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
Why Start an Offshore Hedge Fund? The number of offshore hedge funds continues to increase in numbers. The term "offshore" means not in your home country and the term does not refer to any one country in particular. Hedge funds are set up offshore usually for tax neutrality and/or regulatory reasons.
Hedge fund managers should consider setting up an offshore hedge fund if they expect to have investors from other countries or if their home country's laws are not geared toward the hedge fund industry. With a handful of exceptions, most countries have high territorial and jurisdictional taxes. Why would someone not from your home country want exposure to your home country's tax laws? Offshore hedge funds are generally organized as corporations (except in the United States) for tax and regulatory reasons when the investors live in high tax countries. Learn More by Reading our Leading Media Articles
We Offer an International Bias Our law firm is based in the United States but we have solid ties to law offices and hedge fund lawyers around the globe. We can set up offshore funds anywhere in the world. At times on this web site we note items of interest for U.S. fund organizers. However, most of what we suggest to U.S. fund promoters applies equally to non U.S. fund promoters.
Best Hedge Fund Countries For a new hedge fund manager who is a small operator the best location to launch an offshore hedge fund is the United States, the British Virgin Islands, the Bahamas, or the Cayman Islands. These countries have favorable hedge fund and tax laws that allow hedge funds to start out as unregulated funds (private two share class companies) with the option to "upgrade" to a licensed (i.e., fully regulated) hedge fund. At the onset of hedge fund development, it is not necessary or practical to set up a licensed, fully-regulated hedge fund. For smaller startups, it is more practical to set up an unregulated hedge fund. Setting up a licensed, fully-regulated hedge fund takes more time and money.
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
Offshore Fund Structures If you expect to have only U.S. investors, set up a U.S. fund. However, if you anticipate significant participation by offshore investors and/or U.S. tax-exempt investors (IRAs, pension plans, endowments, etc.) an offshore fund may be more appropriate. In any event, anyone can invest in an offshore fund (i.e., it is a legal form of investment). Hedge funds are set up as offshore and/or onshore funds to allow for different groups of investors. Hedge fund managers who have significant potential investors from different countries create offshore funds to make it easier to blend their customer base. Many hedge fund managers use offshore hedge funds to provide financial privacy to investors. The major consideration for establishing an offshore hedge fund is regulatory efficiency. The majority of offshore hedge funds are established in low or zero tax jurisdictions (i.e., tax neutral countries with no entity level tax applied to hedge fund profits).
UBTI Blocker Funds Hedge fund managers expecting U.S. tax-exempt investors to invest in the fund (i.e., (such as an IRA, ERISA-type retirement plan, foundation, endowment, etc.) should set up an offshore hedge fund (i.e., a blocker entity) when margin trading is required to execute the hedge fund's trading program. The reason for this is the need for such tax-exempt investors to avoid unrelated business taxable income (UBTI) tax exposure. 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 income tax notwithstanding its tax-exempt status. The UBTI tax can be avoided by having the tax-exempt organization invest in non-U.S. corporate structures (i.e., offshore hedge funds). Learn More About U.S. and Offshore Tax Issues While the UBTI tax is a unique concern of U.S. tax law, similar laws in other countries encourage fund organizers to set up offshore funds. Awareness of the need for a UBTI blocker fund is useful to non U.S. fund managers seeking to create an offshore fund structure attractive to U.S. investors. While we are based in the United States we have a truly global focus. Contact Hedge Fund & International Tax Attorney Hannah Terhune for Assistance
Master Feeder Fund Structure It is common for hedge fund managers to offer both an onshore U.S. limited partnership for taxable U.S. investors as well as an offshore company for tax-exempt U.S. investors. Arranging the investments of two separate funds so that each fund has the same asset allocation and is pursuing the same investment strategy can be very difficult. This problem has been solved through the development of the “master-feeder” fund structure in which the onshore U.S. limited partnership and the offshore company act as “feeder” funds and invest all their assets in an offshore “master” fund company, which conducts all trading. Pooling the assets into a master fund helps to increase the total amount of tradable assets, achieve economies of scale, and enhance operational efficiencies. When properly structured, an offshore feeder fund structure blocks offshore and tax-exempt U.S. investors from the UBTI tax. The most common offshore fund structures are the master-feeder structure and the side-by-side structure. Once the structure of the offshore fund has been determined, the next step is choosing an offshore jurisdiction.
Single Fund Structure This is a structure which is geared primarily towards non-U.S. investors, and also potentially to U.S. based non-taxable investors (such as pensions and endowments). The sponsor and management company can be either U.S. based or offshore based, but most offshore stand alone fund structures are managed by offshore individuals.
