Your Web Site Name

INCUBATOR HEDGE FUNDS for active traders who want to start a hedge fund either in the United States or offshore, it is often a good idea to start out with an incubator fund. Starting with an incubator fund can save you a lot of money upfront and is in many cases the best and least expensive way to start an investment advisory business. The incubator fund strategy allows you to create a performance record that can be eventually marketed in the fund's private placement memorandum ("PPM" or "book") and shared with prospective investors. To get a better perspective, read our article "Establish a Marketable Track Record with an Incubator Fund" and our interview with RealWorld Trading. The incubator fund strategy has been used by many to start their own forex fund, commodity pool, offshore fund, and master feeder fund.

In the United States, the incubator hedge fund is established with two companies—the hedge fund and its investment manager.  In many other countries, a hedge fund incubator can be established with one company; the investment manager can be established at a later date.  Contact Us for a Free Consult  One of the biggest advantages of  the incubator hedge fund approach is that it allows you to start and fine-tune your investment strategy while generating a record of trading performance that can be used to transition to a full-fledged hedge fund when you are ready.

WHY AN INCUBATOR FUND Creating a hedge fund to protect and manage your assets or the assets of others for a fee is a practical way to earn a living. Successful hedge funds continue to attract the wealthy, the working not-so-wealthy, businesses, and pension funds looking for better investment options.  Despite recent law changes, the United States still offers a favorable environment for smaller hedge fund startups.
 
One reason why active traders do not realize their dream of starting a fund is that they do not have a proven track record.  Unless you are known as a successful trader and have a professional pedigree, you may not be able to attract investors into your fund until you can show them a performance record.  For successful active traders like you, this is annoying.  If you are planning to start a hedge fund you probably experienced success trading your own accounts or trading professionally.  Securities laws make it difficult and expensive to use your prior performance records to promote a new venture.  Our incubator hedge fund strategy is a proven solution to your lack of credentials in the industry.  By setting up an incubator hedge fund and following our protocols you can create a performance record that can be marketed and shared with prospective investors and clients.  Only when you are sure that investors will come aboard your fund, upgrade your incubator fund to a full-fledge hedge fund.  Call us for a free Consult!

INCUBATOR FUND TYPES There are many different types of incubator hedge funds.  An incubator hedge fund can be started for any specific trading strategy.  It should mirror the investment program to be used in the future to trade customer money.
 
Equity Funds
If the hedge fund trades securities, ETFs, etc., and has U.S. investors and charges performance and management fees, the hedge fund manager will have to register either with the SEC or its "home" state unless an exemption from investment adviser registration is available to it.   Learn More About Investment Adviser Registration  We offer SEC and state-level investment adviser registration services.

Spot Forex, Commodities and Managed Futures Funds
If the hedge fund trades in one or more of the following:  spot forex, managed futures or commodities, futures contracts, commodity options (including options on futures contracts), leverage contracts involving certain precious metals, futures contracts and commodity options traded on a board of trade, and/or foreign futures and foreign options and has U.S. investors and charges performance and management fees, then the hedge fund manager has to register with the National Futures Association (NFA), unless an exemption from registration is available.  Incubator hedge fund trading spot forex, managed futures and commodities can operate under NFA Rule 4.13(a)(1). 

We offer NFA registration services and a filing service for NFA exemptions.  Recently, the NFA eliminated the exemption contained in Rule 4.13(a)(4)--a rule relied upon by a substantial portion of the hedge fund industry.  Hedge fund managers operating commodity pools under Rule 4.13(a)(4) have until December 31, 2012 to register as commodity pool operators, unless they can avail themselves of some other exemption.  Learn More About NFA Registration

How long do I have to operate an incubator fund before marketing the fund to investors?
The incubator hedge fund assets are managed about 3 to 18 months.  Ultimately, there are no hard and fast rules.  It is our experience that fund managers typically incubate their hedge funds for a short period of time and then convert the fund to a full-fledged hedge fund.  The better the track record, the more attractive the investment will appear to prospective investors.  If investors are ready to go, why wait?  Set up the full-fledged hedge fund.
 
