Hedge Funds The United States (USA) offers easy, low cost access to the legal, accounting, brokerage, banking, tax and services needed to start a hedge fund. Take time to learn about the “light touch” of USA regulations related to forming a hedge fund or managed account service. This is true even If you are based outside the USA. Read our leading media article See World's Favorite New Tax Haven Is the United States and America the Beautiful Tax Haven.
Fund of Funds, Master and Feeder Funds and Mini-Master Funds We will set up and manage your fund in or outside the USA. We can arrange banking, brokerage and other services. We set up every type of fund and commodity pool. We can set up fund of funds, master and feeder funds and mini-master funds. Learn More About Offshore Funds. We set up hedge funds in the USA, the British Virgin Islands, and the Marshall Islands. If the United States is offshore to you, consider setting up your hedge fund through us in the USA. We love our international clients and setup funds, master feeder funds, mini master fund and fund of funds. Need help or have questions?Call us at (307) 739-6492 or write to us. In general, a hedge fund takes about four (4) weeks to organize including the time needed to prepare offering documents, file SEC Form D in the EDGAR System and to arrange for the hedge fund's bank and brokerage accounts.
How many investors can invest in a USA hedge fund?A common USA fund is a Section 3(c)(1) fund limited to 100 investors and 35 of them be non accredited investors. Learn More About Accredited Investors A higher end USA fund is a Section 3(c)(7) fund limited to qualified purchasers. A Qualified Purchaser, if an individual, must have a minimum of $5 million in net investments, or if it is an entity or trust, a minimum of $25 million in net investments. The advantage of a Section 3(c)(7) fund is that the number of investors is not limited under the Investment Company Act of 1940 so a fund could take up to 2000 investors before it is required to register with the SEC under the Securities and Exchange Act of 1934. A Section 3(c)(7) fund is typically formed by financial institutions. . Need help or have questions?Call us at (307) 739-6492 or write to us.
Startup USA Fund & Investment Manager In the USA, you will form two or more companies-a LLC, a trust, a corporation or limited partnership. One is fund and the other its investment manager. On occasion, you may set up one company with multiple share classes or voting rights. The fund should be set up in Delaware. The management company can be set up in Delaware if you prefer. Delaware has the best company law in the United States. It also has a Chancery Court focused solely on business matters. The legal guidance is clear and sets precedent worldwide. In the USA, ownership of companies is not published and if a particular state does publish ownership, there are workarounds to protect your privacy. All companies except a corporation allow pass-through tax treatment. There is no entity level income tax. This allows the USA to be a tax haven. Investors may or may not face income tax on their pro rata share of the fund's profits. International fund sponsors set up a USA fund and company to avoid limiting home country law and to make the fund a protective shelter to investors in uncertain times. Form a Delaware Company and Form a USA Fund.
Performance, Incentive & Management FeesHedge fund managers charge a management fee based on assets under management (AUM) and a performance fee (also called an incentive allocation, the carried interest, the performance share, etc.) tied to the hedge fund's success. Learn More About Hedge Fund Performance and Management Fees
If you are not a state or SEC registered RIA, you most likely can charge performance fees to all of your investors. In some cases, performance fees can be paid to a licensed investment manager only when the profits of the fund exceed a hurdle rate or on an annual basis. We advise you as to the permissible fee arrangements for your fund based on where you operate from "on paper".
SEC registered hedge fund managers can charge performance fees (i.e., the carried interest or performance allocation) only to “qualified clients” and if the client is not from the USA, to anyone. Learn More About SEC RIAs and Learn More About Qualified Clients This rule also applies in some states to state registered investment advisers (RIA) but not all. Learn More About State RIA
Be certain that your expectations about charging performance fees and other types of fees are correct. Management fees can be charged to anyone. Anything but a sales charge can be written in to the offering documents. There are numerous other fees that can be charged. Contact Us for Assistance
Investment Adviser Registration (RIA) Only hedge funds that invest in securities require a fund manager to evaluate investment adviser registration. The definition of a "security" is broad and covers investment instruments, schemes and structures. Hedge funds that invest only in commodities, futures, currencies, real estate investments, or certain private equity investments may be subject to other rules. Hedge fund managers that advise venture capital funds are generally exempt from state or SEC RIA (registered investment adviser) registration.
