On April 28, 2026, the SEC issued an order increasing the dollar thresholds required for an investor to qualify as a “qualified client” under Rule 205-3 of the Advisers Act — the rule that governs which investors may be charged a performance-based fee, including carried interest. The new thresholds take effect on June 29, 2026, leaving managers with a narrow window to update their documents and processes.
Under the updated thresholds, a qualified client must have either at least $1.4 million in assets under management with the adviser immediately after investing (up from $1.1 million), or a net worth exceeding $2.7 million (up from $2.2 million), excluding the value of a primary residence and certain related debt. Qualified purchasers and knowledgeable employees continue to qualify without regard to these dollar thresholds and are unaffected by the change.
The threshold increase is most consequential for managers of Section 3(c)(1) funds, where each investor is treated as an individual client for Rule 205-3 purposes, meaning every LP charged carried interest must independently satisfy the qualified client definition.
Managers of 3(c)(7) funds, whose investors are by definition qualified purchasers, are largely unaffected.
Importantly, the new thresholds apply only to new investors and new advisory relationships formed on or after June 29, 2026. Existing investors who met a prior threshold are grandfathered and may continue — and in most cases make additional contributions — without satisfying the higher standard.
What PE Managers Need to Do Before June 29
- Update subscription documents and investor questionnaires for any 3(c)(1) fund to reflect the new AUM and net worth thresholds
- Review side letters with existing LPs to confirm no qualified client representations require amendment
- Confirm that compliance policies and onboarding checklists reference the updated thresholds
- Assess any state-level implications, as certain state exemptions incorporate the qualified client standard by reference
The deadline is firm and the consequences of admitting a non-qualifying investor to a carried interest arrangement are significant. Managers should treat June 29 as a hard cutoff and ensure all subscription materials are updated before accepting any new capital.
How Trillium Can Help
Trillium assists private equity managers with fund document review, compliance policy updates, and investor onboarding processes to ensure alignment with regulatory changes like this one.