Can I have multiple incubator hedge funds?
Yes.

Can I gather indications of interest from potential investors during the incubation phase?
Yes.  Performance information about the incubator hedge fund can be provided to preexisting and potential contacts at any point after the fund's inception.  You can gather indications of interest through your personal network, friends and family (i.e., persons with whom you have a pre-existing relationship).  Learn More About Attracting Investors

Hedge Fund Offering Documents
Offering documents are the key to hedge fund sales.  While there is no requirement that prospective investors in a U.S. hedge fund be provided with offering documents, it is good (and common industry practice)  to do so.  Most hedge funds provide written information to their investors in the form of a private offering memorandum (Memorandum).  Offering documents-- referring to both the prospectus and subscription agreement--go by several names and/or acronyms including:  Private Placement Memorandum, PPM, Offering Memorandum, OM, or Prospectus.  Whatever it is called, offering documents are extensive documents individually created for each hedge fund.  In the United States, offering documents include a private placement memorandum (PPM, OM or prospectus), a limited partner (or limited liability company) agreement, and a subscription agreement.  If the hedge fund’s manager is registered with a U.S. federal or state regulator, the offering document “package” will included a Form ADV Part 2, which describes the investment manager in detail.  Offering documents for an offshore hedge fund include the private placement memorandum and the subscription agreement.  Learn More About Hedge Fund Offering Documents  

How are Offshore Incubator Hedge Funds Taxed?
Offshore incubator hedge funds are generally set up as corporations in tax-free countries.  A tax election can be made so that U.S. investors can treat their interest in an offshore corporate fund as a partnership interest for U.S. tax purposes.  However, this is not recommended if the fund trades on margin and the U.S. investors are tax-exempt.  Learn More About Hedge Fund Taxation

Should I set up an offshore incubator hedge fund?
Outside the United States, the rules governing incubator hedge funds are more relaxed;  however the start-up costs are a bit higher.  It also takes a little longer to set up an offshore incubator hedge fund.  In addition, when you are ready to convert an offshore incubator hedge fund to a full-fledge hedge fund, you will find that it takes more time and mental effort to do so (due to foreign regulatory issues) than it does in the United States.   Learn More About Offshore Hedge Funds 
 
A U.S. incubator hedge fund can be converted to a full-fledge hedge fund in the United States very quickly.  Learn More About Starting a Hedge Fund  U.S. investors can invest in an offshore hedge fund.  Foreign investors can invest in a U.S. hedge fund.  A foreign investment manager can set up and run a U.S. hedge fund.  A U.S. presence is not required.

Can I submit data to hedge fund databases while I am operating the incubator fund?
Yes.  Learn More About Hedge Fund Marketing

Why Start with an Incubator Fund?
With the incubator fund, you have time to fine-tune your business plan and learn about hedge fund operations and the money management business. Once your incubator fund is successful and you are ready to allow outside investors into the fund, it's time to create the fund's offering documents. Unless you are an established professional trader, it may be hard to attract investors to your fund (or spot forex fund, commodities pool, offshore fund, master feeder fund). For successful traders, this lack of pedigree is frustrating. The incubator fund strategy is a solution to a trader's lack of credentials in the industry. By setting up an incubator fund and following certain protocols, a trader can create a marketable track record certain to interest investors. When you are confident that investors are ready to invest in your fund, we work quickly to prepare the offering documents (the most expensive part of setting up a hedge fund). If you already have investors waiting in the wings, you’ll want to skip the incubator fund strategy and set up the full fund. If you do not have investors lined up, you may find the incubator fund strategy compelling.Hedge Fund Company
In many countries, a hedge fund incubator is established with one company.  However, a simple International Business Company cannot be used as an incubator hedge fund.  To start a U.S. incubator  hedge fund, you generally need to form two business entities: the hedge fund, and its investment manager.  The hedge fund company is typically set up as either a Delaware Limited Partnership (LP) or Limited Liability Company (LLC).  We can set up both companies for you quickly.   Contact Us for Assistance
 
