Monthly Archives: October 2008

Hedge Fund Performance Fee Issues for State Registered Investment Advisors

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One of the problems with the securities laws in the United States is that there are two levels of rules to be cognizant of at any single time – the federal rules and the state level rules.

For hedge fund managers that are registered as investment advisors with the SEC, there is a simple rule regarding performance fees – performance based fees can only be charged to those investors in the hedge fund who are “qualified clients” (the $1.5 million net worth requirement).  For hedge fund managers that are registered as investment advisors with the state, however, the manager may need to be aware of the performance fee rules of states other than their own state because each state has different securities laws.  (HFLB note: we will be discussing the issue of different state securities laws in an upcoming article on the Uniform Securities Act.)

Issues

There are three issues for a state-registered investment advisor to be aware of with regard to a hedge fund:

1.  Are performance fees allowed at the state level?  If so, what are the state’s investor qualification requirements?

2.  Does an investment advisor need to “look through” the hedge fund to the individual investors to determine if a performance fee can be charged?

3.  In the situation where a hedge fund investor resides in a state other than the state where the manager is registered, and with regard to the performance fee and “look through” rules, does the manager need to adopt the laws of the investor’s state or the laws of the state in which it is registered?

Discussion

First, generally all states will allow performance fees, but each state has different investor qualification requirements.  Some states track the federal rules and require that performance fees be charged only to qualified clients, some states require that the performance fees be charged only to accredited investors, and some states do not allow state-registered investment advisors to charge performance fees (whether a state can legally have such a requirement is another issue).

With regard to the second issue, most all of the states which allow performance fees will “look through” the hedge fund to the individual investor for the purpose of determining who can take the performance fees; this means that each investor in the hedge fund will need to meet the qualification requirements.  However, some states interpret their securities laws to mean that the performance fee can be taken at the fund level and that there is no “look through.”  In these cases, if the hedge fund itself meets the qualification standards (say $1.5 million dollar net worth), then presumably the performance fee can be taken on all of the hedge funds assets, even if no single investor in the hedge fund is a qualified client.  The central reason that anomalies like this exist is poor drafting on the part of the state legislatures.

Finally, we come to the third issue which is essentially a conflict of laws question.  There are a couple of situations where this would apply.

Situation 1: Manager is registered as an investment advisor in State X which allows performance fees to be charged only to “accredited investors” ($1 million net worth) and “look through” rules apply.  Investor from State Y wishes to invest in the hedge fund, but State Y has laws which prohibit performance fees except to those people who are qualified clients.

Situation 2: Same facts as above, but State X provides that there is no “look through” at the fund level and only the fund needs to be an “accredited investor” in order to charge a performance fee at the fund level (which would ultimately be paid by the investor through a diminished capital account).

While we believe that in both situations above the manager should be able to charge performance fees based on its own state laws and without regard to the laws of other states, there have been some state securities commissions that have stated informally to me over the phone that they believe the manager should charge performance fees to investors from their state pursuant to their state rules.  We have never heard of a state instituting a proceeding against a hedge fund manager in this situation, but it is one potential issue and it has not been clearly resolved.

To try to bring a little bit of resolution to this issue, we did a conflicts of law analysis and found that it would probably be ok for a hedge fund manager to charge performance fees to its investors pursuant to the manager’s state law and without regard to the state law of the investors.  However, I do not think a law firm would provide any sort of legal opinion on this issue because it is definitely still within the grey area of the law (HFLB note: this discussion should not be taken as any sort of legal advice, pursuant to our standard website disclaimer).

Generally I would recommend that state registered hedge fund managers only charge performance fees to qualified clients even if the manager’s state had lower requirements.  If the manager wanted to charge performance fees to non-qualified clients, then the manager should consider charging performance fees pursuant to the state laws of each investor in the fund.  The issue with this of course is that it would present additional work for the administrator and create additional costs for the fund.  Additionally, the subscription documents would need to be redrafted to address the state law issues.

In any event, if this situation applies to a state-registered investment advisor who manages a hedge fund, the hedge fund manager should discuss this issue with their legal counsel.

Other HFLB articles include:

Conversion of a 3(c)(1) hedge fund to a 3(c)(7) hedge fund

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Below is a question we received through the comment portion of this blog:

A fund we participate in converted in mid-2007 from a 3(c)(1) fund to a 3(c)(7) fund. Upon receipt of the K-1 for the year, there was a large realized short-term capital gain realized with a large corresponding unrealized capital loss. When I asked about what triggered the short-term gain, I was told that it related to the conversion to 3(c)(7) status. Is there anything within the conversion process which would inherently trigger recognition of a capital gain, especially short-term? Thanks for any insight you may be able to share with me on this.

