Vega Asset Management

There are several reasons to restrict hedge fund investors and the exact reasons tend to vary depending upon who you ask. The restrictions remain the same regardless of whom you discuss them with however and as frivolous as they may seem it reiterates that hedge funds are certainly not the investment tool for the poor investor who is unable to contribute large amounts of money to the fund.

The first thing to remember is that hedge fund investors must be approved before they can be accepted to invest in the hedge fund. It is important as well to realize there are two different types of investors, the first is an accredited investor and the second is a qualified purchaser. Funds are limited to only having 100 accredited investors, but can have an unlimited number of qualified purchasers.

To be qualified as an accredited hedge fund investor the individual must have a net worth of at least $1 million dollars. If the investor does not have this on their own, they can still qualify if the net worth of themselves and their spouse combined adds up to a total of $1 million at least. Another requirement is that the income of the spouse is not able to be included when you are determining the amount of individual income. If you are using a joint income then you must have at least $300,000 from the previous two years, as well as anticipate making another $300,000 combined income for the current year.

To be considered a qualified purchaser you must individually have at least $5 million in investments that you currently own. This number can be divided between spouses if necessary to meet the criteria. In addition someone can count as a qualified purchaser if they have at least $5 million in investments that a family-held business owns that they control. Other qualifying criteria including owning a business that has discretion over at least $25 million in investments.

These numbers are designed to help control hedge fund investors from getting in over their head in financial matters that they simply cannot afford to venture into. Hedge funds tend to handle very large amounts of money and as such require investors who can financially afford to invest their own money and not money that is borrowed from a different source.

The hedge fund investor requirements are the same for all hedge funds; however the hedge fund manager is able to decide for themselves the amount of the minimum investment for their fund. Some hedge fund investors are only required to invest a minimum of $250,000 while some of the larger and more elite hedge funds require at least $1 million in funds. Each hedge fund is allowed to waive the minimum investment amount if they choose to, however there are no exceptions that allow the minimum requirements for hedge fund investors to be waived to qualify. As you can see, it is not always easy becoming a qualified hedge fund investor.

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