Why the United States?
Even if you are based in another country, consider forming a U.S. hedge fund.  The United States offers easy low cost access to the legal, tax, accounting, retail and institutional brokerage, and the regulatory services needed by a hedge fund sponsor to organize a hedge fund.  Despite what some hedge fund sponsors think about the purported negativity surrounding the United States, many more establish U.S. based hedge funds because of the minimal expenses associated with starting a U.S. hedge fund and the sheer convenience of having their U.S. based family members and/or other U.S. investors able to invest in the hedge fund.
 
Hedge fund sponsors (i.e., the organizer(s) of the hedge fund) based outside the United States  are usually surprised to learn about the “light touch” of U.S. regulation and low costs associated with forming a U.S. hedge fund.  Hedge fund sponsors (i.e., the organizers of the hedge fund) based offshore can set up both a hedge fund and its management company in the United States, if desired.
 
The United States Allows Hedge Fund Advertising
The JOBS Act, signed on April 5, 2012, lifted the ban on hedge fund advertising for hedge fund's operated by fund managers registered with either the SEC or a state regulator.  The decades-old restriction on how hedge funds can raise money is gone!  Hedge fund managers can speak publicly about their hedge fund's strategies and performance and advertise normal channels.  The Securities & Exchange Commission (SEC) issued proposed hedge fund marketing rules.  Learn More About Hedge Fund Advertising
 
Why a Delaware Hedge Fund?
In the United States, hedge funds are found chiefly in Delaware.  U.S. hedge funds are established primarily in Delaware because Delaware offers the most advanced business friendly law in the United States.  In fact, Delaware’s business friendly environment is attractive to companies across the globe, not just hedge funds.  Governing law matters.  Delaware corporate law affords directors and officers a great deal of discretion in managing the business free from the undue interference of shareholders and regulators.  Delaware's highly regarded reputation stems from the Court of Chancery that focuses solely on company law.  The Court of Chancery has earned a reputation for fairness and decisiveness when hearing disputes between investors and hedge fund managers.  Indeed, the Delaware “brand” of company law has been "exported" to several other countries.  Moreover, Delaware is one of the most  protective jurisdictions in the world of proprietary information.   The issue of privacy extends beyond Delaware's borders to other U.S. states.   Learn More About Delaware Company Law
 
The United States is a Safe-Haven for Business
A 2006 Government Accountability Office report, found that most other states do not require ownership information when businesses are formed or don't have to submit periodic reports.  Read the GAO 2006 Report of U.S. Company Formations  In addition to Delaware, Nevada and Wyoming are advantageous places to set up a company.  Learn More About U.S. Company Formations  Given the depth, privacy, predictability and pro-business cast of Delaware's company law, it makes good business sense to set up a hedge fund in Delaware.  Contact Us for Assistance 

We offer company formation services and registered agent and registered office services in Delaware.  Learn More About Delaware Company Services  Although a little more expensive to form and maintain, offshore incubator hedge funds tend to be more flexible that those set up in the United States.  Learn More About Offshore Funds and Offshore Incubator Funds
 
Hedge Fund Management Company
The hedge fund's general partner/management company can be formed in your home state or home country.  However, there are many good reasons for setting up the general partner/investment manager somewhere else.  If you are not certain about your plans to stay in your home state or country, we suggest setting up the general partner/management company in Delaware.  For tax reasons, hedge fund sponsors based in New York or Texas may consider setting up three companies:  the hedge fund, the investment manager for the carried interest share, and a management company.
 
