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.
Generally speaking the side by side structure is less popular than the master-feeder structure because there is duplicative paperwork that needs to be completed for each fund. Additionally, trades generally have to be made at the same time and/or trade tickets will need to be split between the funds which adds administrative burden. However, the side by side structure is often used in the fund of funds context. The attached chart does not provide all possible side by side structures and you should discuss with your hedge fund attorney whether this structure is the best offshore vehicle to accomplish the goals of your fund.
Please contact us if you would like to establish an offshore hedge fund or have any questions regarding the process. Related offshore hedge fund law articles include: