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ARTICLE · 08 JULY 2021

Qualified Client Thresholds Increased – Actions Required By Private Fund Managers

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An SEC-registered investment adviser is permitted to receive incentive compensation (e.g., performance fees, allocations and other forms of "carry") from investors in hedge funds...

United StatesFinance and Banking
Brian T. Daly
Brian T. Daly
Jason M. Daniel
Jason M. Daniel
Barbara Niederkofler
Barbara Niederkofler
Jason N. Glennon
Jason N. Glennon
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Key Points

  • Subscription documents for certain private funds and investment management agreements for certain separately managed accounts will need to be updated by August 16, 2021, to reflect new “qualified client” assets-under-management and net worth thresholds.
  • These changes directly affect private funds relying on the 3(c)(1) exemption, but many 3(c)(7) documents contain qualified client representations and may need to be updated.

Background

An SEC-registered investment adviser is permitted to receive incentive compensation (e.g., performance fees, allocations and other forms of “carry”) from investors in hedge funds, private equity funds and other private funds, and from separately-managed account clients, only if those investors and clients are “qualified clients” under Investment Advisers Act Rule 205-3. (“Qualified purchasers” and “knowledgeable employees” are deemed to be “qualified clients.”) In addition, advisers registered with a state

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