Qualified purchasers and accredited investors are two of the most common regulatory classifications that dictate which investors can take advantage of certain kinds of opportunities. As set forth by the Securities and Exchange Commission, such investors are permitted to engage certain offerings not registered with the federal agency, including shares that are unavailable to the public and are issued by privately held enterprises.
Here, we’ll focus on qualified purchasers, which are essentially individuals or family businesses that have investments worth at least $5 million. Keep reading for the advantages of being a qualified purchaser, and more.
What is a Qualified Purchaser?
As we say, it is a person or family business that carries $5 million or more in investments. However, such investments preclude a chief residence or any property that is used for business. Also note that, rather than assets, the benchmark for a quailed purchaser is investments.
What Kind of Investments Qualify?
Here, the term “investments” is relatively inclusive and refers to, in addition to stocks and bonds, real estate, financial contracts, cash, commodity futures contracts, and some other alternative assets.
Are There Other Qualified Purchaser Categories?
Yes. An individual or entity may be deemed as a qualified purchaser if they invest at least $25 million in private capital, even if they do so on behalf of another qualified purchaser. Also eligible are trusts that are managed or sponsored by qualified purchasers, or an entity that is wholly owned by qualified purchasers.
It is important to note that one may not establish an entity or family-owned business for the express purpose of investing in a fund. That is not allowed.
What is the Difference Between a Qualified Purchaser and Accredited Investor?
This bears some explanation since qualified purchaser and accredited investor share a commonality among regulatory classifications and are terms that are often thought to be interchangeable.
The main difference is that qualified purchasers have to do with “funds” that seek to get the most from their assets under management. With accredited investors, however, the classification is relevant to the ability to invest in specific types of assets, private market securities, for one.
What Are Some of the Advantages of Being a Qualified Purchaser?
For one thing, qualified purchasers have access to 3(c)(7) funds, which can handle up to 2,000 qualified purchasers. This is pertinent because the SEC means to protect small investors.
While it is easier to qualify as an accredited investor than it is to become a qualified purchaser, the latter is often referred to as “super-accredited” investors for a reason: they must have at least $5 million worth of investments. This is inherently an advantage based on investment capabilities.
So, while becoming a qualified purchaser requires much more money than it does to become an accredited investor, there are many investments out there with this requirement. What you’ll discover is that funds with such a requirement call for higher base-level investments – typically $250,00 or more – than funds that do not have this requirement. So, you’re competing at a different level.
Now you know some of the advantages of being a qualified purchaser — if you fall into that category. You also know what it means to be an accredited investor.
It should be noted that while regulators of late have been pressured to ease up on standards so that more people can invest in start-up ventures and other opportunities, the alternative investment platform Yieldstreet already offers several such ways in which people who are not institutional investors or are not in the top tier of earners can capitalize on a broad array of asset classes. And minimum investments as low as $500.