A securities hedge fund manager based in the United States that manages over $150 million is required to become a SEC RIA. Learn More About SEC RIAs In most U.S. states, a fund manager that invests in securities and has less than $150 million under management must register as a state RIA. Some states offer an Exempt Reporting Adviser (we call it a "partial RIA license" due to its limitations) status for fund managers that operate "private" hedge funds as defined in that state's statute. Learn More About State RIA Formation and Contact Us For Help
A reason for a foreign fund manager to consider becoming a U.S. RIA is to satisfy a brokerage and/or bank’s requirement that a hedge fund’s manager be licensed somewhere. If your home country’s licensing requirements put investment manager licensing out of reach, consider getting licensed in the United States or in the British Virgin Islands. Any foreign based investment manager is eligible to register with the U.S. Securities and Exchange Commission (SEC) without regard to the amount of assets under management. The SEC registration process is very simple and streamlined. Learn More About U.S. SEC Registration
Fund Offering Documents(PPM) The offering documents (or shareholder agreements) are the documents that are provided to your investors and include: (i) a private placement memorandum; (ii) a limited partnership agreement or operating agreement (depending on whether the fund is formed as a limited partnership or LLC; and (iii) a subscription agreement, which includes a purchaser questionnaire to determine investor qualification. A thoroughly prepared set of offering documents should protect you from investor lawsuit claiming of lack of fair disclosure. Learn More About Hedge Fund Offering Documents and Contact Us For Assistance
Limited Partnership Agreement (LPA) The LPA (or in the case of an LLC-based fund, an operating agreement) is the legal governing document of a fund. It outlines the terms of the fund and the rights of an investor. An offshore fund set up as a corporation does not have a limited partnership agreement. The offshore fund has instead a Mermorandum and Articles of Association.
Subscription Agreement A subscription agreement (SA) provides your investors with a description of the steps necessary to invest in your fund. It requires investors to attest that they meet your fund's eligibility standards, such as being an “accredited investor” or “qualified client.” If your fund is an advertised fund under Regulation D Rule 506(c), it contains an "Accredited Investor Certification Form." Contact Us For Help
Hedge Fund Administration There is no legal requirement in the United States to use a hedge fund administrator. However, using one is a good idea as it can reduce the cost of an audit for the fund at year end and the costs associated with the preparation of a U.S. fund's income tax return (i.e., Form 1065 and K-1s). Hedge fund administrators provide detailed net asset value statements (NAVS), performance reports, brokerage statement reconciliation, tear sheets, and much more. Learn More About Hedge Fund Administration and Costs We offer low cost hedge fund administration services through Capital Management Administrative Services, LLC. Please see our Sample Performance Report and Contact Us for Assistance
File SEC Form D & State Blue Sky Filings Form D is a notice of an exempt securities offering that is filed with the U.S. SEC and discloses information about the fund and the managers. Form D is not subject to a review or approval by the SEC and must be filed within 15 days of the first sale to investors. If your offering is ongoing, the Form D is refiled annually. Contact Us For Help Filing Form D & State Blue Sky In addition to the U.S. SEC, each state requires Form D notification filings. Learn More About Hedge Fund Law and Learn More About SEC Form D & State Blue Sky Hedge Fund Filings
Hedge Fund Banking & Brokerage Services For either banking or brokerage services, you cannot use your personal accounts as the hedge fund’s accounts. The fund needs its own bank and brokerage account. Need help with international banking and brokerage arrangements? Contact Us for Assistance
Dealing With Non-Accredited Investors If you allow non-accredited investors to invest in a U.S. fund, you need to have an initial financial statement prepared (i.e., an initial audit or seed capital audit). This audit is as simple as preparing a balance sheet in the case of a fund with no trading history. Learn More About Hedge Fund Audits All investors, including non-accredited investors must be sophisticated and have sufficient knowledge and experience in financial matters to evaluate the merits and risks of investing in your hedge fund. If not, they need a purchaser representative who is be sophisticated and has sufficient knowledge and experience in financial matters to evaluate the merits and risks of investing in your hedge fund. You will need prepare a Purchaser Questionnaire in addition to the standard Subscription Agreement. Contact Us For Assistance and Learn More About Hedge Fund Offering Documents
Hedge Fund Advertising The United States allows hedge fund advertising for hedge fund's offered under Rule 506(c) of Regulation D only to accredited (and higher) investors and operated by hedge fund managers who are registered investment advisers (i.e., RIA) with either the SEC or a state. Learn More About Hedge Fund Marketing & Raising CapitalRule 506(c) of Regulation D bans industry "bad actors" (i.e., certain felons). The Bad Actor Disqualification rule is available here and a summary of the law available here.
