While any of these three groups may invest in a hedge fund, there are some vast differences between them.
You are an accredited investor if:
You have an individual net worth, or you and your spouse have a combined net worth, in excess of $1 million.
You had individual income, excluding any income attributable to your spouse, of more than $200,000 in the previous two years, and you reasonably expect to do the same this calendar year.
You and your spouse had joint income of more than $300,000 in the previous two years and reasonably expect to do the same in this calendar year. Institutions and pension accounts are subject to more complex criteria, and should consult an accountant.
You are a qualified client if:
You have an individual net worth, or you and your spouse have a combined net worth of $1.5 million
You have at least $750,000 in assets under management
Generally, a hedge fund manager would much rather solicit to a qualified client than an accredited investor. Why? Because managers may only charge their 20% performance fee to qualified clients. While an accredited investor may still invest in the fund, they will only be charged a 2% management fee.
A Qualified Purchaser (or super-credited investor) is one or more of the following:
- an individual who own $5 million or more in investments, including investments held jointly with a spouse.
- a family-held business that owns $5 million or more in investments.
- a business that has discretion over $25 million or more in investments.