There are several categories of "qualified purchasers" in the Investment Act of 1940 (Section 2(a)(51). One category in particular are those investors who are natural persons that have $5 million or more of "investments" ("investment" being defined the 40 Act as well) or are entities that have $25 million or more of investments under management.

What is a Passive Foreign Investment Company?

A Passive Foreign Investment Company (PFIC) allows for the commingling of offshore and onshore investors in the same fund vehicle. The offshore fund can accept both offshore and onshore investors but must maintain at least a majority (50 percent) of offshore investors' assets in the fund at all times. This structure allows a fund manager to actually manage one portfolio and not be concerned with allocating trades among onshore and offshore accounts. While the actual workings of a PFIC are far more complicated, more and more funds may utilize this and related structures as the cross-border, global fund industry develops. PFICs can have unpleasant tax treatments for US investors, which investors should understand in detail.

What criteria should I use to evaluate potential fund of funds managers?

The following is a list of questions that will help a potential investor establish some criteria for evaluating managers:

• What is the size of the fund? In other words, what is the buying clout of the fund?
• What is orientation?
• What is manager's methodology for selecting strategies and funds?
• What depth of due diligence does the manager perform on each fund?
• What ongoing monitoring processes are maintained?
• When are funds pruned from FOF?
• Does the fund credit rebates to the limited partners or the general partner?
• How much of manager's own capital is in fund?