First, let’s examine what it means to “convert” from a 3(c)(1) hedge fund to a 3(c)(7) hedge fund.  There is no form that a hedge fund submits to the government or any agency which declares whether they are a 3(c)(1) hedge fund or a 3(c)(7) hedge fund.  There is no sort of internal declaration like with certain IRS rules.

The 3(c)(1) structure limits the number of investors to 99, the 3(c)(7) structure does not limit the number of investors, but limits the type of investors.  So, to “convert,” a hedge fund would just make sure that all of its investors were qualified purchasers and then have more than 99 of them.  Therefore, when a hedge fund “converts” from a 3(c)(1) hedge fund to a 3(c)(7) hedge fund, the fund is basically informing investors that the number and “type” of investor in the hedge fund (a limited partnership or limited liability company) will be changing.  (Please also note that a 3(c)(7) hedge fund with 99 or less investors would also be exempt from registration under the Investment Company Act as a 3(c)(1) hedge fund. )

When the conversion takes place, the fund would redeem those investors who are not qualified purchasers (the offering documents will typically provide managers with this unilateral authority).  In order to have the cash on hand to mandatorily redeem the investors, the fund may have to liquidate some underlying positions.  Based on the holding period of the underlying positions, the gain or loss may be long-term or short-term gain or loss, each of which has different tax consequences to investors in the hedge fund.

At the end of the year, the hedge fund accountant will prepare K-1s for all investors in the partnership which will include each investors allocation of gains and losses (realized and unrealized) during the year.  The manner in which these gains and losses are allocated is generally dictated by the hedge fund’s offering documents, which generally allow the manager wide latitude in how to make allocations.

With regard to the specific situation above, I cannot answer this question because it depends on the facts.  One thing an investor in this situation may want to do is review the audited financial statements from the hedge fund and then determine if an allocation was made which was incorrect – an accountant should be able to do this.  If there is still a question on the allocation, the investor should discuss the issue with the hedge fund manager in conjunction with the manager’s auditor or accountant.  From there the investor should be able to get further clarity on the issue.

Please note that the above is not legal advice and please read our disclaimer.  Please also feel free to contact us if you have further questions.  Other related HFLB articles include:

Investment Advisor and Investment Advisor Representative IARD System Fee Waiver

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The SEC and NASAA have waived two separate charges for Investment Advisors for the 2009 calendar year.  The first charge being waived is a systems charge for the Investment Advisor to access the IARD system.  This fee used to be $30.  The second charge is the fee to access the IARD system for each investment advisor representative.  This fee used to be $30 as well, which went to the NASAA.  For small investment advisors this amounts to a small savings, however, larger firms with many investment advisor representatives will be pleased they will not have to pay this system fee.

However, fees which go to the individual states are not being waived and these fees are often in the range of $100-$500 for each investment advisory firm, and $30-$125 for each investment advisor representative depending on the state of registration.  For more information please see the press release below or contact your hedge fund attorney or compliance professional.  The full press release can be found here.

SEC, NASAA Announce IARD System Fee Waiver

FOR IMMEDIATE RELEASE
2008-259

Washington, D.C., Oct. 30, 2008 — The Securities and Exchange Commission and the North American Securities Administrators Association (NASAA) today announced they will waive the initial set-up and annual system fees paid by investment adviser firms to maintain the Investment Adviser Registration Depository (IARD) system. Separately, NASAA announced that for next year it will also waive those system fees paid by investment adviser representatives (IARs).

Andrew J. Donohue, Director of the SEC’s Division of Investment Management, said, “We are pleased to be able to continue the fee waiver of initial and annual fees paid by investment advisers through July 31, 2009. We are also pleased that enhancements will continue to be made to this important and useful online adviser registration and public disclosure system, which enables the investing public easily to access information about investment advisers.”

Fred J. Joseph, NASAA President and Colorado Securities Commissioner, said, “The IARD system promotes effective and efficient investor protection through readily accessible disclosure while offering a consistent and streamlined registration process for investment advisers and their representatives. Given the current economic climate, we are pleased that the IARD system’s ongoing success has allowed us to maintain the system fee waivers put in place in 2005 for investment adviser firms and also to fully waive for the first time the system fees paid by investment adviser representatives.”

