What type of investor does NOT qualify for hedge fund private placements under Regulation D?

The reason non-accredited investors exceeding 35 do not qualify for hedge fund private placements under Regulation D relates to the specific criteria established by the Securities and Exchange Commission (SEC). Regulation D is intended to facilitate access to capital for issuers while also ensuring that investors participating in these offerings are financially capable of bearing the investment risks.

Non-accredited investors, by definition, do not meet the financial thresholds set forth in Regulation D, which typically include an income of over $200,000 annually (or $300,000 jointly with a spouse) or a net worth exceeding $1 million, excluding primary residence. As such, these investors may not have the financial sophistication or capacity to absorb potential losses associated with high-risk investments like hedge funds.

The presence of a limit on the number of non-accredited investors—up to 35 under specific conditions—does not override the fundamental requirement that these investors must have a certain level of financial knowledge or resources to participate safely in such high-risk private placements. Therefore, while they may exceed the cap on numbers, non-accredited investors still do not meet the necessary financial criteria to qualify for participation in hedge fund offerings.