Offering Advice & Services to Traders | Investors | Funds
Offshore Hedge Funds
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
Offshore Incubator Hedge Funds We particularly recommend the British Virgin Island (BVI) incubator hedge fund for start-up investment managers. This is a very unique hedge fund not available in most countries. The fund is not regulated by the Financial Services Commission but is a fully legal fund structure, with its authorization contained within the M&A of a BVI offshore company. It does not require local directors nor does it require the filing of audited financial statements. It also does not require a separate investment management company nor an independent administrator. This type of offshore hedge fund is inexpensive and can readily be upgraded to a fully regulated hedge fund. What is the BVI Incubator Hedge Fund? An incubator hedge fund is structured in the same manner as a mutual (hedge) but an investor does not have an absolute right to redeem shares on demand. Rather the right to redeem is at the sole discretion of the directors. The constitutional documents are drafted so that they are similar to those of a regulated hedge fund. If and when the incubator fund is converted to a fully regulated hedge fund, the constitutional documents are amended to include a right to redeem for the shareholders. An important aspect of the BVI incubator hedge fund is that there are no requirement for it have an investment manager, accountant, and custodian. This structure positions the BVI incubator hedge fund outside the purview of the hedge fund licensing regime in the BVI. It is very important that the restricted redemption rights of investors are fully disclosed. Such restricted redemptions rights may cause some prospective investors to be hesitant to invest in the fund. However, when the incubator hedge fund is properly marketed by word of mouth to personal and business associates, friends and relatives, the restrictive redemption rights should not pose a problem. There are no restrictions with respect to raising capital for the BVI incubator hedge fund and promomarketing efforts should be focused on the fund's performance. The fund may not be marketed to the retail public unless upgraded to a professional fund. The word "Fund" cannot be used in the company name, as this is right is reserved for fully regulated funds.
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
Why Consider a Master-Feeder Structure A hedge fund manager of an offshore hedge fund manager must make sure that the investment management agreement between the fund and the investment manager is drafted correctly to allow for tax deferral (tougher in the United States since 2008) on management and performance fees. The use of a properly prepared investment management agreements, offering documents, constitutional documents and outside (i.e., third party) directors, allow hedge fund managers to defer tax on performance and management fees. A tax saving bonus results from the fact that deferred fees and earnings on the fees compound tax free in the offshore hedge fund.
Prior to 2008, U.S. hedge fund managers routinely deferred receipt of performance fees from managing offshore hedge funds. This deferral meant that the performance fee was not taxed currently. A U.S. law change in 2008 made it a little more difficult to defer performance fees. As a result, some hedge fund managers redrafted investment management agreements to pass muster under the new law. Other restructured existing operations slightly to change the U.S. tax characterization of the offshore performance fee. New hedge fund managers may consider the following structure.
Mini-Master Offshore Fund In this structure a offshore master hedge fund is formed and elects to be treated as a partnership for U.S. tax purposes. A stand-alone (i.e., feeder fund) U.S. hedge fund funnels its cash into the offshore master hedge fund. All trading takes place in the offshore master hedge fund, which is more efficient. The offshore master hedge fund is structured as a limited partnership and its general partner is itself another partnership.
The general partner is allocated the performance allocation and receives the allocation of performance fee. This allows the hedge fund manager to receive what would normally be a currently-taxed performance fee a partnership allocation in the form of tax-favored, long-term capital gains and qualified dividends. This allows the hedge fund manager to to defer current taxation of the entire performance fee (as a performance allocation typically include an element of unrealized gain).
Customer Testimonial Hannah Terhune and her associates have provided legal advice and services to me for over a year. She provided initial guidance to help determine the kind of fund most suitable for my goals, created the legal documents that are the framework for my hedge-fund, and assisted with ADV submissions to register my company as an Investment Advisor. I continue to rely on her for ongoing compliance issues in this complex and dynamic industry. I found Ms Terhune and her associates to be extremely knowledgeable and helpful in a very responsive way, with friendly and professional manners. Overall a very good experience. Highly recommended. Marty Cawthon ChipChat Technology Group
Tax Tips for Offshore Hedge Funds When setting up the mini-master fund, the U.S. offering documents must carefully outline the calculation of the performance allocation.
