A 3(c)(1) Fund is a private investment vehicle that is exempt from SEC registration due to having no more than 100 beneficial investors. It offers a flexible way to pool capital while avoiding the regulatory burdens of public funds.
A 3(c)(1) Fund refers to a private investment fund that operates under the exemption provided by Section 3(c)(1) of the Investment Company Act of 1940. The exemption allows the fund to bypass SEC registration requirements by limiting its offering to 100 or fewer beneficial owners who are considered accredited investors. These funds are common among hedge funds, private equity firms, and other alternative investment managers. This exemption is designed to accommodate sophisticated investors who are presumed to have the knowledge and resources to evaluate risk without the regulatory protections granted to retail investors. As such, 3(c)(1) Funds offer broad investment flexibility — from traditional securities to complex derivatives and private placements. These funds are not subject to the same disclosure, reporting, or auditing standards as registered investment funds, making them favorable structures for managers seeking discretion and agility. However, they must still comply with anti-fraud provisions and other applicable securities laws. The 3(c)(1) Fund structure is particularly popular in the world of alternative investments, especially for funds targeting high-net-worth individuals, family offices, and institutional investors.
Because these vehicles are designed for limited participation, they are particularly attractive to family office investors seeking access to non-correlated or alternative investment strategies. The lack of SEC registration allows for greater operational flexibility, which can facilitate niche investments and enhanced returns — albeit often accompanied by higher risk and lower liquidity. In terms of governance, a 3(c)(1) Fund requires careful diligence. Allocators and advisors must verify the fund is compliant with its investor limits, valuation procedures, and offering memorandums, especially when evaluating manager selection and risk transparency. This makes appropriate due diligence and legal oversight critical components of family office operations.
A family office decides to allocate $10 million into a hedge fund structured as a 3(c)(1) Fund. The fund currently has 80 other qualified investors and does not engage in advertising. Because it limits its investor base and adheres to the exemption conditions, the fund avoids SEC registration and can pursue a long/short equity strategy with minimal disclosure obligations.
3(c)(1) Fund vs. 3(c)(7) Fund
While both 3(c)(1) and 3(c)(7) Funds are exempt from SEC registration under the Investment Company Act, they differ in investor criteria and limits. A 3(c)(1) Fund is limited to 100 accredited investors, while a 3(c)(7) Fund has no cap on the number of investors but requires all to be qualified purchasers — a higher standard. The 3(c)(1) structure is more accessible for high-net-worth individuals and smaller family offices, while the 3(c)(7) fund tends to cater to institutional-level allocators.
Is a 3(c)(1) Fund limited to only 100 total investors?
Yes, but the limit applies specifically to "beneficial owners," which can include look-through rules for certain entities. Family offices or investment partnerships may count as multiple investors depending on their structure.
Can non-accredited investors invest in a 3(c)(1) Fund?
No, 3(c)(1) Funds typically accept only accredited investors to comply with Regulation D under the Securities Act of 1933, which governs the private offering exemption.
How does a 3(c)(1) Fund differ from a registered mutual fund?
Unlike mutual funds, which are subject to strict investment limits, daily NAV reporting, and redemption rights, 3(c)(1) Funds are private, often illiquid, and operate with wide investment discretion and less transparency.