For next year, NASAA will waive payment of initial and renewal IARD system fees by state-regulated investment adviser firms and investment adviser representatives’ initial and renewal fees. NASAA’s Board of Directors approved the system fee waiver and will continue to monitor the system’s revenues to determine whether future fee adjustments are warranted.

The IARD system is an Internet-based national database sponsored by NASAA and the SEC and operated by FINRA in its role as a vendor. IARD provides a single nationwide database for the collection and dissemination of information about individuals and firms in the investment advisory field and offers investment advisers and representatives a single source for filing state and federal registration and notice filings. The system contains the employment and disciplinary histories of more than 25,000 investment adviser firms and nearly 250,000 individual investment adviser representatives. IARD system fees are used for user and system support and for enhancements to the system.

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Related HFLB articles include:

Forex Disclosure Documents Overview Part I

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(www.hedgefundlawblog.com)

Article by Bart Mallon (www.forexregistration.com)

This is part one of a two part discussion.  This article will provide an overview of the likely requirements for Forex Disclosure Documents.  The items in this Forex Disclosure Document Overview are based on the items discussed in “Disclosure Documents – A Guide for CPOs and CPAs” provided by the NFA and based on CFTC rules and regulations.

Please note that these are only likely requirements as proposed and final rules have not yet been released.  For those managers which will be managing forex hedge funds, the disclosure document requirements are in addition to the requirements imposed by other securities laws (please see hedge fund offering documents or a more detailed explanation of the forex hedge fund offering document requirements).  Additionally, if the Forex CPO or CTA also trades other instruments besides spot forex then the document will need to address those items as well – your hedge fund forex attorney will be able to help you draft these items.

Who must prepare a Forex Disclosure Document?

The NFA has discussed a new category of CPO and CTA whose business involves retail off-exchange foreign exchange (forex) contracts.  These new categories of registered persons, as provided by the NFA, are called “Forex CPOs” and “Forex CTAs.”  Like the CPO and CTA disclosure documents, it is likely that both Forex CPOs and Forex CTAs will need to deliver a disclosure document to prospective investors.  The Forex CPO or Forex CTA will need to make delivery at the same time or before the delivery of the Forex Pool’s offering documents or the Forex Program’s advisory agreement.  The Forex CPO or CTA will need to receive signed acknowledgement by the investor that they have received the disclosure document.

We do not yet know if there are any exceptions to Forex Disclosure Document delivery requirements.  One question that the CFTC will need to answer is whether Forex CPOs and CTAs will be able to fall within the 4.7 exemption like traditional CPOs and CTAs.

The Basics of the Forex Disclosure Document

Cover Page.  The Forex Disclosure Document will probably need to have a CFTC mandated disclaimer which basically states that the CFTC has not reviewed the disclosure document for the merits of the trading program.

Front Cover Disclaimer. Inside the front cover the Forex disclosure document there will need to be a few paragraphs that serve as a general disclaimer of risk disclosure statement. This disclaimer will be based on a uniform template for all Forex disclosure documents.

Table of Contents. A basic table of contents will be required.

Basic Background Information. The beginning part of the document will need to include such basic information as name of the Forex CPO or CTA, addresses, phone numbers, etc.  The business background of each principal (each a “Forex Associated Person” or “Forex AP”) as well as the officers and directors of the firm will need to be provided.  The information each of the people will need to provide includes: date of NFA membership, date of CFTC registration, and dates of employment for last five years.

Forex Dealer Member. For Forex CTAs, if the program requires an investor to maintain an account with a Forex Dealer Member (“FDM”) then the name of the FDM must be disclosed.  For Forex CPOs, the document should disclose who will be the fund’s FDM.

Forex Introducing Brokers. For Forex CTAs, if the program requires an investor to have an account introduced by a Forex Introducing Broker (“Forex IB”), then the name of the Forex IB must be disclosed.

Principal Forex Risk Factors. For both Forex CPOs and Forex CTAs the document must include a discussion of the main risks involved in the Forex program.  Such risks are expected to include: country or sovereign risk, credit risk, exchange rate risk, interest rate risk, liquidity risk, market risk, operational risk, settlement risk and Herstaat risk.  In addition, for Forex CPOs, there are other risks involved in the structure of the investment vehicle which will need to be disclosed.