As a foreign pass-through entity, the manager of an offshore master hedge fund should provide Form W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding) to its paying agents (along with Form W-8BEN if there is an offshore feeder hedge fund and a Form W-9 for the U.S. feeder hedge fund) so that the paying agents (i.e., brokers and banks) know how much of the underlying ownership of the offshore master hedge fund is foreign to ensure proper U.S. tax withholding on U.S. dividends allocable to the offshore feeder hedge fund. The Form W-8IMY should be updated often as offshore ownership of the offshore master hedge fund will vary as withdrawals and contributions take place (due to shareholder changes in the domestic and offshore feeder funds).
Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships, is the mechanism for reporting contributions and certain levels of ownership, or changes in ownership, of foreign partnerships. Depending on the level of ownership (and other factors) a reporting party may have to provide detailed balance sheet, income statements and other information regarding related party transactions. A Form 8865 may have to be filed by a U.S. feeder fund and possibly even a Form 90-22.1 (Report of Foreign Bank and Financial Accounts) as the offshore master hedge fund is considered a financial account.
International Taxes Hedge funds should be aware of possible international filings if either they own an interest in a foreign entity or have an investor who is a non-U.S. taxpayer. Non-compliance with international tax filings could result in significant penalties. For example, a penalty for late filing of a return could be as high as 25% of the unpaid tax. In addition, FATCA requires non-U.S. financial institutions and non-U.S. entities (including offshore investment funds) to provide information to the IRS identifying U.S. persons invested in non-U.S. bank and securities accounts. The legislation is motivated by incidents of U.S. persons failing to report foreign-source income for U.S. income tax purposes. A 30% withholding tax applies on any "withholdable payment” made to a foreign financial institution (FFI) unless the FFI agrees with the IRS to take a number of specific steps pursuant to an FFI agreement. The specific steps are designed to ensure that U.S. persons are identified and U.S. tax is imposed on their investment income.
U.S. Law Favors Offshore Hedge Funds Despite the U.S. government's three-year crackdown on illegal offshore accounts, offshore hedge funds remain preferred by upper-income U.S. investors when faced with a choice between an offshore hedge fund and its U.S. onshore version. For hedge funds that use leverage, an offshore fund is preferable because of its tax advantages. For U.S. investors, the tax savings flow from the opportunity to be taxed on net (and not gross) income and the chance to deduct state-tax and other itemized deductions thwarted by the alternative minimum tax. In addition, investing in the offshore fund allows a U.S. investor to avoid some or all of the 3.8% Medicare tax on investment income (taking effect in 2013). Moving assets abroad is especially useful to U.S. investors living in high tax states. Offshore hedge funds offer significant after tax benefits. Many hedge fund managers are focused on offering the option to invest through a foreign feeder fund in their onshore offering documents. Facing FATCA From a marketing perspective, it may be helpful for an offshore hedge fund to hold assets in U.S.-based banks and brokerage firms--the IRS already knows about income generated in those accounts. An offshore hedge fund operating with U.S. based banks and brokerage firms are not the target of U.S. investigation. What is being targeted are foreign tax havens and assets stashed offshore to to avoid U.S. taxation. The Foreign Account Tax Compliance Act of 2010 (FATCA) is a broad brush effort to halt offshore tax evasion. It applies to individuals and a financial institutions. The new law applies to individuals and takes effect in 2011 for 2012 tax filings. U.S. taxpayers will have to file a new form disclosing offshore assets--to include offshore financial accounts held directly and indirectly, such as bank and brokerage accounts; direct ownership of foreign stock; direct or indirect ownership of interests in offshore hedge funds. The new IRS form is filed with an individual's tax return. It is different from the Foreign Bank Account Report that many U.S. taxpayers file separately with the U.S. Treasury.
