With regards to hedge fund investing, an accredited investor is not to be confused with a “qualified client.” Qualified Clients are the most attractive investors for hedge fund managers. They must meet one of the following criteria:

• A natural person who or a company that immediately after entering into the contract has at least $ 750,000 under the management of the investment adviser

• Has a net worth (together, in the case of a natural person, with assets held jointly with a spouse) of more than $1,500,000 at the time the contract is entered into

The reason that qualified clients are more sought after is because in most states, hedge fund managers are only allowed to charge a performance fee (generally 20%) to qualified clients. This means that accredited investors are only required to pay the management fee (usually 2%). This is somewhat of a gray area, however, because as soon as an accredited investor reaches the $1.5 million mark, their status changes to a qualified client. Non-U.S. persons are not required to meet the prerequisites of a qualified client.