Offering Legal Advice & Services to Traders | Investors | Hedge Funds U.S. Incubator Hedge Funds
Why Start with an Incubator Hedge Fund?An incubator hedge fund allows you to create a marketable track record for your hedge fund. Our incubator hedge fund plan allows you to spread hedge fund development costs over a period of time. With your positive, real-time trading results (i.e., not hypothetical or back-tested results) presented in a performance audit, you are positioned to make a stronger marketing pitch to potential investors than you could with hypothetical results or results from your personal trading account. In summary, securities laws make it difficult for a manager to use prior performance figures to promote a new fund. The concept of “cherry picking” discourages a manager from disclosing certain personal performance while omitting others. Learn More About Hedge Fund Accounting The incubator fund allows a manager to show actual performance in the same company that is eventually used as the hedge fund.
An incubator fund provides a cost-effective solution for an emerging manager to develop a marketable trading record and test performance before launching a fully-operative fund. For managers without ready access to initial investors, an incubator fund provides a way to begin building a marketable performance record using personal funds as seed capital. An incubator fund allows a fund manager to fine-tune its trading strategy while creating a marketable track record.
Incubator funds typically remain in place from three to twelve months during which time the managers can contemporaneously prepare and take any required FINRA exams, file for any required regulatory registrations, prepare the fund’s marketing documents, website, and work with legal counsel to prepare the fund's offering documents and become familiar with the operational aspects of running a hedge fund. Learn More About Hedge Fund Offering Documents and Hedge Fund Marketing
We Are Incubator Hedge Fund Experts We provide comprehensive incubator fund formation services for clients worldwide. Our flat-fee incubator fund service includes turn-key preparation of all the needed formation documents, governing agreements and regulatory filings to form and operate an incubator fund. Formation documents are the documents filed with the appropriate government authority to establish the existence of the entities, including the fund, the general partner and investment management company. These include certificates of organization and articles of formation, depending on the state. The formation documents are the most basic of the fund documents. Given the "boilerplate" nature of formation documents, some make the mistake of forming entities before consulting with legal counsel. Formation documents should be filed only after thoroughly considering the appropriate legal structure of the company and potential tax ramifications.Contact Hedge Fund Lawyer Hannah Terhune for a Free Consultation
We also obtain tax identification numbers for the companies and prepare any bank or brokerage resolutions you may need. If you hire us, we will answer any questions you have concerning hedge fund marketing, hedge fund taxes, and hedge fund administration. We provide ongoing support and consultation services while you incubate the hedge fund's track record. We are here for the long-term relationship with you. Typically we establish a U.S. incubator hedge fund within two weeks from the date your hire us. Our pricing is extremely competitive. Contact Us for a Free Consultation
Incubator Hedge Fund Structure In the United States, the incubator hedge fund is established with two business entities—the hedge fund and its investment manager. An incubator fund consists of a Delaware limited partnership as the fund entity and a management company entity. If the fund anticipates many investment strategies, a Delaware Series LLC or Delaware Series Limited Partnership can be used. The hedge fund's investment management company can be formed in your home state or home country. 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 a neutral state (like Delaware or Florida) or country (like the British Virgin Islands). For tax reasons, hedge fund sponsors based in New York, California, Texas or other high tax states may consider setting up three companies: the hedge fund, the investment management company to receive the carried interest share (i.e., the performance allocation) and a management company to receive the management fee. Investors become limited partners of the fund and all the trading activity of the fund takes place within the fund entity. The same entities will be used in the fully-operational version of your hedge fund in the future. Contact Hedge Fund Attorney Hannah Terhune for a Free Consult Generally, the difference between a full-fledge hedge fund and an incubator hedge fund is the ability to charge performance and management fees and the availability of offering documents. Learn More About Hedge Fund Offering Documents
Capital Management Service Group, Inc. is dedicated to providing the highest quality of services on a personal level and in a timely manner. We offer flat-fee engagements, which include start-to-finish legal services and counsel with all aspects of launching a domestic or offshore hedge fund. No two funds are identical. We use a client-based approach to our fund structuring and analysis. Our clients routinely comment on the excellence of our personal service and the time we take to properly understand and implement the client’s unique circumstances and objectives. Call Us at +1(307) 413-2212, Email Usand Read What Our Client Say About Us on LinkedIn
What types of incubator hedge funds are available? 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. We advise on all investment strategies and assets classes.
Can I operate more than one incubator fund? Yes. Some managers will incubate multiple funds in order to develop track records for different strategies.