How do I start an offshore hedge fund? Our legal team has set up hedge funds in the Cayman Islands, Bahamas, British Virgin Islands, and Canada. Our services are customized to your individual needs and our fees are fully disclosed so that you will know your exact costs upfront. Typically we provide our clients with: structuring and formation of the fund, advice regarding regulatory requirements, offering memorandums, side agreements, and constitutional documents, including by-laws and supplementary agreements. We are committed to providing the best service at an affordable price. Our dedicated team of consultants and attorneys, both domestic or offshore, will work diligently on the structure and formation of your hedge fund as quickly as possible.
Offshore funds are created by investment managers with investors located in many countries and for tax reasons. Our team has structured investment funds in various countries including the Cayman Islands, Bahamas, British Virgin Islands, and Canada. We can help you decide whether an offshore fund is necessary and advise you as to the proper structure (i.e., stand alone fund or master-feeder fund) based on your fund's investor base. We are one of the leading hedge fund law firms who specialize in assisting new and emerging hedge fund managers in establishing their own offshore fund. Our services are customized to your individual needs. Through our initial consultation process we create a business plan and fund structure suitable to your requirements. Our services and legal fees are packaged so you will know your exact costs upfront. Typically we provide our clients with: structuring and formation of the fund; regulatory requirements; offering memorandums and other documentation; constitutional documents, including by-laws and supplementary agreements.
U.S. based advisers with potential investors outside the United States and/or U.S. tax-exempt investors setup offshore funds. Offshore funds allow these clients to avoid Unrelated Business Taxable Income (UBTI). Under U.S. laws a tax-exempt investor (such as an IRA, an ERISA-type retirement plan, a foundation, or an endowment) is liable for tax on unrelated business taxable income (UBTI) notwithstanding its tax-exempt status. UBTI exposure exists when a U.S. tax-exempt investor invests in a fund that trades on margin.
If the major considerations for establishing an offshore hedge fund is tax efficiency, both the structure and country should be considered. The majority of the hedge funds are established in low or zero tax jurisdictions. This means that there is no corporate level tax for the offshore hedge fund. Investors in the fund will generally be taxed in their country of residence on the income received from the fund. Another consideration is the regulatory laws in place in the jurisdiction. The two most common offshore jurisdictions are the Cayman Islands and the British Virgin Islands (BVI). In both the Caymans and the BVI there are strong regulatory structures in place in order to assure investors that the managers of the offshore funds are legitimate. Other offshore hedge fund jurisdictions include: Bahamas, Bermuda, Nevis, Guernsey, Jersey, Dubai, among others.
Customer Testimonial I wanted to thank you and your staff for the professional and timely services that you provided in setting up a CTA business. As an individual trader for almost 20 years I have a full grasp of markets but had very little knowledge in setting up a trading business for clients. Everyone at your firm was extremely friendlyand helpful in giving me guidance in this new startup. Your prices were fair and while I looked at different firms to handle the process yours was head and shoulders above the rest. Thanks so much, Sxxx Sxxxr Managing Partner Sxxxxx Capital Management LLC. June 18, 2010.
U.S. Feeder Hedge Fund with Offshore Master Hedge Fund If you are a U.S. based fund manager, consider setting up an offshore fund if you manage money for foreign and/or U.S. tax-exempt individuals and businesses. Under U.S. income tax laws, a tax-exempt organization (such as an ERISA plan, a foundation, or an endowment) engaging in an investment strategy that involves borrowing money is liable for a tax on "unrelated business taxable income" (UBTI), notwithstanding its tax-exempt status. The UBTI tax can be avoided by the tax-exempt entity by investing in offshore hedge funds. The master feed hedge fund structure typically includes a U.S. limited partnership (unless multiple share classes are needed; in that case, the hedge fund is a limited liability company) as the U.S. feeder hedge fund for U.S. taxable investors and a foreign corporation as the offshore feeder hedge fund for foreign investors and U.S. tax-exempt investors. A master hedge fund is formed offshore as well. The master hedge fund, structured as an offshore corporation, should file a Form 8832 with the Internal Revenue Service (e.g., a check-the-box election allowing the master hedge fund to be treated as partnership for U.S. tax purposes), before engaging in trading activity on behalf of the feeder hedge funds.
