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The qualified purchaser designation is a regulatory classification governing which investors can take advantage of certain investment opportunities. If you are afforded such status, you can access offerings that aren’t registered with the U.S. Securities and Exchange Commission (SEC).
But do you know how qualified purchaser status is verified?
Let’s look at that – and more.
What is a Qualified Purchaser?
Essentially, a qualified purchaser is an individual or family business that holds at least $5 million in investments, not counting a main residence or property used for everyday business doings.
The status may also be conferred upon an individual who functions on behalf of a group of qualified purchasers, and who has the capability to invest at least $25 million.
Moreover, if a trust has investments worth at least $5 million, and the portfolio is owned by at least two family members, it, too, can be a qualified purchaser.
What are the Benefits of Being a Qualified Purchaser?
Based on the capital invested, a qualified purchaser has a significantly higher financial threshold to meet. That’s why such purchasers are often dubbed “super-accredited investors,” since they have more investment opportunities than accredited investors, the other most common regulatory classification.
Also, qualified purchasers can invest in both 3(c)(1) and 3(c)(7) funds. The latter can accept up to 2,000 qualified purchasers – much higher than limits permitted by 3(c)(1) funds.
What’s an Example of a Qualified Purchaser?
In this scenario, two investors apply to put capital in a fund. One of the investors has $8 million invested in stock and a net worth of roughly $15 million. The other prospect is a wealth manager who invests $25 million for clients, not all of them qualified purchasers. Which is the qualified purchaser? The first applicant, because this is an individual who owns an investment portfolio worth more than $5 million.
How is Qualified Purchaser Status Verified?
Unregistered securities issuers are responsible for making sure investors are qualified to be qualified purchasers. In general, investors must show tax returns, bank statements and brokerage statements for asset-based accreditation.
Which investments qualify for such status?
- Securities including stocks, bonds, and notes. The exception includes those issued by a third party that’s seeking qualified purchaser status.
- Real estate held as investments. But remember, primary residences and property used for daily business conduct don’t count.
- Options on physical commodities that are traded on a contract market or board of trade and that are held for investment purposes. Commodities futures contracts and options on commodity futures also qualify.
- Physical commodity stockpiles like precious metals that are held specifically for investment. The proviso is that futures contracts must be traded on a contract market or board of trade.
- Individually negotiated financial instruments such as swaps that are held for investments. These do not include securities.
- Capital commitments from a commodity pool or investment company.
- Any liquid assets that are held exclusively for future investments, not counting a company’s everyday working capital or money used to meet daily expenses.
Now you know what a qualified purchaser is, how that status is verified, and who is eligible. You should also know that while regulators have been feeling the heat of late to allow more individuals to invest in opportunities including pre-initial public offering startups, alternative investment platforms such as Yieldstreet already offer a variety of opportunities that were formerly only open to the top one percent of earners and institutional investors, with minimum investments as low as $500.