The basic structure
A typical US hedge fund is organized as a limited partnership or limited liability company, often in Delaware, with a general partner or managing member and a separate management company that earns the fees. Managers expecting non-US or tax-exempt investors often add an offshore fund, sometimes in a master-feeder arrangement, to address tax concerns those investors have. The offering documents usually include a private placement memorandum, the fund's governing agreement, and subscription documents, and they set out fees, redemption terms, lockups, and how valuation works. Side letters with particular investors are common and should be tracked from the start.
Securities and adviser rules
Fund interests are sold privately under exemptions from registration, which affect how the fund may market itself and who may invest. The fund also needs an exemption from registration as an investment company, and the one it relies on determines the investor qualification standards. On the adviser side, a manager may need to register with the SEC, register with a state, or file as an exempt reporting adviser, depending on assets and the types of clients. New York has its own requirements for some advisers. If the fund trades futures or certain swaps, the manager may also face CFTC and National Futures Association obligations. Getting these classifications right before launch is easier than correcting them later.
Planning the launch
Before documents are drafted, we discuss the strategy, the expected investor base, the target fund size, and the terms you want to offer, since those choices drive the structure. Selecting service providers, including an administrator, auditor, prime broker, and fund counsel, is part of the timeline. We also look at compliance policies the manager will need on day one, such as a code of ethics and valuation and trading policies, and at restrictions from a prior employer that could affect your ability to launch or bring over investors. A clear plan for marketing materials helps avoid statements that conflict with the offering exemption.