Investment Adviser Sub-ContractsMany hedge fund sponsors opt to set up a hedge fund management company outside of their home country or home state, whether for tax, commercial, or regulatory reasons. If you (as the hedge fund sponsor) set up the hedge fund management company outside of your home country or home state, you should have a sub-agreement for "consultancy" or "advisory" services between yourself and the offshore (or out of state) hedge fund management company.
Investment Advisers & Investment ManagersIn the United States, an investment adviser is an investment manager. However, there is legal distinction between “investment manager” and “investment adviser” in most other countries. If you live in a country where this distinction exists and if you set up the hedge fund's manager in such a country, you should position yourself through contracts as a consultant to the offshore investment manager.
Providing "advisory" or "consultancy" services (i.e., an independent research analyst) is not a regulated business activity. To do this, you need an agreement between the offshore investment manager and a sub-agreement between the investment manager and the investment adviser/consultant.
The goal of the agreements is to allow you to offer research services to the offshore investment manager for a fee. There are other approaches to consider as well. When the investment advisory agreement is drafted properly and timely executed, you will be able to control the timing, tax character and amount of taxable income reportable in your home country. In addition, if the investment management agreement between the fund and the investment manager are drafted correctly and timely executed, further income deferral is possible.
A hedge fund manager seeking to defer substantial amounts of management and performance fees should use third-party (i.e., “outside”) directors to ensure that the deferral mechanisms are respected for home country tax purposes. Contact Us for Assistance
Call Us First We are experts in international hedge funds and tax. Click on any reference below to our leading articles:
Strategic Hedge Fund Planning by Hannah Terhune. Wilmott Magazine Ltd. (Volume 2013, Issue 63, pages 8-11 January 2013).
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).
Read helpful articles on hedge funds and international tax planning by Hannah Terhune, a leading hedge fund and international tax attorney. Hannah Terhune's articles are hedge fund and tax planning articles are widely published on the Internet and recommended by TheStreet.com and other respected media. Contact Us for Articles & Reprint Rights
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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 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!
Capital Management Services Group, Inc. is an authority in the hedge fund industry. It is a forward-thinking law firm focused on creating long-term collaborative relationships with a select group of clients interested in the same. It strives to provide “high touch” service and perform a defined set of legal and other services with impeccable efficiency.
We offer corporate “white glove” concierge service to select clients. We set up many types of funds, provide business advice and offer ongoing support to all clients. We try to help people as their needs evolved. Our best ideas are not on this website. Are you trying to develop a tax or regulatory footprint outside of your home country? We offer extended office services in Delaware and in other locations beyond the industry norm. We offer unique ideas and the bandwidth to implement them. We offer tax planning services, tax accounting, books and records preparation, and tax return filing services. If you have a business plan that is unique, know that countries offer “sandbox” regimes for businesses that do not fit into an existing regulatory framework.
You may have an unusual situation that needs special attention. We are ready to help. We offer complete 24/7 access and great working relationships. We are simply second to none. Think outside the ordinary. Our best ideas are not on this website. When you consult with us, you have access to a unique and desirable blend of personalized,yet, professional experience. Give us the opportunity to put our knowledge and expertise to work for you. We provide high quality services at competitive rates. We look forward to connecting with you personally and are confident that you will be impressed. We help our clients as their needs evolve and take pride in maintaining relationships with our clients.
Henry David Thoreau wrote: "Do not hire a man who works for money, but him who does it for love of it." We are committed to bringing you the best possible options. We are an internationally recognized business serving clients while educating the industory. We do this by striving for the best results. We are a law firm and not a document chop shop. A lawyer is a philosopher and role model. The ability to improve client lives is a privilege that we do not take lightly. There is tremendous power in being able to effect a positive change in the world.
