The Fundamentals of Hedge Fund Management, 2nd Edition

CHAPTER 3

Hedge Fund Structures

Launching a hedge fund is easy and difficult. It is easy because the process is simple: You hire a lawyer to write the documents, you open a prime brokerage account, you get some investors, and you're off. The whole process can take as little as 90 to 120 days. Yet launching a hedge fund is difficult because of all the nuances that need to be addressed with the lawyer, prime broker, auditor, administrator, and the investors.

Few funds launch on time and without a hitch. This is not something to worry about. Most new businesses suffer through fits and starts as they launch, so why should launching a hedge fund be any different? Many moving pieces go into a successful launch, and the key is to pay attention to all its aspects to ensure success and not waste time.

This chapter is dedicated to hedge fund structures. It explains the role of the lawyer, accountant, and administrator during the initial phase of your operation and details how hedge funds go from an idea in the manager's head to a reality of being an investment vehicle.

GETTING STARTED

When launching your fund, you need to determine where your investors will be based and what types of assets they will invest with you. The answers will put in place the foundation of the structure the lawyer will create. In the beginning, most start-ups get assets from friends and family and, consequently, create U.S.-domiciled entities that can accept taxable assets. However, if the manager has a commitment ...