U.S. Regulatory Matters
Even though not necessary for an incubator hedge fund, we will discuss with you NFA, SEC and state-level investment adviser registrations and licensing, as well as other matters you will address when you convert the incubator fund to a full-fledge hedge fund.  The foregoing issues are relevant if your fund accepts U.S. investors or if you base hedge fund management in the United States.  Learn More About Investment Adviser Registration if you trade securities.  Learn More About NFA Registration if you trade spot forex, commodities or managed futures.
 
How to Transition an Incubator Hedge Fund to a Full-Fledge Hedge Fund
With the existing hedge fund and investment manager already in place and a marketable track record to show potential investors, converting your incubator hedge fund to a full-fledge hedge fund is a straightforward process.  Once you are ready to launch the fund, you will need to prepare offering documents for the hedge fund.  We prepare offering documents for hedge funds.  Contact Us for Assistance

Should I Make a Mark-to-Market Election?
Only someone who qualifies as an active securities trader can elect MTM treatment.  Although the MTM election can be made in a year in which you qualify as an active trader, the MTM election once made applies to subsequent years whether or not you are an active trader in later years.  Learn More About Mark-to-Market Election

Can I seed the incubator fund with my IRA?
Yes.  Find a very flexible IRA custodian.  You will need to form a separate special purpose LLC to facilitate your IRA's investment into your incubator fund.  If you use margin to trade, do not use your IRA as seed capital or set up an offshore incubator fund.  When seeding an offshore incubator hedge fund with an IRA, a more complex approach is needed.  For the structure to be effective, you will move your IRA  account to a financial custodian (e.g., you would roll over your IRA and other retirement/tax advantaged accounts to an IRA custodian) that allows alternative investments. 

If the alternative custodian you select is not also a broker, you would then set up a LLC and list the IRA account as the sole owner.  The LLC would be the self-directed IRA and be also be an investor in your new hedge fund.  Once the LLC is funded with your existing IRA (the initial funding), you will not be able to add money from other sources to this LLC.  This is a complex approach that requires careful drafting of the operating agreement so call us for a consult to avoid making any mistakes!
 
Can I operate more than one incubator fund?
Yes.  Some managers will incubate multiple funds in order to develop track records for different strategies.

How much money do I need to seed the incubator fund?
There is no minimum investment amount.  You are just trying to create a performance percentage based on real time trading.

Can I open a trading account for my incubator fund at any brokerage firm?
Yes.  As soon as the hedge fund is formed you can open a brokerage account and begin trading.  We obtain the EIN (tax identification number) of the fund and draft any banking and brokerage resolutions you need at no extra cost to you.  Whether your hedge fund is formed in the United States or offshore, you will need a U.S. tax identification number to open a U.S. bank or brokerage account.

Can I add or withdraw capital from an incubator hedge fund?
Yes.  The track record of the fund is measured as the percentage return of assets under management, regardless of the amount of capital contributed to or withdrawn from the fund.  Learn More About Hedge Fund Performance Reports

Do I need an administrator during the incubator fund period?
No. You do not need to buy accounting services to start and run an incubator fund.  Postponing the need to hire an administrator is another advantage of initially establishing an incubator fund.  Administrators are helpful with the support of a full-fledged hedge fund (e.g., providing net asset value calculations,  preparing monthly reports, and calculating fees).   Learn More About Hedge Fund Administration, Taxes and Audit

How are U.S. Incubator Hedge Funds Taxed?
The U.S. incubator fund is taxed as a pass-through entity for U.S. tax purposes.  This means that the incubator fund's realized gains and losses are taxed at the investor level.  The tax character (i.e., ordinary income or capital gain treatment) of the gains and losses pass through to the investor level as well.  Learn More About Hedge Fund Taxation

PERSONAL CONSULTATIONS You get answers to your specific questions by speaking directly to Hannah Terhune, an experienced hedge fund and international tax attorney.  Ms. Terhune's hard-earned knowledge and experience can be put to work to save you unnecessary steps and costly wasted effort.  The consult is an invaluable opportunity to speak to Hannah one-on-one, and learn how to achieve more in less time.  As a result, you can anticipate that the return on your investment will far outweigh the costs associated with our unsurpassed services. 

We are confident that when you are finished with your consultation, you will be impressed and more informed about your business plans than ever before. Call (307) 213-4732 or Click Here to Request Services.

ARE YOU AFRAID OF WHAT YOU DO NOT KNOW? Get answers to your specific questions by speaking directly to Hannah Terhune, an experienced hedge fund and international tax attorney. Ms. Terhune's hard-earned knowledge and experience can be utilized, as a tool, to save you unnecessary steps and costly wasted effort. The consultation is an invaluable opportunity to speak to Hannah one-on-one and learn how to achieve more in less time. As a result, you can anticipate that the return on your investment will far outweigh the costs associated with our unsurpassed services. Ms. Terhune's credentials reflect an invaluable resource that combines a well-informed professional practitioner with sound ethical judgment that Is unparalleled in the industry. The expertise required to recommend the best solutions and provide sound advice should never be taken lightly. When you are finished with your consultation, you will be both impressed and informed about your business plans.  Contact Hannah Terhune now!

We have both regulatory experience and the understanding of the foreign exchange and securities markets.  Each client receives personalized attention from our attorneys and staff.   No client is too large or small though because of our boutique size.  We pride ourselves in providing personal attention to each client. CMSG provides the best services and support needed for hedge funds and business projects.  No need to coordinate work between different firms--we handle the entire business process from start to finish.  We offer accounting, tax planning services, tax return preparation, business consulting, and U.S. and international company formation services.  Our professionals provide the highest quality services at  competitive rates.  But don't take our word for it, give us a call and let us prove what we can do for you. Read our Leading Media Articles, Customer Testimonials and learn more About Us.

WHY HIRE US? When you hire us for hedge fund you get a unique combination of securities, tax, and international experience, focused on the trader niche. We are one destination for special hedge fund and trader tax needs. We think we have the best set of offering documents based on the current and ever changing federal, state, and offshore securities, commodities, and tax laws. We aim to and deliver quick turnaround times. 

We understand that clients want to begin business as soon as possible. We conceive, structure, and deploy the best strategies. Our customers value our one-stop shop relationship. We help you start your business and continue to assist you. Our tax services affiliate handles accounting, software, and tax compliance, including all tax matters (tax planning and tax returns). Only one thing counts with us and that is our customer relationships!

We conceive, structure, and deploy the best tax saving strategies into your hedge fund vehicle (for the benefit of the manager and their investors) and your management company. Investors value tax-savings strategies and we utilize all our special knowledge and ideas in this area.  Our customers value our one-stop relationship.   We will help you start your business and continue to assist you. 

MEET ATTORNEY HANNAH M TERHUNE Hannah Terhune, a hedge fund and international tax attorney, contributes her expertise, experience and thoughts to many digital content media and magazine repositories. Hannah Terhune's articles are widely circulated on the Internet and recommended by TheStreet.com and other respected media.  Hannah Terhune's articles will advance your knowledge and understanding of the industry. They are embraced worldwide as a definitive and reliable source of critical information.  Contact Us for Articles & Reprint Rights

Strategic Hedge Fund Planning by Hannah Terhune.  Canadian Hedgewatch (March 2012).

