Offering Advice & Services to Traders | Investors | Funds
Hedge Fund Offering Documents - PPM - Prospectus
Customer Testimonial Hannah and her team are experts in their field of offshore funds. The expertise and care to think ahead of all the specific issues I might have as a client are greatly appreciated. Capital Management Services Group applies a no-nonsense and straight forward business approach to a complex maze of international rules and regulations. I'm pleased to have them on my team and certainly recommend them to any professional looking for guidance in the hedge fund industry.Andre Voskuil, DutchOracle Capital Ltd. December 28, 2011
Not all Private Placement Memorandums are Created Equally! In this industry, price does not correlate to quality. In 2011 there increase in hedge fund service providers (brokers, administrators, accountants and attorneys) offering formation services and preparation of private placement memorandums and other legal documents for both investment managers and hedge funds, many of them are not qualified to draft them and draft them incorrectly. Contact us for a free consult before committing to any hedge fund service providers.
What are Offering Documents? Offering Documents are the key to hedge fund sales.
What is a Private Placement? A private placement is the issuance and sale of a stock of a company to a private or institutional investor. The private placement memorandum (PPM), or offering prospectus, is a offering disclosure document used to provide potential investors the terms and conditions of the hedge fund being offered. This document is similar to a business plan, except that the emphasis is on the disclosure of facts rather than projected results. A PPM includes a discussion of the terms of the offering, the allocation of proceeds, and the risk factors inherent in the business and industry. In general, the memorandum must contain all information about the fund, the investment manager, and the securities offered, as well as any other information that would be considered "material" by a potential investor.
The fund's offering materials and legal documents must clearly spell out the manager's approach to charging fees and include a description of the fee schedule; the exact formula used to calculate fees owed, and where appropriate, example calculations. Hedge fund fees should be calculated based on audited portfolio valuations. Where the period of audited financial valuations does not coincide with the fee calculation period, investors should familiarize themselves with the hedge fund manager's portfolio valuation methodologies and the processes used to prepare the fee calculation. Once audited financials become available, the fee calculations should be reviewed and adjusted for any valuation differences. Performance fees should be based on dollars of value added, not percentage returns or average capital invested for the calculation period. Performance fees computed as carried interest should be calculated on net value added as opposed to gross value added. Offering documents should adequately define "net value added" upon which performance fees are calculated (gross value added less any other expenses charged to the hedge fund). Offering documents should also explain all types of possible expenses and other charges that potentially could be deducted from fund assets. These expenses may include, but are not limited to: legal expenses, accounting expenses, trustee fees, administrative fees, marketing and sales fees, custodial fees, and general investment management charges. Performance fees should be calculated over a period of time that is appropriate given the volatility of the hedge fund strategy's returns and any lock-up period required by the hedge fund manager. Generally, the more volatile the investment strategy, the longer the period included for calculating the performance fee.
The PPM is accompanied by a subscription agreement and investor questionnaire. The subscription agreement is a contract to purchase a specified amount of securities at an agreed price, and contains a statement that the investor has received and reviewed the PPM, is aware of the risk factors, and is a suitable investor. The investor questionnaire elicits information about the investor's background, employment and investment or business experience. It is used, in part, to confirm the investor's accreditation and sophistication. This document should be professionally prepared.
Customer Testimonial I had a tremendous experience with Hannah and the Capital Management Group. They were timely, courteous, and extremely knowledgeable; and, if Hannah was busy, Michelle made quick work to resolve my problems. I will invariably use CMSG in the future for all my hedge fund needs! I can't thank Hannah enough for making my dream of a hedge fund come to fruition. William B Hoagland, Trend Discovery Capital Management. July 06, 2011
More Information about the PPM Hedge funds generally provide investors with a PPM before an investment is made. There are no specific disclosure requirements that pertain to the PPM under Section 4(2) or Rule 506. The information disclosed in PPMs varies from adviser to adviser, however, and often is general in scope. PPMs generally discuss in broad terms the fund’s investment strategies and practices. They also disclose that the hedge fund’s investment adviser may invest fund assets in illiquid, difficult-to-value securities and that the adviser reserves the discretion to value such securities as it believes appropriate under the circumstances.
The PPM also may disclose that the adviser may exercise its discretion to invest fund assets outside the stated strategy or strategies. PPMs also discuss qualifications and procedures for a prospective investor to become a limited partner, as well as provide information about the hedge fund’s operations. PPMs discuss fund expenses, allocations of gains and losses, tax aspects of investing in the fund and may incorporate the hedge fund’s financial statements.
