Category Archives: Hedge Fund Structure

Hedge Fund Audits Post Madoff

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Hedge Fund Audits Expected to Increase in Importance

The Madoff scandal has shown the hedge fund industry many things, not the least of which is the importance of hedge fund audits.  While the details of Madoff’s audits are still a little unclear, it has been widely reported that the audit firm he used was a little known shop which is tightlipped.  This article investigates reaction of hedge fund investors with regard to hedge fund audits going forward.  (Please note, the Maddoff investment firm was not a hedge fund; however, the scandal will likely have a great influence on hedge fund due diligence and audit standards.) Continue reading →

How to Invest in a Hedge Fund

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Hedge Fund Investors Guide

Many potential hedge fund investors come to this website for information on how to invest in a hedge fund.  While there are many headlines and resources for hedge fund managers, there are fewer resources out there for hedge fund investors.  This article will provide an overview of how to go about investing in a hedge fund. Continue reading →

Can a hedge fund value its own assets?

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Hedge Fund Questions

For the new year we will publish a list of common questions we receive from our readers.  This question involves hedge fund valuation.

Question: Can a hedge fund provide its own valuation?

Answer: Generally yes, provided that the hedge fund offering documents state that the valuation of the hedge fund’s assets will be conducted by the fund – more specifically by the hedge fund’s management company.  In many hedge fund documents a provision which allows a manager flexibility in valuation is standard – although, it is likely that these normally nebulous provisions will become more specific as institutional investors require greater specificity in the offering documents. Continue reading →

Starting a Hedge Fund – Primer for Start Up Hedge Fund Managers

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How to Start a Hedge Fund

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 →

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 →

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 →

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 →

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 →

Carbon Hedge Funds

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Overview of Carbon Hedge Funds

The flexibility of the hedge fund structure is the central reason these investment vehicles are so popular.  The flexibility allows funds to specialize on certain investment sectors or strategies, and they can move quickly to the hot areas of the markets.  One of the hot areas of the markets is the movement toward green investments and strategies.  With this increased focus on energy and related areas, Carbon Hedge Funds have become a popular investment vehicle to focus on “carbon” as a new asset class.  This article will overview the two common carbon hedge fund strategies and will also provide resources for more information on carbon trading and other investments.  Please contact us if you have any questions on the information below or if you would like more information on starting a carbon hedge fund. Continue reading →