Some investment managers try to skip the offshore master fund to save money and attempt to use the offshore feeder hedge fund as the master hedge fund. However, If U.S. taxable investors invest in or effectively control the offshore hedge fund, complex U.S. tax rules applicable to controlled foreign corporations, foreign personal holding companies, or passive foreign investment companies (PFIC) become problematic.
Can I set up an offshore hedge fund without ever even visiting the country? Yes. The good news is that you can set up a fund in any country without visiting it. Your hedge fund can bank anywhere in the world. Our firm handles all matters for you on a turnkey basis.
Where is the best place to start an offshore fund? The two best countries for startup hedge funds are the United States and the British Virgin Islands. Hedge funds tend to be domiciled in handful of locations worldwide. In the United States, hedge funds are most likely located in Delaware, Connecticut, Illinois, New Jersey, New York, Wyoming or Texas since these states have tax and regulatory climates friendly to funds.
Outside the United States, several locations in the Caribbean and Europe offer different costs and benefits. The most widely used places are the British Virgin Islands, the Cayman Islands, Guernsey, Bermuda, Hong Kong, the Isle of Man, Jersey, Luxembourg, and Dublin. It is important to remember that the domicile of a fund does not have to be the same as that of its administrator or custodian. Factors such as the jurisdiction of service providers and what kind of investor the fund is for are probably more important factors in deciding where to domicile a fund. Some institutions may be bound by rules that limit investment to regulated jurisdictions, while others face no such requirement. Basic administrative fees are similar in all jurisdictions, but regulatory oversight adds to the expense in the European centers. While banks and large fund companies like to have regulations for their retail vehicles to reassure investors, the majority of hedge fund managers are small operators, for whom the extra costs can be a major burden. Read our description of countries below. There is no one "best" place. However, we can help you find the country that most closely matches your objectives.
Segregated Portfolio Company (SPC) A segregated portfolio company (SPC) is a single entity structure which contains a series of segregated portfolios (sometimes referred to as "cells"), each of which is regarded as a separate legal entity for asset protection purposes. For offshore hedge funds, the segregated portfolio company is the functional equivalent to the domestic hedge fund series LLC. Like traditional offshore hedge fund structures the offshore SPC will usually be established in a traditional offshore jurisdiction like the Cayman Islands or the British Virgin Islands. There are two central structures where offshore hedge funds will use the segregated portfolio company structure: (1) with a single entity offshore hedge fund structure or (2) with a master-feeder offshore hedge fund structure. Segregated Portfolio Company Offering Documents There are a couple of ways of drafting the offering documents. The first provides an offering memorandum which is shorter and includes a general description of the fund, the risks of the fund and a description segregated portfolios. This offering memorandum would not provide specifics of each program and instead a portfolio supplement will be provided with each offering memorandum. The supplement would provide greater detail of the individual portfolio investment program and the specific risks applicable to the program. The second would include all of the information on the fund as well as information on each investment program and their specific risks.
Stand Alone, Side-by-Side and Master Feeder Structures There are three main offshore hedge fund structures: single, side by side and master-feeder. The structure will be dictated in large part by the intent of the sponsor of the offshore fund.