Should I File SEC Form D? Perhaps. Because an incubator fund does not have outside investors, it is generally not subject to many of the regulatory and filing requirements required by federal and state law, such as investment advisor registration, commodities registration and Form D filing. However, a manager should check with a hedge fund attorney prior to concluding which regulatory requirements must be satisfied.Most of the time SEC Form D and state regulatory filings are not filed for an incubator hedge fund. However in some cases they are filed for an incubator hedge fund. Contact Us for Assistance
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. Learn More About NFA Registration
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
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 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. In other words, an incubator fund is generally set up using a pass through fund entity (i.e., a Delaware limited partnership). The fund’s realized income and gains are only taxed at the individual level. Tax gains and loss pass through to an investor’s tax return. Items on Schedule K-1 retain their tax character for the manager. Learn More About Hedge Fund Taxation Offshore incubator funds are set up as corporations, generally, and with respect to U.S. investors, can work as UBTI blockers. Learn More About Offshore Incubator Funds
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
How do I fund my Incubator Fund? With very few exceptions, the incubator fund should not accept outside investors. Even investment from close friends and family can run afoul of state and federal securities law. Likewise, a sponsor should not borrow capital from others to invest in the incubator fund. You should consult a hedge fund attorney prior to accepting any outside funds from any source.
Can I seed the incubator fund with my IRA? Yes. Find a very flexible IRA custodian. 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 an IRA 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. Read this Wall Street Journal article on self-directed IRAs and Contact Us for Assistance
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
Why Speak With Us? When you speak to us, you gain access to a unique combination of securities, tax, and international experience. We have established a leadership position. We think we have the best set of hedge fund offering documents (and related documents) based on the current and ever changing federal, state and offshore securities, commodities, and tax laws. We have quick turnaround times because we understand that our customers want to begin business as soon as possible. We are one destination for all your legal, tax, accounting and audit needs. Our customers value this one-stop relationship. We will help you start your business and continue to assist you. Only one thing counts with us and that's our customer relationships!
Hedge Fund Banking and Brokerage Services For either banking or brokerage services, you cannot use your personal account as the hedge fund’s account. The hedge fund needs its own bank and brokerage account. In the United States, bank accounts can be opened over the Internet in some cases with very modest initial deposits. In addition, operating costs—such as monthly bank maintenance fees - are relatively low in the United States when compared to most other countries. Banking in the United States presents a lesser burden to a hedge fund sponsor than banking in most other parts of the world. U.S. banks and brokers generally do not require a hedge fund’s investment manager to be licensed by a regulator in order to open accounts unless the investment manager is based in a jurisdiction that requires such licensing. For these reasons, the United States presents an extremely attractive option for sponsors of smaller hedge funds. Need help with banking and brokerage arrangements? We have solutions! Contact Us for Assistance
Converting an Incubator Hedge Fund to a Fully-Operational 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 fully-operational hedge fund is a straightforward process. To transition to a fully-operational hedge fund that allows you to charge fees, you will need to prepare offering documents which include a private offering memorandum, partnership agreement, and subscription documents, as well as the necessary regulatory filings which in the United States include Form D and state blue sky filings. Contact Us for Assistance
Costs An incubator fund reduces start-up capital risk while the trading strategy is tested. The cost to form an incubator fund is considerably lower than the cost to form a fully-operational hedge fund. The incubator fund can be transitioned easily to a fully-operational hedge fund at any time. Since an incubator fund formation involves the formation of the fund's operating entities, there should be no repetitive fees. If you set up your incubator fund with us, we charge you only for the offering documents and the regulatory filings needed to transform your fund to a fully operational fund. Contact Hedge Fund Attorney Hannah Terhune
Incubator Hedge Fund Business Plan If you delay drafting your hedge fund’s offering documents and are able to defer collection of management and performance fees, you can start and operate an incubator hedge fund. Read our Hedge Fund Business Plan Checklist Our checklist will help you connect the dots and prepare you for a free consult with Hannah Terhune, a leading hedge fund attorney. She will discuss whether the incubator hedge fund is right for you. Contact Us for a Free Consultation
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Why Hire Us? When you engage us you get a unique combination of securities, tax, and global business experience. We think we have the best set of offering documents in the industry for hedge funds based on current and ever changing laws. We aim to deliver quick turnaround times because we understand that our customers want to begin their money management business as soon as possible. We conceive, structure and deploy the best tax saving strategies for your hedge fund business. We will help you start your business as soon as possible and continue to assist you.
Give us the opportunity to use that knowledge and experience for you. Each client receives personalized attention from our attorneys and staff. No client is too large or small for us. We pride ourselves in providing personal attention to each client. We provide the best services and support needed for hedge funds and business projects. No need to coordinate work between accounting, administrative and law firms--we handle the entire hedge fund business process from start to finish. We offer legal services, accounting services, tax planning services, tax return preparation services, business consulting services, and U.S. and offshore company formation services. We provide high 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.
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