Private market investing usually requires investors to qualify in one of three categories of investors or purchasers. These are 1.) Accredited Investor, 2. Qualified Purchaser, or 3.) Qualified Client. These designations are designed to help protect investors from the risks associated with various investment opportunities. Below we look at the qualified client vs. qualified purchaser comparison.
Some private funds can only accept accredited investors, while some can accept qualified purchasers or qualified clients. Let’s look at the latter two – qualified clients and qualified purchasers.
Qualified Clients
As a step higher than accredited investors when it comes to net worth, qualified clients have access to a wider array of investments than accredited investors.
A qualified client may include one of the following:
• A person (with or without a spouse) or entity owning investments worth a minimum of $2.2 million USD (excludes residences).
• A person or entity who has invested a minimum of $1.1 million USD with an advisor.
• Particular knowledgeable employees of the fund and/or its affiliates
• Qualified purchasers
Funds that require qualified clients as investors usually also require them to be accredited investors. The application of the criteria for determining a qualified client to certain entity types may be different between funds.
Qualified Purchasers
When it comes to the qualified client vs. qualified purchaser comparison, the highest qualification status belongs to qualified purchaser. This also holds true when compared to accredited investor status. The benefits of being a qualified purchaser mostly pertain to the ability to invest in 3(c)7 funds.
A qualified purchaser may include one of the following:
• An individual or entity that invests a minimum of $25 million USD on behalf of other qualified purchasers or themselves, and on a discretionary basis.
• A person or family-owned entity that owns a minimum of $5 million USD in investments (excluding residences). Jointly owned assets with a spouse may be included.
• An entity in which each of the equity owners is a qualified purchaser.
• Particular knowledgeable employees of the fund or the affiliates of the fund.
As with qualified clients, funds that require investors qualified purchasers as investors typically require the investor to have accredited states as well. Between funds, how to apply particular qualified purchaser criteria to various types of entities will often vary.
When it comes to the qualified client vs. qualified purchaser comparison, it is important for investors to understand the criteria they meet for each type of investor in order to understand the types of investments in which they may participate.