Side by Side Structure In this structure a U.S. based (typical) investment manager will run two completely separate funds in the exact same manner. This means that 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. It is not as good for other, trading intensive strategies simply because trade tickets are typically split between the domestic and offshore fund which creates administrative hassles
Offshore Limited Partnerships By dividing the functions of ownership and control, limited partnerships are very effective at protecting assets from seizure by creditors. Private equity funds with a limited number of investors will often make use of offshore limited partnerships. The offshore limited partnership vehicle is very popular among U.S. investors who tend to already be familiar with Delaware limited partnerships which the Cayman limited partnership structure is based on.
Offshore CompaniesThe vast majority of companies are incorporated with limited liability. Some companies may have more than one class of shares, which denote various fee structures and/or denote limitations on the types of investments some shareholders can make. There may also exist multiple series within each class of shares. Companies are the most common offshore vehicle for both open-end and closed-end funds.
Offshore Unit Trusts Formed under a trust deed, a unit trust is an unincorporated mutual fund structure. All unit trusts are open-ended. When investors in a unit trust add funds to their account, they are held by a trustee who has the option of acting as the custodian or selecting another custodian. Profits from these investments in the form of capital gains, interest, and dividends are paid out tax-free to investors rather than being reinvested back into the fund. Many offshore unit trusts act as “umbrella” trusts that encompass several smaller “sub-trusts” (or “series trusts”), each of which represents a single investor’s portfolio. The main “umbrella” unit trust must be carefully structured so that the assets and liabilities of each sub-trust are considered separate from the assets and liabilities of other sub-trusts. As an aside, holding units in a unit trust may be more attractive than holding shares in a company in some jurisdictions. It is possible that local regulations may not consider the units to be securities under their domestic securities laws.
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 & 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
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
Our Offshore Fund Services Include:
Consulting with and advising you on International legal and business matters (i.e., operative agreements among multiple hedge fund organizers, contractor agreements, algorithm licensing agreements, etc.) that apply to you, your intellectual property, the fund and your investment management company;
Advising on the proper fund structure, entity selection, and jurisdiction of formation.
Consulting, recommending, and linking managers to available third party legal counsel and service providers in the offshore jurisdictions.
Structuring hedge fund performance and management fees (plain vanilla & graduated rate fees) that are lawful;
Answering your fund and management company related questions;
Preparing the Private Placement Memorandum (PPM, Prospectus, etc.) in plain English while accurately and lawfully disclosing the fund’s investment terms, trading approach, and other relevant data from a legal and marketing standpoint;
Preparing the fund's constitutive documents (i.e., M&A and AA);;
Preparing the hedge fund Subscription Agreement;
Preparing the investment management agreement between the fund and the investment management company;
Forming the hedge fund and its management company;
Advising you on fund marketing, branding and operational issues;
Coordinating and arranging for the fund administrator, auditor, prime broker and other service providers; and
Advising you on capital raising issues, database listings, and resources related to finding investors for your hedge fund, and
Numerous other advisory services (i.e., capital introductions).
U.S. SEC Offshore AlertThe U.S. SEC's 134-page report published in 2003--The Implications of the Growth of Hedge Funds--presents the status of the hedge fund industry as viewed in the United States. What is interesting about this SEC Report is that articles and web content authored by our very own hedge fund attorney Hannah Terhune, JD, LLM (Taxation) (when she was the Chief and only Attorney at GreenCompany.com) on offshore hedge funds was cited on page 10 of the U.S. SEC Report as providing information the SEC Staff found to be valuable in its understanding of the hedge fund industry. For a decade, hedge fund attorney Hannah Terhune has been counted on by the U.S. government and hedge fund organizers worldwide as a source of cutting edge and practical information on hedge fund formations.
You will see from this web site that we supply more information about hedge funds than most books do on the subject. It's great to see that Hannah Terhune'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. You can reach her today at firstname.lastname@example.org or at +1 (307) 413-2212 or on Skype at: CapitalManagementServicesGroup.
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Capital Management Services Group, Inc. is recognized by discriminating persons as being one of the foremost legal authorities in the hedge fund industry. Attorney Hannah Terhune's extensive international tax and hedge fund knowledge and experience make her an indispensable resource for those starting a hedge fund or an investment management business. Ms. Terhune's numerous articles on hedge funds and international tax matters have appeared in publications worldwide. Read Our Leading Media Content and Articles by Hannah Terhune on Hedge Funds and International Tax Planning, Chances are, if you have read anything related to starting a hedge fund, Ms. Terhune wrote it. Read Our Client Comments and Read About Hannah Terhune on LinkedIn. When you engage us you get a unique combination of securities, tax, and business experience. We think we have the best set of hedge fund offering documents in the industry. We aim to deliver quick turnaround times because we understand that our Clients want to begin operations as soon as possible. Give us the opportunity to use our knowledge and experience for you. No client is too large or too small for us. We pride ourselves in providing personal attention to each Client. 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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