Who You Can Legally Charge Carry After June 29, 2026

If a new investor signs your subscription agreement on or after June 29, 2026, an SEC-registered adviser can charge them carried interest under Rule 205-3 only if they have at least $1.4 million managed by your firm immediately after signing, or the firm reasonably believes their net worth exceeds $2.7 million (primary residence excluded), or they qualify through another route such as qualified-purchaser status. The old lines were $1.1 million and $2.2 million. The operators differ: exactly $1.4 million passes the assets test; exactly $2.7 million fails the net-worth test. Accredited-investor status on its own gets nobody over the line. The figures and effective date are set in SEC Order IA-6961.

That is the federal answer for a covered SEC-registered adviser charging performance-based compensation. Fund structure, alternative qualification routes, transition rules for contracts signed before June 29, and state law can each change the result, and each is covered below.

Enter the investor’s figures and signing date; the verdict updates as you type.

The 2026 Thresholds: $1.4 Million Managed or More Than $2.7 Million Net Worth

Rule 205-3 monetary test	Before June 29, 2026	From June 29, 2026
Assets under management with the adviser	At least $1.1 million	At least $1.4 million
Net worth	Greater than $2.2 million	Greater than $2.7 million

The two tests use different operators. The AUM route requires at least $1.4 million under management with the adviser. The net-worth route requires more than $2.7 million, so a properly calculated net worth of exactly $2.7 million fails.

Three dates matter. On March 27, 2026 the SEC published its notice of intent to adjust the thresholds. On April 28, 2026 it issued final Order IA-6961. On June 29, 2026 the adjusted thresholds took effect. The March notice was not the final adjustment; anyone who updated forms from the notice should check them against the order. The increase is the five-year inflation adjustment required by federal law and reflects inflation since the 2021 adjustment.

Why an Accredited Angel Still Cannot Be Charged Carry

Section 205(a)(1) of the Investment Advisers Act generally bars covered advisers from advisory contracts that pay the adviser a share of capital gains or capital appreciation. Rule 205-3 carves out contracts with qualified clients. Carried interest, performance fees, and incentive allocations can all be performance-based compensation for this purpose, depending on the arrangement. The SEC’s Rule 205-3 notice sets out the statutory restriction and the exception.

Accredited-investor status and qualified-client status serve different functions. Being accredited lets someone buy into a private offering. It does not make them a qualified client, so an accredited angel with a $1.8 million net worth can subscribe to your 3(c)(1) fund but cannot bear carry unless another qualified-client route applies. This is the mistake first-time managers make most often, because every investor in the data room has already been screened as accredited.

The thresholds are not universal admission standards either. The federal analysis starts with who the adviser is and what the compensation is. Rule 205-3 governs SEC-registered advisers; a state-registered or exempt adviser has to look at state performance-fee rules, which may be broader or structured differently. Then classify the vehicle (3(c)(1) fund, 3(c)(7) fund, SPV, fund-of-one, separate account), identify who is actually tested (the fund, the individual, or an owner reached by a look-through), fix the date of the contract or subscription, and only then apply the AUM, net-worth, qualified-purchaser, or knowledgeable-employee route.

How to Count Assets Managed and Net Worth

The AUM test is measured immediately after the advisory arrangement is entered into. It counts assets managed by the specific adviser, not the investor’s total portfolio across other managers, banks, or brokerages.

For a private-fund investment, assets managed by the adviser may include uncalled fund capital commitments plus the gross asset value or fair value of existing investments the same adviser manages. Confirm the valuation method and which assets count as managed by the relevant adviser; assets held through related entities do not automatically count.

Illustrative example: an investor commits $1 million to your new fund and already has $400,000 in your earlier SPV, managed by the same adviser. Together that is $1.4 million and could satisfy the new AUM test, subject to valuation methodology and the facts of the relationship. The measurement timing, treatment of commitments, and valuation approach are summarized in Kirkland & Ellis’s qualified-client guidance.

For the net-worth test, the adviser must reasonably believe the client clears the threshold immediately before the contract is entered into. The calculation generally excludes the value of a natural person’s primary residence and treats residence-secured debt as the rule prescribes. Assets held jointly with a spouse may be included.

Boundary example: a properly calculated net worth of exactly $2.7 million fails, because the standard is greater than $2.7 million. A headline balance-sheet number is not necessarily the Rule 205-3 figure; residence-secured debt, trusts, entity ownership, and marital-property questions all need transaction-specific review.