Single Fund Structure The single fund structure which is geared primarily towards non-U.S. investors and to tax-exempt U.S. based investors such as pensions, charities and endowments. The sponsor and management company can be either U.S. based or offshore based. Side-By-Side Structure In this structure, typically a U.S. based investment manager will run two completely separate funds in the exact same manner. The manager will form both a domestic and offshore hedge fund. This structure is often good for certain strategies such as a fund of funds strategy. Master-Feeder Structure Confusing to some is the use of onshore and offshore funds in a master-feeder structure. Master-feeder structures are used world wide by fund managers for various reasons. The master-feeder hedge fund structure allows the investment manager to manage money for different classes of investors. Feeder hedge funds invest fund assets in a master hedge fund that has the same investment strategy as the feeder hedge fund. A master-feeder hedge fund structure requires multiple entities and an investment manager. The master feeder structure is a very common structure which will have a domestic hedge fund feeder an offshore hedge fund feeder fund and an offshore master hedge fund. In many cases the master-feeder structure is the preferable structure from an ease of administration point of view.
Customer Testimonial It was indeed a pleasure working with you and your team at Capital Management Services Group to set up our investment management firm and its associated hedge fund. As someone with deep analytical and trading expertise who is unfamiliar with the complex regulatory environment surrounding hedge funds, I greatly appreciate the advice and clarity you brought to the process of establishing the firm. Your breadth of expertise was invaluable in navigating the plethora of choices to be made and more importantly, it was reflected in your ability to make the necessary filings and obtain approvals from all the regulatory agencies. I am also impressed that your estimate for how long the entire process would take was remarkably accurate. As a new business entity, it was a benefit to our firm that you were able to provide your knowledgeable and comprehensive services at extremely reasonable terms. I would not hesitate to recommend your firm to others seeking to launch or expand investment advisory businesses and hedge funds. Best regards, Dr. Sid Valluri Managing Director Odessa Capital Management LLC Sent December 01, 2008
SEC Offshore Alert The SEC's 134-page Report-Implications of the Growth of Hedge Funds presents the current status of the hedge fund industry. The report summarized several months of work on the Staff's part and includes a summary of the current status of the hedge fund industry (including audits), as well as a number of recommendations related to regulatory structure. The web content authored by veteran hedge fund attorney Hannah Terhune, JD, LLM when she was the Chief (and only) Attorney at Greencompany.com and GreenTraderLaw.com on offshore hedge funds was cited on page 10 as providing information that the Staff found to be valuable in its understanding of the industry. Almost all of the other 300+ footnotes were to legal cases, results of the SEC-sponsored hedge fund roundtable, and the FINRA/NYSE. You will see from our site that we supply more information about hedge funds than most books on the subject. It's great to see that Hannah's expertise is appreciated by the SEC! This is quite a coup for Hannah, and provides one more piece of evidence as to how she can help you.
Offshore Taxes, UBTI & UBTI Blockers
U.S. Tax Exempt Investors One reason to setup an offshore fund is so the fund can accept U.S. tax-exempt investors. Under the U.S. income tax laws, a tax exempt organization (such as an ERISA plan, a foundation, an endowment, etc.) engaging in an investment strategy that involves borrowing money (margin) is liable for a tax on “unrelated business taxable income” (UBTI). This is true even though the investor is otherwise tax exempt. As U.S. funds are formed through pass-through entities (such as the limited partnership or limited liability company) the UBTI activity passes through the entity to the tax exempt investor, thereby giving rise to the tax issue. U.S. taxable investors don't care because they need to pay tax in any event. However, U.S. tax-exempt investors are quite concerned. The UBTI tax can be avoided by arranging for the tax-exempt entity to invest in an offshore fund formed as a corporation. The UBTI gets blocked, so to speak, at the wall of the corporation. This is not an easy tax issue to grasp. UBTI is income from regularly carrying on a trade or business that is not substantially related to the organization's exempt purpose. UBTI excludes various types of income such as dividends, interest, royalties, rents from real property (and incidental rent from personal property), and gains from the disposition of capital assets unless the income is from debt-financed property. Using margin to trade creates debt financed property. As a fund's income attributable to the use of margin may constitute UBTI to them, tax-exempt investors generally refrain from investing in funds classified as partnerships using leveraged trading strategies. As a result, fund sponsors organize separate offshore funds for tax-exempt investors. U.S. Individual Investors U.S. taxable investors in an offshore fund structured as a corporation may be exposed to onerous tax rules applicable to controlled foreign corporations, foreign personal holding companies, or a passive foreign investment companies (PFIC). To attract U.S. individual investors, fund sponsors of an offshore fund or offshore master fund should elect to have it treated as a partnership (for U.S. tax purposes only) so that these U.S. investors avoid harsh tax rules. Under the U.S. entity classification rules (i.e., check-the-box) an offshore fund elects to be treated as a partnership for U.S. tax purposes by filing Form 8832, "Entity Classification Election." U.S. State Taxes Although offshore funds generally do not have nexus to the states, many states still require partnerships to file state partnership tax returns if they have partners that are residents of their jurisdiction. This could result in an offshore fund with U.S. partnership tax status being required to file a state tax return even though it arguably may not be required to file a Form 1065 since the partnership has no U.S. income. Such state and local partnership returns may require the identity of all partners (including foreign partners) to be included as part of the return. An offshore fund electing partnership status should carefully analyze the connection of its activities to the United States and the residencies of its U.S. investors to determine federal and state filing requirements as well as provide proper disclosure as to these filing obligations to its foreign investors.
