What do hedge funds typically require from individual purchasers under Regulation D?

Hedge funds typically target high-net-worth individuals and institutional investors to comply with Regulation D, which is designed to provide certain exemptions from registration requirements for private offerings. One of the primary criteria established under Regulation D is that investors must meet specific income or net worth thresholds to participate in these investment opportunities.

The correct response indicates that a minimum income of at least $200,000 is required, or alternatively, a joint income with a spouse of $300,000 in the past two years, along with the expectation of maintaining that income level in the current year. This income requirement helps ensure that investors possess a certain level of financial sophistication and are able to bear the risks associated with investment in hedge funds, which can be complex and less regulated compared to traditional investment vehicles.

Moreover, this requirement acts as a protective measure for individual investors to ensure that they have adequate financial resources to absorb potential losses that may arise from investing in higher-risk securities typically held by hedge funds. Consequently, those who do not meet these income criteria are generally excluded from participating in these types of investments, maintaining a safeguard for both the investor and the hedge fund itself.