On April 28, 2026, the Securities and Exchange Commission issued a final order[1] to adjust the dollar thresholds used to determine whether an investor qualifies as a “qualified client”[2] under Rule 205‑3 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The revised thresholds will apply beginning June 29, 2026, and have meaningful implications for advisers that charge performance‑based compensation.[3]

Under the updated thresholds, a qualified client must have:

• at least $1.4 million (up from $1.1 million) in assets under management with the adviser immediately after entering into the advisory arrangement (e.g., an investment in a private fund)[4]; or
• a net worth (together with assets held jointly with a spouse, but excluding the value of a person’s primary residence and related debt) greater than $2.7 million (up from $2.2 million) at the time of entering into the advisory arrangement (e.g., an investment in a private fund)

These thresholds determine whether advisers can charge performance-based fees, including carried interest or incentive allocations, in advisory contracts and private fund arrangements.

Qualified purchasers and knowledgeable employees are deemed qualified clients without regard to the dollar‑based thresholds, and performance‑based fee restrictions generally do not apply to offshore funds offered exclusively to non-U.S. investors.[5] As such, the revised thresholds are most relevant for U.S. advisers to private funds relying on the Section 3(c)(1) exclusion under the Investment Company Act of 1940, certain separately managed accounts, and registered investment companies, as well as U.S clients of non-U.S. advisers.

Advisers may continue to rely on the current qualified client thresholds for contracts with clients and private fund investors entered into prior to the effective date. However, new advisory relationships and new investors admitted on or after June 29, 2026 must satisfy the updated thresholds. Advisers should review fund offering documents, subscription materials, investor questionnaires, and internal compliance procedures to ensure alignment with the new qualified client standards prior to June 29th.