Forex Trading Program. All aspects of the proposed trading program must be disclosed and discussed.  A Forex trading program will usually include information on the investment object and the investment strategies as well as a discussion of the risk management procedures the Forex manager will utilize.  This area of the program may also discuss the Forex manager’s investment philosophy.
Forex Fees.  All aspects of the fee structure of the Forex hedge fund or Forex separately managed account must be discussed.  This will include both management fees and performance fees (if applicable) as well as the methods for calculating the fees.  The rules require specificity here so this will be one area where precise information is required.

Conflicts of Interest. This will be very important information and the Forex manager will want to discuss this section thoroughly with its attorney or compliance professional.  All actual or potential conflicts of interest must be disclosed.  All fee and business arrangements must be disclosed.  For example, if the forex manager will have any sort of pip sharing arrangement with the Forex Dealer Member, this will need to be disclosed.

Litigation. If any of the persons or entities involved in the trading program have been subject to “material administrative, civil or criminal” actions within the past five years, all information regarding the action must be disclosed.  Disclosure is required for the Forex CTA, Forex CPO, Forex IB, Forex Dealer Member or FCM, and any principles of the Forex CPO or CTA.  Oftentimes the FCM (with regard to CPO and CTA disclosure documents) must disclose a lengthy list of actions.

Trading Forex for Own Account. The disclosure document must disclose whether the Forex manager and/or any employees will be trading for their own accounts.  If the Forex manager and/or any employees will be trading for their own accounts then the document must disclose whether the manager or employees will allow investors to review the trading records of the manager or employees.

Forex Disclosure Documents Overview Part II will be released tomorrow and will cover the following items: Performance Disclosures, Other General Items, Material Information and Supplemental Information.

Please see other related HFLB articles:

Definition of a Hedge Fund and Hedge Fund Background Information

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Oftentimes government sources of information provide us with good, comprehensive definitions like the discussion below on hedge funds.  The Government Accountability Office released a report on Defined Benefit Plans Investing in Hedge Funds that detailed pension plan investments in hedge funds (for our account of the complete article, please see Hedge Fund Report by GAO).  Below is an except from that report which provides a good overview of the hedge fund industry and regulatory environment.  The full report can be found here.

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Although there is no statutory or universally accepted definition of hedge funds, the term is commonly used to describe pooled investment vehicles that are privately organized and administered by professional managers and that often engage in active trading of various types of securities, commodity futures, options contracts, and other investment vehicles. In recent years, hedge funds have grown rapidly. As we reported in January 2008, according to industry estimates, from 1998 to early 2007, the number of funds grew from more than 3,000 to more than 9,000 and assets under management from more than $200 billion to more than $2 trillion globally.

Hedge funds also have received considerable media attention as a result of the high-profile collapse of several hedge funds, and consequent losses suffered by investors in these funds. Although hedge funds have the reputation of being risky investment vehicles that seek exceptional returns on investment, this was not their original purpose, and is not true of all hedge funds today. Founded in the 1940s, one of the first hedge funds invested in equities and used leverage and short selling to protect or “hedge” the portfolio from its exposure to movements in the stockmarket.* Over time, hedge funds diversified their investment portfolios and engaged in a wider variety of investment strategies. Because hedge funds are typically exempt from registration under the Investment Company Act of 1940, they are generally not subject to the same federal securities regulations as mutual funds. They may invest in a wide variety of financial instruments, including stocks and bonds, currencies, futures contracts, and other assets. Hedge funds tend to be opportunistic in seeking positive returns while avoiding loss of principal, and retaining considerable strategic flexibility. Unlike a mutual fund, which must strictly abide by the detailed investment policy and other limitations specified in its prospectus, most hedge funds specify broad objectives and authorize multiple strategies. As a result, most hedge fund trading strategies are dynamic, often changing rapidly to adjust to market conditions.

Hedge funds are typically structured and operated as limited partnerships or limited liability companies exempt from certain registration, disclosure and other requirements under the Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, and Investment Advisers Act of 1940 that apply in connection to other investment pools, such as mutual funds. For example, to allow them to qualify for various exemptions under such laws, hedge funds usually limit the number of investors, refrain from advertising to the general public, and solicit fund participation only from large institutions and wealthy individuals. The presumption is that investors in hedge funds have the sophistication to understand the risks involved in investing in them and the resources to absorb any losses they may suffer. Although many workers may be impacted by any losses resulting from pension fund investment in hedge funds, a pension plan counts as a single investor that does not prevent a hedge fund from qualifying for the various statutory exemptions.