Hedge Fund Countries
Anguilla This country offers a low-cost and efficient regulatory environment for private investment funds. The laws of Anguilla allow for three (3) types of hedge fund, two (2) of which are important to fund managers starting a small offshore fund. Those types of funds are the Private Fund and the Professional Fund. In Anguilla, a fund may be in the form of an Anguilla domestic company, international business company, limited liability company, limited partnership, partnership, unit trust or protected cell company, protected cell accounts, segregated portfolio company, or segregated portfolio accounts. The corporate entities are extremely useful because they allow for the issuance of series or classes of shares with different rights thus allowing for the creation of umbrella funds and master/feeder structures. The use of an Anguilla domestic company also allows for the use of companies limited by guarantee and shares, as well as private companies.
British Virgin Islands The British Virgin Islands (BVI) is an attractive and affordable jurisdiction for hedge funds. The legislative structure in the BVI is modern and internationally recognized. The authorities have successfully created a framework that is rigorous in terms of anti-money laundering and know-your-customer requirements. The BVI offers a suitable level of regulation for private and professional funds combined with flexibility and great value for money. It's considerably less expensive to establish a fund in the BVI than comparable jurisdictions such as the Cayman Islands.
The BVI hedge fund industry is governed by the Securities and Investment Business Act 2010 (Act). In the BVI, regulated funds are categorized as private funds, professional funds or public funds. However, not all investment funds are subject to SIBA, as it regulates open-ended funds (e.g., those funds whose equity interests are redeemable at the option of the investor). Closed-ended funds (e.g., those funds whose equity interests are not redeemable at the option of the investor) are not subject to specific regulation in the BVI. The Act requires all investment funds falling within its definition of "mutual fund" to be recognized or registered with the Commission. The Act further requires all managers and administrators of mutual funds to be licensed where the manager or administrator is incorporated in or carries on its business from the British Virgin Islands.
The Act defines a "mutual fund" as a company incorporated, a partnership formed, a unit trust organized or other similar body formed or organized under the laws of the British Virgin Islands or of any other country or jurisdiction which collects and pools investor funds for the purpose of collective investment; and issues shares (defined as shares in the share capital of a company, an interest in a mutual fund partnership and a unit in a mutual fund unit trust) that entitle the holder to receive on demand or within a specified period after demand an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets of the company, the partnership, the unit trust or other similar body, as the case may be. BVI-based funds, managers and administrators are not required to pay any income taxes under the British Virgin Islands Income Tax Act. Furthermore, the investors in such entities will not have to pay any British Virgin Islands income taxes or capital gains taxes on payments those investors receive. Provided the entity has no employee in the British Virgin Islands, it will have no liability to British Virgin Islands payroll taxes. Capital gains realized with respect to any shares of a fund are exempt from income tax in the British Virgin Islands and there are no estate, inheritance, succession or gift taxes payable in the British Virgin Islands with respect to any shares of a hedge fund.
