Hedge Fund Formation and Securities Law Specialists
Law Offices of Scott Goldring Associates
Hedge Fund Formation
Hedge Fund Formation
SGA specializes in Hedge Fund Formation of both Domestic and Offshore funds and can move quickly to get you started. From forming the underlying company to helping you to articulate the investment strategy of your fund we offer timely expertise.
Whether Domestic or Offshore we will help you to decide which structure and jurisdiction is best for you and your investors. From Parallel Funds to the Master Feeder Structure we will find the location that has the best tax benefit for both you and your clients.
Legal Structure of Fund
The legal structure of a hedge fund largely depends who its investors will be. For example, a private investment vehicle formed for the benefit of persons who reside outside of the
A Domestic Hedge Fund Structure generally has a Limited Liability Company as the management company and a Limited Partnership as the Investment Fund. The Limited Liability Company is the General Partner and the Investors are Limited Partners of the fund.
In the domestic fund structure the Limited Liability Company's operating agreement dictates the powers and responsibilities of the General Partner of the fund. Generally the operating agreement includes among other things a description of the of the purpose of the company which is to manage the affairs of the Fund. There should be a detailed indemnification clause, which grants the General Manager of the Fund the ability to make decisions regarding the Fund without fear of misguided retribution when the market takes a downturn. There must be a portion that details how the General Partner will manage records, where the funds will held and who will do the accounting for the fund. Then, of course, there is the section on taxes; this will change depending on what type of fund it is addressing.
The Limited Partnership Agreement dictates the powers and responsibilities of the investors in the Fund. Generally the Limited Partnership Agreement includes an "Objects and Purposes" section which details the purpose and trading strategy of the fund. This area will be read by your prospective clients, so be careful with the wording you choose, this is in effect your sales pitch, and informs the client of how you intend to manage the fund. There should be a section that notifies the Limited Partner that the General Partner shall have the power, acting on behalf of the Partnership, to carry out any and all of the objects and purposes of the Partnership. The Limited Partnership will bear all costs associated with the organization of the fund and shall reimburse the General Partner for (i) accounting fees, including tax return preparation costs, relating to the Partnership's independent accountants; (ii) legal fees and expenses, including, but not limited to, fees and expenses incurred in connection with the Partnership Agreement, any offering of Limited Partner Interests, Partnership contracts and investments and any defense of the Partnership in any action or proceeding; (iii) insurance and bonding costs; (iv) all trading expenses and transaction costs, including brokerage commissions and expenses relating to short sales, clearing and settlement charges, interest on loans and debit balances, margin interest, broker service fees and other clearing and custodial expenses. Again there should be an additional detailed indemnification clause. As this is a Hedge Fund there must be a detailed section on Partner Contributions, what is the minimum contribution, how long will those funds be held, and what is the process to withdrawal those funds once the lock up period has expired.
The Limited Partner and investor in the Fund must also complete a subscription agreement, which requires information about the investor's assets.
A Master-Feeder fund structure is commonly used to accumulate funds raised from both
The structure generally involves the use of a master fund company (incorporated in a tax-neutral offshore jurisdiction such as Anguilla, the Cayman Islands or
In this way, the tax impact of an investment in the fund for
In a Side-by-Side structure,
For hedge fund managers seeking to establish both a domestic and an offshore fund, there are various tax, administrative and other issues the manager should consider in determining whether to utilize a master feeder or a side-by-side structure.
We look forward to assisting you in finding the most appropriate Hedge Fund Formation structure for your investors.