Which Structures Test the Investor Rather Than the Vehicle

Structure	Who generally matters	Practical implication
Section 3(c)(1) fund	Investors, plus owners reached by look-through provisions	Investor-level qualification matters when carry is charged
Section 3(c)(7) fund	The fund is the Rule 205-3 client; investors are qualified purchasers	The monetary tests are less central
SPV or fund-of-one	Individual participants, depending on structure	Vehicle-level qualification is not enough
Separate account	The account client	Status matters if performance compensation is charged

For a 3(c)(1) fund charging carry, the analysis looks past the fund itself. Each relevant investor must qualify through some route, and specified owners of certain investor entities may also need examination under the look-through provisions. The ownership chain matters, but the rule does not test every direct and indirect owner in every structure identically.

SPVs and funds-of-one need the most care, and they are the vehicles a scout or founder-angel is most likely to run. As practitioner guidance, Holland & Knight states that individual investors in an SPV or fund-of-one must each satisfy the qualified-client test when the manager charges carried interest. That reading is in the firm’s note on the 2026 Rule 205-3 thresholds, not in the inflation-adjustment order itself.

3(c)(7) funds are different. The fund is generally the client for Rule 205-3, and the 3(c)(1) look-through framework does not apply the same way. Because 3(c)(7) investors are qualified purchasers, the $1.4 million and $2.7 million tests ordinarily fall away, though they can still matter for separate accounts that charge performance compensation. Complex indirect ownership, offshore arrangements, registered investment companies, business development companies, and mixed U.S. and non-U.S. structures each need separate analysis; the vehicle’s label alone does not settle it.

Qualified Purchasers and Knowledgeable Employees Skip the Dollar Tests

Qualification route	Monetary test required?	Illustrative records
AUM with the adviser	At least $1.4 million	Commitment and managed-asset records, valuation method, measurement date
Net worth	Greater than $2.7 million	Investor questionnaire covering assets, residence, and related debt
Qualified purchaser	No	Representation and supporting classification records
Knowledgeable employee	No	Records supporting the specific eligibility determination

Qualified purchasers and qualifying knowledgeable employees may be deemed qualified clients without meeting either monetary test. That is how a GP’s own team and a fund’s institutional LPs typically get through. Knowledgeable-employee status should not be inferred from employment with a manager or fund alone; the sources here do not give a complete test for that classification, so document the specific eligibility basis after review with counsel or the fund administrator. The records column is illustrative, not a documentation standard; confirm the evidence pack with counsel or your administrator.

Investors Who Signed Before June 29 Keep Their Old Qualification, With Limits

Contracts and subscriptions entered into before June 29, 2026 are generally handled under Rule 205-3’s transition provisions rather than re-tested against the higher figures. The final order confirms the effective date and transition treatment.

An investor who signed in May with $1.2 million managed by your firm cleared the $1.1 million test then and generally stays within the transition framework now. An investor with the same $1.2 million who signs in July has to clear $1.4 million or qualify another way. That is the whole reason a backer who qualified in spring may not qualify for your next close.

Grandfathering attaches to the contract and transaction, not to the person. Amendments, restatements, transfers, secondary purchases, new admissions, and later commitments can each raise the question of whether a new contractual relationship has been created and which transition provision applies. One practitioner source supports continued contributions by certain existing qualified investors, but the evidence does not resolve every agreement, so do not assume every additional contribution by an existing investor is protected.

Pulling a pending close forward to beat June 29 was reasonable practitioner advice in specific cases, but it is not a mandate in Order IA-6961. Timing decisions should account for disclosure, documentation, investor treatment, and actual closing mechanics, not the effective date alone.

Documents That Still Quote $1.1 Million and $2.2 Million

The order itself imposes no paperwork requirement; the following is practitioner-recommended preparation. Subscription agreements and investor representations that state the monetary thresholds need the new figures. Investor questionnaires should distinguish the AUM, net-worth, qualified-purchaser, and knowledgeable-employee routes rather than asking one blended question. Offering memoranda, investment-management agreements with performance-fee provisions, side letters, and transfer forms for assignments and secondary sales all carry the same exposure.

Operationally, onboarding for subscriptions from June 29 onward should record each investor’s eligibility basis, measurement date, contract or admission date, and transition treatment, and the fund administrator should have written instructions covering thresholds, effective dates, and escalation. Audit public pages, data rooms, reusable forms, and automated emails so the historical $1.1 million and greater-than-$2.2 million figures are not presented as current.

State-registered and exempt advisers must review applicable state law separately. State performance-fee rules and private-fund adviser exemptions may be broader or structured differently from federal Rule 205-3, as discussed in this overview of the 2026 qualified-client standards.

The operative federal answer is at least $1.4 million managed by the adviser or net worth above $2.7 million for covered relationships beginning June 29, 2026. Before applying it, classify the adviser, the compensation, the vehicle, the person being tested, the qualification route, and the contract date. Transfers, amendments, later commitments, indirect ownership, transition treatment, and state law all call for review by securities counsel.