PPMs disclose any lock-up period that new investors must observe, as well as laying out the specifics for when investors will be able to redeem some or all of their investments out of the hedge fund. PPMs may name frequently used service providers to the fund. PPMs may generally disclose potential conflicts of interest to investors, frequently under the heading of “risk factors.” As a matter of practice, hedge funds generally provide investors with a PPM before an investment is made. As with any other offering solely to accredited investors, there are no specific disclosure requirements that pertain to the PPM under Section 4(2) or Rule 506. While we are not passing on the adequacy and content of PPM disclosure generally, we note that certain basic information about the hedge fund’s adviser and the hedge fund is typically disclosed. The information disclosed in PPMs varies from adviser to adviser, however, and often is general in scope. PPMs generally discuss in broad terms the fund’s investment strategies and practices. They also typically disclose that the hedge fund’s investment adviser may invest fund assets in illiquid, difficult-to-value securities and that the adviser reserves the discretion to value such securities as it believes appropriate under the circumstances. The PPM also may disclose that the adviser may exercise its discretion to invest fund assets outside the stated strategy or strategies. PPMs also generally discuss qualifications and procedures for a prospective investor to become a limited partner, as well as provide information about the hedge fund’s operations. For example, PPMs generally discuss fund expenses, allocations of gains and losses, tax aspects of investing in the fund and may incorporate the hedge fund’s financial statements.
The parts of a hedge fund include the private placement memorandum, the subscription agreement, and the operating agreement for the fund. Hedge fund advisers typically provide information to investors during an investor’s initial due diligence review of the fund, although some, more proprietary, information may not be provided until after the investor has made a capital commitment to the fund, if at all. Most hedge funds provide written information to their investors in the form of a private offering memorandum or private placement memorandum (“PPM”). This reflects market practice and the expectations of the sophisticated investors who typically invest in hedge funds. It also reflects the realization of the sponsors and their attorneys that the exemptions from the registration and prospectus delivery provisions of Section 5 of the Securities Act available under Section 4(2) of the Securities Act and Rule 506 do not extend to the antifraud provisions of the federal securities laws.
The disclosures furnished to investors serve as protection to the principals against liability under the antifraud provisions. Some of the information may be disclosed less formally in one-on-one conversations between investors and the hedge fund adviser. Hedge fund advisers may also provide information to hedge fund investors in the form of letters, conference calls and financial statements. In addition, some hedge fund advisers may provide prospective investors with access to their prime brokers and other service providers, such as administrators, both during the investor’s initial due diligence of the hedge fund and subsequently. Hedge fund investors must often spend significant resources, frequently hiring a consultant or a private investigation firm, to discover or verify information about the background and reputation of a hedge fund adviser. In practice, even very large and sophisticated investors often have little leverage in setting terms of their investment and accessing information about hedge funds and their advisers.
Customer Testimonial I would like to state unequivocally that I have had a completely positive experience in dealing with Capital Management Services Group. Truly, from the first phone call that I made to Capital Management, to the conference call that was arranged with Hannah Terhune, the time she took in answering all of my questions, and, finally, to the follow-up by Amy Hong. My case involved the establishment of a Forex Incubator Fund, and was thoroughly handled. Hannah Terhune responded promptly to my subsequent phone calls and Amy Hong is absolutely 100% efficient. I, certainly, plan to enlist Capital Management's services for my legal needs in the future concerning fund management. I would rate my experience and results 5 out of 5 stars! Totally satisfied, Rxxxxxx Sxxxx, Sept.22, 2010
Fiduciary Audits PPMs should be written with accountability in mind. Consider the PPM that states that “the goal of the fund is capital preservation.” Unless capital preservation is clearly defined in terms of asset allocation, one might expect that all of the fund’s assets consist of principal protected investments with specific maturity dates as such investment would most likely preserve capital. Given this PPMs should not state capital preservation as a goal unless the fund invests in items that return the principal investment. When used in a PPM, the terms “capital preservation,” “liquidity and marketability,” “risk aversion” need to be defined (and adhered to by the hedge fund manager) with a future audit in mind. In the future, there may be a trend toward investment policy audits (at the top levels of the hedge fund industry). An investment policy audit evaluates whether the hedge fund manager is in compliance with the statements made in the investment policy and investment strategy section of the PPM. An asset allocation audit examines whether the fund’s portfolio is within the range of a PPMs stated asset allocations percentages.
