Section 3(c)(7) of the Investment Company Act exempts a hedge fund from having to register as an investment company without limitation as to the number of its beneficial owners as long as its securities are not publicly offered and its investors qualify as “qualified purchasers”. A Section 3(c)(7) fund with 500 or more investors, however, is required to register its securities with the SEC. A person may not invest in a hedge fund relying on the Section 3(c)(7) exemption unless such person meets the definition of a “qualified purchaser.”
The Act defines the term “qualified purchaser” to include, in part:
- Any natural person who owns at least $5 million in investments; and
- Any other person (e.g., an institutional investor) that owns and invests on a discretionary basis at least $25 million in investments.