Cayman Islands This country allows for four (4) types of hedge funds, two (2) of which are important to fund managers starting a small offshore fund. Those types of funds are the Category 4(3) Fund and the Category 4(4) Fund. The Cayman Islands is one of the world’s lowest tax domiciles with no personal or corporate taxes. Registering in the Cayman Islands does not involve much due diligence by the Cayman Islands Monetary Authority during the incorporation process, but is not necessarily cheaper or faster overall. Cayman does not require monthly reports or prior consent to change service providers, but before a fund can commence trading, it has to be registered with CIMA under the Mutual Funds Law (subject to some exceptions). This means identifying all service providers to the fund and providing certain information about the fund and the offering of its securities, and CIMA has to be notified of any subsequent changes. However, currently the Cayman Islands does not require a fund to file regular reports with CIMA.
What are Offering Documents? Offering Documents are the key to hedge fund sales. The fund's offering materials and legal documents must clearly spell out the manager's approach to charging fees. Include a description of the fee schedule; the exact formula used to calculate fees owed, including where appropriate, example calculations; the time period for fee calculations; and the source of information to be used to calculate the fee payments. 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. Calculate performance fees 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 adequately delineate 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.
Customer Testimonial Capital Management Services Group and Hannah Terhune have been instrumental in helping me establish a forex fund. I have been particularly impressed with Hannah's willingness from the beginning to advise me on the various options I had, and in helping me chart the appropriate course given my goals. She was very helpful in addressing and answering my many questions and I greatly appreciate her advice. As someone who was launching his first fund, I've greatly appreciated the support I received from her and her staff. I look forward to my ongoing relationship with Hannah Terhune and CMSG.
Legal Development Process The legal development process is one that requires careful planning. A variety of regulatory issues intersects concurrently when developing a hedge fund: tax, registration, entity type and classification, jurisdiction, security type, and so on. The wisest course of action for those thinking about developing a hedge fund is to consult with qualified legal counsel before taking definitive steps.
Due to the many regulatory issues that must be complied with, it is best to define the structure of your fund properly before commencing any form of fund development or engaging the services of administrators or service providers. The legal development process normally begins with a planning consultation with an attorney experienced in forming hedge funds. This is where important determinations such as registration, jurisdiction choice, and utilization of safe harbors are made. The consultation may expose areas (outside the legal process) that need further planning, thus requiring the manager to deal with those issues before proceeding. After clearing up any such issues, a full engagement is entered into and the legal development process begins.
The hedge fund and investment manager are formed in their appropriate jurisdictions. This enables the fund manager to begin the process of opening bank and brokerage accounts and setting up the administrative functions of the hedge fund. After the entities are formed, the legal team gathers the necessary information to form the operating agreements for the entities and then the offering documents, first in draft stage and then finalized for distribution to prospective investors. The process of setting up a hedge fund usually can be completed within 60-90 days, though registration as an investment adviser, specialized circumstances, or delays in providing information can lengthen the process.
Is Running a Hedge Fund Profitable? Yes. Hedge fund managers typically demand management fees of 1% to 2% of assets under management (AUM) as well as performance fees of 20% to 50% of net trading gains. Performance is calculated on a cumulative basis against a high-water mark so that performance fees are not paid out (or are reduced) until the losses are recouped. Some hedge funds limit the number of years of loss carry-forward for the purposes of calculating performance fees. This income can be substantial! If you had $2 million AUM and a 1% management fee and a 20% performance fee, you would have combined fee income of fee income of $140,000 from a $20,000 management fee ($2 million x 1%) and (assuming fund performance of 30%) performance fee income of $120,000 ($2 million AUM x 30% performance=$600,000 x 20%). If you had $5 million under management, you would have combined fee income of $350,000. If you had $1 billion AUM, you would have $50 million in combined fees, assuming fund performance of 20%. Click Here for Information on Drafting a Performance Allocation
Why 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!
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.