Private Placement Memorandum (PPM) Checklist
Description of Interests Investment Objective and Strategy Fees and Expenses
IMPORTANT GENERAL CONSIDERATIONS SUMMARY OF OFFERING AND PARTNERSHIP TERMS MANAGEMENT
Role of the General Partner and the Investment Manager Background of Management Other Activities of General Partner, Investment Manager and Affiliates Investments by General Partner and Affiliates
INVESTMENT PROGRAM
Purpose Features of the Partnership’s Trading Strategy BROKERAGE PRACTICES
Brokerage Arrangements Soft Dollar Arrangements Referral of Investors Broker and Custodian
General Fiduciary Matters Plan Assets Plan Asset Consequences
TAXATION
Introduction Classification of the Partnership Taxation of Partnership Operations Tax-Exempt Investors Other Taxes Tax Elections; Returns; Tax Audits Other Matters Special Considerations for Limited Partners who are not U.S. Citizens or Residents State Taxation Future Tax Legislation Collection of Investor Information Disclosure of Nonpublic Personal Information Protection of Investor Information Changes to Privacy Policy
EXHIBITS
A - Limited Partnership Agreement B - Subscription Documents C - Form ADV Part II of the General Partner
Customer Testimonial Hannah and her team are experts in their field of offshore funds. The expertise and care to think ahead of all the specific issues I might have as a client are greatly appreciated. Capital Management Services Group applies a no-nonsense and straight forward business approach to a complex maze of international rules and regulations. I'm pleased to have them on my team and certainly recommend them to any professional looking for guidance in the hedge fund industry.Andre Voskuil, DutchOracle Capital Ltd. December 28, 2011
Why Hire Us? We advise individuals on hedge fund startups worldwide. We are experts on investment adviser law, hedge fund law and forex and managed futures fund law. We handle state investment adviser registrations, SEC investment adviser registrations, U.S. hedge fund formations, foreign hedge fund formations, forex fund startups, managed futures fund startups, commodity pool formations, NFA registrations, international hedge fund formations, and investment manager registrations in many countries.
More Reasons to Hire Us When you engage us for hedge fund you get a unique combination of securities, tax, and international experience, focused on the trader niche. We have established a leadership position with traders. We are one destination for all your very 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, 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 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. Our tax services division handles accounting, software, and tax compliance, including all tax matters (tax planning and tax returns). Only one thing counts with us and that's our customer relationships!
CapitalManagementServicesGroup.com is recognized by discriminating fund managers and traders as being the foremost tax and legal authority in the business. Attorney Hannah Terhune's education and experience are unsurpassed in the area of hedge funds creation and management platforms, and the complex body of tax laws related thereto. Ms. Terhune's exensive knowledge and experience have made her an indispensable resource for serious fund management and trading professionals. Ms. Terhune's articles on the subjects have appeared in over 100 publications worldwide. Chances are, if you have read about the above matters, Ms. Terhune has written about them. Give us the opportunity to use that knowledge and experience for you. CMSG provides the best services and support needed for hedge fund projects and associated activities in one convenient place, saving you time and energy. No need to coordinate work between different firms; we handle the entire process from start to finish. We offer hedge fund and money management accounting, tax services, tax preparation, consulting, entity and retirement plan 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 Customer Testimonials and learn more About Us.
Personal Consultations and Fees You get answers to your specific questions by speaking directly to Hannah Terhune, an experienced hedge fund 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. Of course, fees are a necessary part of the consultation. Ms. Terhune's credentials reflect an invaluable resource that combines a well-informed professional practitioner with sound ethical judgment that cannot be over-estimated. The expertise required to recommend best solutions and provide sound advice should never be taken lightly. 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. Our Commitment 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 your business plans and bringing you the best possible options. We are an established and internationally recognized business that serves and educates our clients throughout the industry. We do this by striving for the best results. Above all, we are a law firm. A lawyer is a philosopher and role model. The ability to improve our clients' lives is a privilege that we do not take lightly. There is tremendous power in being able to effect a positive change in our clients' lives. Our aim is to welcome our clients and to provide a comfortable, warm environment for all. We believe that making our clients feel comfortable and confident with the process provides the basis for a constructive relationship built on mutual trust. time. Thanks for visiting our website. We hope to have the opportunity to serve you.