Individuals and institutions may also invest in hedge funds through funds of hedge funds, which are investment funds that buy shares of multiple underlying hedge funds. Fund of funds managers invest in other hedge funds rather than trade directly in the financial markets, and thus offer investors broader exposure to different hedge fund managers and strategies. Like hedge funds, funds of funds may be exempt from various aspects of federal securities and investment law and regulation.

* Leverage involves the use of borrowed money or other techniques to potentially increase an investment’s value or return without increasing the amount invested. A short sale is the sale of a security that the seller does not own or a sale that is consummated by the delivery of a security borrowed by, or for, the account of the seller. Short selling is used to profit by a decline in the price of the security.

Other HFLB articles which relate to items in this article include:

Discussion of New Forex Registration Requirements

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Forex hedge funds have escaped registration requirements so far, but that is expected to change very shortly. Yesterday the NFA released a report which provided some detail on the proposed new Forex registration requirements.  While the NFA notes that the CFTC has not yet published its proposed forex rules, the NFA is still getting prepared for the Forex registrations.  The NFA specifically stated that managers of forex account (including hedge fund managers) will need to register with the CFTC and be a member of the NFA.  From the report:

The legislation also requires firms that solicit retail forex customers, manage retail forex accounts or operate pools for retail customers to register with the CFTC and be Members of NFA. FCMs, IBs, CPOs and CTAs whose activities involve retail forex will be designated Forex FCMs, Forex IBs, Forex CPOs and Forex CTAs, while APs of those firms will be designated as Forex Associated Persons.

New Series 34 Exam

The NFA also announced that there will be a new exam which forex managers will need to pass in order to be a Forex CPO and a Forex AP.  According to the release, the NFA’s Vice President of Registration Greg Prusik said “We have developed a new proficiency examination specific to retail forex activity, called the Series 34 exam, and have recommended to the CFTC that its forex rules require any individual applying for registration as a Forex AP to take and pass both the Series 3 exam and the Series 34.”

For information on the likely Series 34 exam topics, please see Series 34 exam topics.

Other HFLB articles:

** Please note that this release is different from the NFA release of last week (see NFA Begins Regulating Forex above).  The release from last week alerted managers who are already registered with the CFTC as CPOs or CTAs that, if they also provide advice to clients regarding off-exchange forex, they will need provide such clients with a disclosure document.   Previously the registered CPOs and CTAs did not need provide clients with a disclosure document if the trading program focused only on spot forex.

Advantages of the Hedge Fund Structure over the Separately Managed Account Structure

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There are many reasons why a registered investment advisor will choose to become a hedge fund manager.  Or, manage a hedge fund in addition to managing separately managed accounts.  Besides higher fees, there are other advantages of the hedge fund structure over the traditional asset management business.

Advantages of the Hedge Fund Structure

The three central advantages of the hedge fund structure over the separately managed account structure are (1) ease of management, (2) potentially lower transaction costs, and (3) tax efficiencies.

1.  Ease of management – one of the great things about running a hedge fund is that the manager only has to manage one single brokerage account.  With a separately managed account business a manager will need to make separate trades for each account or do a block trade and then allocate the trade among a number of clients.  Either way the separately managed account manager is subject to much more back office and paperwork which is not only time consuming, but costly as well.

2.  Potentially lower costs – depending on the structure, the hedge fund structure could potentially save on costs to the account holders.  Whereas the individual accounts would be subject to trading fees on each transaction, the costs are lower for the hedge fund which only manages one account.

3.  Tax efficiencies – probably one of the more attractive aspects for an advisor to a hedge fund is the ability for the manager to receive more attractive tax results.  As a general partner in the hedge fund, the manager will generally receive an “allocation” of income instead of a fee.   When the manager receives an “allocation” instead of a fee then the underlying tax attributes will remain.  That is to say if the fund allocates the manager gains and a portion of those gains are characterized as long term at the fund level, then the gains will also be long term for the manager which will result in a lower tax bill.  In a separately managed account structure the manager would not be able to get the allocation.

Other Potential Hedge Fund Structure Advantages

In addition there is the possibility that the manager which was registered as an investment adviser with the SEC or state securities commission would not need to be registered.  For example if a manager had 20 SMA clients and managed more than $30 million, it would be required to register with the SEC.   However, if all of the clients subscribed to a hedge fund managed by the manager, the manager would not need to be required to register with the SEC because of the exemption from registration provided by Section 203(b)(3) of the Investment Advisers Act of 1940.

