega-cap buyout funds, and most fund-of-funds vehicles. The practical effect is that 3(c)(7) funds skew toward larger LPs — pension funds, endowments, family offices in the upper bracket.
For an individual investor, the practical implication is whether a fund is open at all. A “QP-only” fund is closed to most accredited investors who haven't cleared the $5M investment threshold. Some sponsors run parallel vehicles — a 3(c)(7) fund for QPs and a 3(c)(1) feeder for accrediteds — with similar-but-not-identical fees and terms.
Look-through rules
For fund-of-funds and feeder structures, both accreditation and QP status can be subject to look-through rules. A 3(c)(7) fund accepting investment from a feeder fund typically requires the feeder's LPs to themselves be QPs — meaning a feeder can't convert non-QP accrediteds into QP-equivalent access.
Family offices have their own pathway: a family office advising a single family can usually claim QP status as an institution regardless of individual family members' net worth, provided the office meets the SEC's family-office definition.
What to check on a fund
- Which exemption?The PPM's "investor requirements" or “structure” section will say. 3(c)(1) = accredited; 3(c)(7) = QP-required.
- Are there look-through rules for entities or feeders?
- Is there a parallel feeder for non-QP accrediteds, and does it run on the same terms?
- How is verification done? Most QP funds require a CPA or RIA letter; some accept brokerage statements showing $5M in investments.
For most allocators, the question of which tier a fund requires is a one-line check during initial review — but it determines whether the rest of the diligence is even worth doing. Some funds you won't qualify for; some you will but at the cost of additional verification work. Pair this with Reg D 506(b) vs. 506(c) for the marketing-side rules that overlay these structural thresholds.