Question: Do I need to open a bank account for the management company and/or the hedge fund? How do I open a brokerage account for my fund?
Answer: This is a question I will get at least once per week. First, you will need to establish a bank account for the management company. You will need a bank account at the management company level to pay for expenses related to the management company and, maybe more importantly, to receive the management fees (and later performance fees or performance allocations).
To open a bank account for the management company, you will need to complete an account opening application which will request certain identifying information for the entity. The application will also require supporting documentation. You should be prepared to bring the following items to the bank: (1) the management company’s formation documents from the state department of corporations and (2) your taxpayer identification number (“EIN” or “TIN”). Additionally, some banks may have additional requirements; such banks might require you to produce a resolution authorizing the opening of the bank account, or the governing legal documents (LLC operating agreement or corporate bylaws), or even a certificate to do business from the state or city. If you have any questions on what your bank might require, it would be a good idea to call your branch to find out what documentation you will need to bring.
Whether you will need to open a bank account for the hedge fund itself is not so straight-forward. My general advice would be yes – but other lawyers are of the opinion that the fewer bank accounts (and less paperwork) the better. I feel like it is always good to have a bank account in case it is ever required (by a prime broker or otherwise). Additionally, the fund will be able to start establishing a relationship with the bank as well – this might prove helpful later on if the fund wants to later utilize a credit facility.
Whether you need a bank account will also depend on your prime broker. Some prime brokers only allow wires to the fund’s brokerage account to come from a “same name” account. These brokers will also require that outgoing wires be deposited in a “same name” account. Effectively this means that the fund would need to have a separate bank account which investors would wire funds into – the manager would then wire the funds to the brokerage account. Of course, there may be wire fees associated with such transfers and this is an issue that the hedge fund manager should be aware of – many times the investor will pay the wire fees.
Establishing a bank account for the fund should be a similar process to establishing a bank account for the management company.
Question: Does it matter which bank that I use?
Answer: No. It is perfectly acceptable for you to establish the accounts at your local bank.
One item of consideration will be the fees that are charged. Generally you should be able to establish bank accounts that won’t charge monthly fees. However, some larger funds may need to access the services of a larger bank which, in many cases, charge a monthly fee. Also, be aware that if you are going to establish an offshore fund (usually in the Caymans or BVI), you are probably going to be hit with monthly fees. In addition to monthly fees, a manager should also be aware of wire fees and other transaction costs.