One of the other things to note is that in the hedge fund structure the manager will usually invest alongside the investors.  Sometimes the investment can represent a large percentage of the manager’s liquid net worth; this should provide some comfort to investors to know that the manager’s interests are aligned with their own.  This is not usually present in the typical separately managed account structure.

Potential Objections from Separate Account Clients

Generally the above Most of the above benefit the manager instead of the SMA client, who will lose transparency and freedom to pull assets at any time.  For a manager switching SMA clients to a hedge fund clients they may encounter these objections – in these instances the maanger may decided to accommodate the client by providing certain transparency or liquidity preferences to the (former) SMA client through a side letter arrangement.

Please contact us if you have a question or would like to start up a hedge fund.  Related HFLB articles:

Do Commodity Pool Operators also need to be registered as Commodity Trading Advisors?

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A common question for hedge fund managers which are registered as commodity pool operators is whether they also need to be registered as commodity trading advisors (CTA) with the NFA.  The answer is generally no.

There is no need for a commodity-based hedge fund manager (i.e., CPO) to register as a CTA so long as the manager’s commodity trading advice is restricted solely to advising the pool it is running.  This applies to BOTH CFTC/NFA Registered AND unregistered pool operators.  However, if the CPO has clients outside of the pool which the CPO provides advice to regarding commodities, then the manager may need to be registered as a CTA.

Rule 4.14(a)(4) applies to those managers which are registered as CPOs with the NFA.  Rule 4.14(a)(5) applies to those managers which are not registered (exempt) as CPOs.  The full rules are below.

Rule 4.14(a)(4)

A person is not required to register under the Act as a commodity trading advisor if it is registered under the Act as a commodity pool operator and the person’s commodity trading advice is directed solely to, and for the sole use of, the pool or pools for which it is so registered.

Rule 4.14(a)(5)

A person is not required to register under the Act as a commodity trading advisor if it is exempt from registration as a commodity pool operator and the person’s commodity trading advice is directed solely to, and for the sole use of, the pool or pools for which it is so exempt.
Please contact us if you have any questions.  Other HFLB articles related to this topic include:

Related HFLB articles:

New Hedge Fund Podcast Posted

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We have just posted a new podcast which covers many of the issues which we’ve discussed over the last week.  These issues include: NFA increases net capital requirements for Forex Dealers; DOL sues IA firm for ERISA violations; SEC Chairman Cox talks to Congress about hedge fund regulation; and, Barney Frank and Hedge fund Regulation.  Please vist http://www.hedgefundcast.com/ to listen to the new podcast.

Hedge Fund End of Year Reminders

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It is that time of the year when hedge fund managers need to start making sure that everything is order in their back office for the beginning on next year.  As there are many things that can slip through the cracks as focus is usually on trading and performance, we’ve provided a list of year end reminders.  We will continue to post these reminders as they come closer.

IARD Renewals

Each year hedge fund managers which are registered as investment advisors (with either the SEC or state securities commission) will need to renew their IA application.  To do this the adviser will need to post his yearly dues to the IARD system.  Managers can gain access to this system on Monday, November 10 and are urged to have payment in by December 10 so that the payment will post by the deadline of December 12 (it usually takes a couple of days for payment to post to the account).  Please also note that the payment should be posted to the “Renewal” account and not the “Daily” account.

Update of Form ADV and Form ADV Part II

Registered investment advisors must update their Form ADV and ADV Part II on a yearly basis.  This must be completed within 90 days of the end of the advisor’s fiscal year, which is typically the end of the calendar year.  We recommend that advisors go through the form on a question by question basis.  The advisor’s attorney or compliance consultant can answer any questions which arise.  This service is typically provided by consultants or attorneys on a flat fee, or sometimes hourly, basis.

Corporate Registered Agent

Most hedge funds are established as limited partnerships or limited liability companies in the state of Delaware and use local corporate registered agent services.  Depending on the corporate agent, annual registered agent fees may be due soon.  If you have any questions, you should talk with your corporate agent or attorney.

Offshore Entities

Offshore hedge funds will consist of one or more offshore entities.  Typically these offshore entities will be formed by the local registered agent who will inform the manager when the yearly corporate and registered agent fees are due.  If you have questions you should discuss with your contact person in the offshore jurisdiction.