Author Archives: Hedge Fund Lawyer

Offshore Hedge Funds – Side by Side Hedge Fund Structure

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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 Law – Investment Advisor Registration Exemption

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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 →

South Carolina Hedge Fund Law – Investment Advisor Registration and Form D Filings

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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 Law – Investment Advisor Registration Exemption

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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 →

Offshore Hedge Fund Formation Overview – Hedge Fund Timeline

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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 →

Cox Comments on Madoff Investigation

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Statement Regarding Madoff Investigation
FOR IMMEDIATE RELEASE
2008-297

Washington, D.C., Dec. 16, 2008 — Securities and Exchange Commission Chairman Christopher Cox issued the following statement today concerning its ongoing investigation in the case of SEC v. Madoff:

Since the Commission first took emergency action against Bernard Madoff and his firm, Bernard L. Madoff Investment Securities, LLC on Thursday, December 11, every necessary resource at the SEC has been dedicated to pursuing the investigation, protecting customer assets and holding both Mr. Madoff and others who may have been involved accountable. Continue reading →

Hedge Fund Lock-Up Period

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What is a hedge fund lock-up?

Recently there have been many discussions about hedge fund structures and terms, including the ability (or inability) of investors to withdraw from hedge funds.  Generally the manager will have a number of structures in place to make sure that capital stays in the hedge fund.  These provisons include the hedge fund gate, the ability to limit all withdrawals in certain circumstances, and the hedge fund lock-up provision.

The hedge fund lock-up provision is a provision which provides that during a certain initial period, an investor may not make a withdrawal from the fund.  The period when the investor cannot withdraw the funds is known as the actual lock-up period.  Continue reading →

Massachusetts Hedge Fund Law – Investment Advisory Registration Renewals

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Unfortunately for hedge fund managers who are located in Massachusetts, there is generally a requirement to be registered as an investment advisor with the Massachusetts Securities Division.   One of the good things about the Massachusetts Securities Division is that they are generally knowledgeable and the division’s website posts good information for registered investment advisors.  The posts below deal with (1) Massachusetts investment advisor renewals for 2009 and (2) a discussion of the submission requirements for ADV part II through the IARD system.

While these posts are helpful, Massachusetts hedge fund managers are urged to discussion any questions with a hedge fund attorney.  Continue reading →

Green Fund of Hedge Funds

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The following article on a green fund of hedge funds was originally published on the website www.socialfunds.com and can be found here.  (For more information on environmentally focused hedge funds, please also see our article on Carbon hedge funds.)

Over the Hedge: New Green Hedge Fund of Funds
by Anne Moore Odell

Kenmar plans to launch socially responsible hedge fund of funds for institutional investors.

SocialFunds.com — Kenmar recently announced that it will be launching a new SRI hedge fund of funds, the Kenmar Global ECO Fund SPC Limited, which will be available to investors July 1. Kenmar hopes to tap into the growing interest of investors in environmental, social, and corporate governance (ESG) issues while also achieving its goal of capital appreciation. Continue reading →

Operational Issues for Hedge Fund Managers Using Multiple Prime Brokers

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The hedge fund and investment management industry has seen many radical changes during the last year, including the consolidation (or elimination) of the large prime brokerage firms.  Because of these events many funds have moved to a multi-prime broker model instead of the more traditional single prime broker model.  There are obviously many advantages to going to a multi-prime broker model (including the reduction of prime broker bankruptcy risks), but there are also many logistical issues which need to be considered.

Start up hedge funds which wish to use a multi-prime broker approach should discuss this option with their hedge fund attorney as well as their hedge fund administrator which will be able to help with the back end aggregation of the prime brokerage fees.  Additionally, managers may want to seek a software solution like the one from Advent described in the press release below.  Continue reading →