Offering Legal & Fiduciary Services to Traders | Investors | Hedge Funds U.S. & Offshore 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 positive, real-time trading results (i.e., not hypothetical or back tested results) presented in a real-time 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.
One of the biggest advantages of our incubator hedge fund approach is that it allows you to start and fine-tune your investment strategy while creating a marketable track record that can be used in the future. During the typical (i.e., 3 to12 month) hedge fund incubation phase you have time to: prepare for and take any necessary FINRA examinations, file for regulatory registrations and/or exemptions as applicable, prepare a hedge fund "tear sheet", create a website, prepare your fund's offering documents, and become familiar with the operational aspects of running a hedge fund. Contact Hedge Fund Lawyer Hannah Terhune for a Free Consultation
We Are Incubator Hedge Fund Experts We offer the most comprehensive and experienced incubator hedge fund formation services available. Hire us and we will research the availability of names and establish the companies that serve as the incubator fund and the investment management companies; prepare key hedge fund operating agreements that allow for allocation of the fund's profits and losses for tax and financial reporting purposes; and advise you regarding international, U.S., and local law matters that come in to play when you convert the incubator hedge fund to a full-fledged hedge fund.
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 an incubator hedge fund within two weeks from the date your hire us. Our pricing is extremely competitive. Ask us about any "specials" we may offer during the year. Contact Us for a Free Consultation
Incubator Hedge Fund Structure 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 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
You can deposit your own money as “seed capital” into the hedge fund, you can use your IRA and retirement money, and in some cases you can accept money from close friends and family. While you may be able to accept money from friends and family in your incubator hedge fund, generally you cannot charge performance and management fees although there are exceptions to this rule.
Why Start a Hedge Fund Business? 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 in most countries 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 a lack of credentials in the industry. By setting up an incubator hedge fund and following our protocols you create a performance record that can be marketed to prospective investors and clients.
Only when you are sure that investors will come aboard your fund, spend the money needed to convert your incubator hedge fund to a full-fledge hedge fund. Contact Us for a Free Consultation
Offshore Incubator Hedge Funds In many countries, a hedge fund incubator can be established with one business entity. However, a simple, one share class offshore International Business Company cannot be used as an incubator hedge fund. A two share class entity is required to set up an offshore incubator hedge fund. If you set up a one share class international business company, you create only a private trading company and not an incubator hedge fund. Learn More About Offshore Hedge Funds
How are Offshore Incubator Hedge Funds Taxed? Offshore incubator hedge funds are generally set up as corporations in tax-free countries. There are optional tax elections that can be made so that U.S. investors can treat their shares in an offshore fund structured as a corporation as a partnership interest for U.S. tax purposes. These tax elections (i.e., the PFIC election) is optional. In fact, it is not recommended if the offshore hedge fund trades on margin (i.e., uses leverage) 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
Why the United States? Even if you are based in another country, consider forming a U.S. hedge fund. Remember, the United States is "offshore" to you. Delaware is one of the best "offshore" jurisdictions in the world. Need proof? Read the U.S. Government Accounting Office Report from 2006 on this topic and the Delaware LLC. 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. Read our leading media articles: America the Beautiful Tax Haven and Strategic Hedge Fund Planning.
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
Hedge fund sponsors based outside the United States are surprised to learn about the “light touch” of U.S. regulation and low costs associated with forming a U.S. hedge fund. Even if you are based outside the United States, you can set up both the hedge fund and its management company in the United States. 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. Virtual Office Services in Delaware and U.S. Bank Accounts in Delaware 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 without ever coming to the United States. A U.S. presence is not required. We offer U.S. Virtual Office Services if you feel that you need a working office address in the United States. We also offer U.S. Banking Services if you need a U.S. bank account for your hedge fund or your hedge fund management company. Contact Us
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.
Can I operate more than one incubator fund? Yes. Some managers will incubate multiple funds in order to develop track records for different strategies. 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
Hedge Fund Offering Documents Offering documents are the key to hedge fund sales. Most hedge funds provide written information to their investors in the form of a private offering memorandum (Memorandum). In the United States, offering documents include a private placement memorandum (i.e., 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. Learn About U.S. Investment Adviser Registration Offering documents for an offshore hedge fund include the private placement memorandum and the subscription agreement. Learn More About Hedge Fund Offering Documents
Already Have a Trading Track Record? Does your incubator fund have a marketable track record? We create the hedge fund performance reports and tear sheets you need to present your hedge fund to investors. We offer deeply discounted hedge fund administration services. Contact Us for a Free Consultation
Hedge Fund Management 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 a neutral state (like Delaware) or country (like the British Virgin Islands). 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 for the management fee.
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. 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.
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. 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 Jounal 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
Converting 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 the hedge fund's offering documents and filefor the hedge fund. We prepare offering documents for hedge funds. Contact Us for Assistance
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! Registered hedge fund managers can speak publicly about their hedge fund's strategies and performance and advertise through normal channels. The U.S. Securities & Exchange Commission (SEC) will issue hedge fund marketing rules. Learn More About Hedge Fund Advertising
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
U.S. Incubator Hedge Fund Formation $2,400
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Capital Management Services Group, Inc. is recognized by discriminating business owners as being the foremost tax and legal authority in the hedge fund industry. Attorney Hannah Terhune's education and experience are unsurpassed in the area of hedge fund creation, development and launch. Ms. Terhune's extensive international tax knowledge and hedge fund experience have made her an indispensable resource for serious hedge fund and business professionals. Ms. Terhune's numerous articles on the subjects have appeared in over 100 publications worldwide. Chances are, if you have read anything related to the hedge fund business, Ms. Terhune wrote it.
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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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