For hedge fund managers which are establishing a hedge fund for the first time, it is often easier to understand the dynamics between the different entities through an organizational chart. This is especially true for an offshore master feeder hedge fund which has more moving parts and also has (generally) a different fee structure based on the characteristics of the hedge fund manager’s trading program and the expected tax attributes of the underlying investments. Additionally, the tax residence of the offshore investors must be considered in many circumstances.
I attached the following Offshore Master Feeder 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 a management fee which is paid out at the feeder fund level and a performance fees (performance allocation) which is paid out at the master fund level in order to preserve the nature of the long term capital gains. Offshore hedge fund managers should discuss these aspects of their offshore hedge funds with their attorneys.
Other related hedge fund articles:
- Domestic Hedge Fund Organizational Chart
- Offshore Hedge Fund Structures
- Hedge Funds and UBTI
- Hedge Funds and ERISA
* Please note that while this chart was developed with a British Virgin Islands offshore hedge fund in mind, it would work exactly the same for an offshore hedge fund domiciled in the Cayman Islands.