Offshore Hedge Funds: Focus on Master/Feeders by Hannah M. Terhune (2006)

Temas Sobre Impuestos de Sociedades Colectivas para Hedge Funds en Paraiso Fiscal by Hannah M. Terhune (2006)

Gestion de los Hedge Funds de Forex by Hannah M. Terhune (2006)

Forex-Trader to Forex-Fund Manager: The Path to Success by Hannah M. Terhune (2006)

Introducing Brokers and Hedge Funds by Hannah M. Terhune (2006)

Establish a Marketable Track Record with an Incubator Fund by Hannah M. Terhune (2006)

Must I Register as a Commodity Pool Operator? by Hannah M. Terhune (2006)

Do’s and Don’ts for Crafting Hedge Fund Peformance Allocations by Roger D. Lorence Hannah M. Terhune. Derivatives Financial Products Report (an RIA publication) (September 2005)

Trading Foreign Index Contracts? Know the Tax Rules Before You Trade by Hannah M. Terhune and Roger D. Lorence. Stocks, Futures and Options (June 2005)

Practical Strategies For Section 475(f) Elections by Roger D. Lorence and Hannah M. Terhune. Derivatives Financial Products Report (WG&L/RIA,a Thompson Company) (March 2005)

Forex Hedge Fund Management by Hannah Terhune and Roger D. Lorence.  Currency Trader (March 2005).

Advising Clients on Internet Server Co-Location Agreements, Practical International Tax Strategies (March 15, 2004)

Structuring and Financing International Operations Using Hybrid Entities and Tax-Efficient Financing. Practical International Tax Strategies (Jan. 15, 2004)

Hedge Fund Compensation Arrangements. Practical U.S./Domestic Tax Strategies (Dec. 2003)

U.S. Inbound Investment – The Portfolio Interest Exemption. Practical International Tax Strategies (Dec. 15, 2003)

Business Acquisitions: Key Tax Planning Issues. Practical U.S./Domestic Tax Strategies (Sept. 2003)

Foreign Futures Planning: The 60/40 Question. Practical International Tax Strategies (Sept. 30, 2003)

Key Tax Aspects of International M&A – Planning Scenarios Involving Tax Acquisitions. Practical U.S./International Tax Strategies (Sept. 15, 2003)

Update on Spanish Holding Companies. Practical European Tax Strategies (Aug. 2003)

Reducing Operational and Exit Taxes On Closely-Held Businesses. Practical U.S./Domestic Tax Strategies (August 2003)

Coming Ashore – Establishing U.S. Operations: Practical U.S./International Tax Strategies (July 31, 2003)

Financing U.S. Business Operations Using Cross-Border Income Trust: Practical U.S./International Tax Strategies (July 15, 2003)

Methods of Compensating the Executive – An Overview of Various Tax Features: Practical U.S./Domestic Tax Strategies (May 2003)

Managing Offshore Hedge Funds – A View from the Beach: Practical International Tax Strategies (June 15, 2003)

A Practical Defense of the Family Limited Partnership: Practical U.S./Domestic Tax Strategies (May 2003)

Offshore Hedge Funds – Master/Feeder Compliance Issues: Practical International Tax Strategies (May 15, 2003)

Want a Multinational Corporation In Your Backyard? Strategic Tax Planning for Countries Without a Clue. Practical International Tax Strategies (June 15, 2001)

Planning Notes for U.S. Businesses Operating Overseas: U.S. Outbound Tax Issues. Practical International Tax Strategies (May 31, 2001)

U.S. Strategic Tax Planning and Other Modern Day X Files An FSA to Remember. Practical International Tax Strategies (May 15, 2001)

More on International Tax Planning for Highly Compensated Individuals Combining Individual Leasing Programs, Deferred Compensation and Rabbi Trusts. Practical U.S./International Tax Strategies (April 30, 2001)

International Tax Planning for Highly Compensated Individuals Taking Advantage of Special Treatment for "Rabbi Trusts." Practical U.S./International Tax Strategies (April 15, 2001)

More on Dealing with Passive Foreign Investment Companies Using Inter-Company Loans, Handling Start-Up Costs and Other Matters. Practical U.S./International Tax Strategies (March 31, 2001)

Dealing with Passive Foreign Investment Companies How the System Works and Strategies to Avoid PFIC Status. Practical U.S./International Tax Strategies (March 15, 2001)