Bob's Daily Buzzword: `Qualified Clients'

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July 9 (Bloomberg) -- Bob Rice, general managing partner with Tangent Capital Partners LLC, explains "Qualified Clients." (Source: Bloomberg)

Tamara is a big day.

After 80 years, the sec may less -- lift the ban on hedge fund advertisements.

We're talking about qualify clients and purchasers.

What is that all about.

Now you will be able to advertise to anyone, whether a hedge fund, private equity fund -- we should make sure everyone understands -- any kind of private placement, so the only accredited investors buy in.

That means you have $200,000 in salary, a million dollars in net worth outside of her primary residence be done right, either one.

So people assume, great, now i will take in all sorts accredited investors.

But not so fast.

What do we need to know about this term?

A qualified client is key.

This is the threshold that an investor has to have in terms of net worth before an investment manager can charge him a performance fee.

So the old 2 and 20 does not work unless you are charging a qualified client.

Qualified clients have a $2 million net worth, not $1 million, as we were talking with accredited investors.

The reality is, for most hedge funds that do not want to change their fee structure, it is not that they are selling to accredited investors, but they will be selling to qualify clients, $2 million and up.

What does this mean for the number of investors that a hedge fund or any private placement can have?

A very important caveat for people to understand.

If you are taking it accredited investors into your fund, generally a 3 fund, and you only have 100 slots.

If you only have 100 slots, you need to keep them in some pretty high to get the scale you one in your hedge fund.

So you will not be dropping that number way down, even if the investor is an accredited investor.

Either the investor is qualified purchasers, that is a $5 million threshold -- then you can have up to two dozen slots -- or you take the private placement and anyone can register private with the sec, in which case you can have an unlimited number of slots.

Any number of slots in any category is determined by the sec?

By regulations and laws.

One nice thing about the registered party structure, which is important for hedge funds trying to go to market, those who do not have to worry about taking a risk on monday.

You can have unlimited 41 k money and hire a money coming into those funds.

That is an important source of investment for accredited investors.

What have you seen with hedge fund managers, are people prepared for this?

They are not.

It took so long to come, everyone knew there going to come, but they will not pay attention once they do.

Now they are here and people are scrambling to put together their marketing strategies and positioning documents, going out and buying media, which is an interesting thing, and a lot of them are going to this registering process so that they can take in hand on them to a number of accredited investors and then turn around and advertise to those investors.

Thank you, bob rice.

Tamara is a big day.

This text has been automatically generated. It may not be 100% accurate.


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