Many future hedge fund managers have misconceptions about how to start a hedge fund – either they think it is a very basic process that takes no time or resources, or they think that it will take too much time and will be cost prohibitive. For most start up hedge funds, the manager can be up and running within a month depending on whether the manager will need to be registered with the state securities commission (please see our article on start up hedge fund timelines). This article will detail the steps the manager will need to take to start the hedge fund. Continue reading →
Exemption from the Registration Provisions of the Investment Advisors Act
We have discussed the SEC hedge fund registration exemption many times before, but we have not addressed it directly.For most management companies with a single hedge fund client, registration is actually a relatively easy and straightforward process. Once hedge fund managers are registered as investment advisors with the SEC there are certain recordkeeping requirements for the hedge fund manager, but the requirements are not onerous (for more information, please see ).
Notwithstanding the above, many managers will choose to remain unregistered for a variety of different reasons and those managers will typically rely on the hedge fund registration exemption found in Section 203(b)(3) of the Investment Advisors Act of 1940. The exemption and the rule underlying the exemption is detailed in full below. Continue reading →
Earlier we discussed a release by the NFA in which they expressed the desire to apply the NFA Compliance Rule 2-29 to current NFA Members who are involved in the off-exchange forex markets (see NFA Proposes Rule 2-29 Apply to Forex Members). We believe that the CFTC will approve the NFA’s request and thus certain aspects of Compliance Rule 2-29 will apply to NFA Members who trade forex. We also believe that once the forex registration provisions are promulgated by the CFTC, this compliance rule will also apply to those forex managers. In anticipation of such developments, we’ve summarized below (and linked to) the major interpretive notices that the NFA has released on Compliance Rule 2-29. Continue reading →
President-elect Brarack Obama’s choices for the head of the SEC and the CFTC have been generally well-received. Mary Schapiro and Gary Gensler have very large jobs ahead of them as Congress is expected to require hedge fund registration with the SEC, and the CFTC also has the mandate to regulate the off-exchange forex markets. As always we stess that any regulation should be reasonable and considered; knee-jerk legislation will not lead to more fair markets.
The releases below come from current SEC Chairman Cox and CFTC Acting Chairman Lukken. Continue reading →
Perhaps not surprising, Illinois has a very well developed Securities Division website which provides its investment advisors (and potential investment advisors) with many informative articles. In this article we have reprinted three separate resources which we found helpful for potential hedge fund managers located in Illinois.
The first resource provides a basic overview of investment advisors and the separation of regulatory jurisdiction between the federal government and the states. This resource is glib on whether hedge fund managers in Illinois need to register as investment advisors with the state – generally they do not. For those managers which are registered with Illinois, the second resource provides an overview of the potential for on-site examinations of the manager’s business. The final resource provides an overview of the different fees which an advisor registered (or notice filed) in Illinois will need to pay. Continue reading →
Offshore hedge funds can be structured in a number of different ways including a stand alone structure, a master-feeder structure and a side by side structure. This article discusses the side by side hedge fund structure and also provides a side by side offshore hedge fund organizational chart. As we have noted earlier in an article regarding offshore hedge fund structural considerations, a side by side offshore hedge fund is a structure consisting of two distinct entities which are managed in the same way by a single management company.
I attached the following Offshore Side by Side Hedge Fund Organizational Chart so that hedge fund managers can get an idea of the structures involved and the flow of payments. This specific chart details (1) a management fee and a performance allocation paid from the domestic counterpart and (2) a management fee and a performance fee paid from the offshore counterpart. Offshore hedge fund managers should discuss these aspects of their offshore hedge funds with their attorneys. Continue reading →
New Jersey Hedge Fund Managers Generally Exempt From Registration
Hedge fund managers in New Jersey generally do not need to register as investment advisors with the New Jersey Bureau of Securities. New Jersey actually has a de minimis rule which provides that managers, with a place of business in New Jersey, do not need to register as investment advisors provided that that have no more than 5 clients (New Jersey) over a 12 month period.
While there is no specific definition of what the term “client” means, the general definition at the federal level and with many states is that a hedge fund counts as a single client and there is no need to “look through” to count the underlying investors in the fund as clients. Even though this interpretation is generally accepted at both the SEC and state levels, a hedge fund manager may want to request a “no-action” letter from the New Jersey Bureau of Securities. Such manager should discuss this option with their hedge fund attorney. Continue reading →
Below we have provided two separate sources from the South Carolina Securities Division Website. First, we have reproduced a very short blurb from their website which explains that investment advisors who have a place of business in South Carolina must generally be registered as an investment advisor. Second, we have reproduced their schedule and instructions for the state blue sky filings which need to be made by the hedge fund manager after the first sale of securities in the state. In general hedge fund interests are sold in accordance with a Regulation D 506 hedge fund offering. States generally have the authority to require Form D filings when a sale under 506 is made to residents of the state. In South Carolina the requirement is to make the Form D filing within 15 days of the first sale in South Carolina. The hedge fund manager will also need to send in a check for $300. Continue reading →
Georgia Hedge Fund Managers Generally Exempt From Registration
Below we have provided two separate sources from Georgia’s Securities Division Website. First, we have reproduced their frequently asked questions on investment advisor registration. Specifically it should be noted that Geogia based hedge fund managers do not generally need to register as investment advisors with the state of Georgia if they only manage one fund. While managers are not required to be registered, they still will need to make sure that they follow all necessary compliance rules which the hedge fund lawyer can remind them of. Continue reading →
There are many reasons why managers will want to form hedge funds in offshore jurisdictions like the Cayman Islands or the British Virgin Islands. While a domestic hedge fund can be established in as little as two to three weeks (depending on whether the manager must be registered as an investment advisor), the offshore hedge fund will usually take around 6 to 10 weeks to form, depending on a number of different factors. This article will detail the process of creating an offshore hedge fund. Continue reading →