What legal entity is a hedge fund?
The hedge fund is typically set up as either a limited partnership (LP) or limited liability corporation (LLC). In comparison, a general investment manager can set up any type of business structure that meets the needs of the investment manager.
A hedge fund is a pooled investment fund that holds liquid assets and that makes use of complex trading and risk management techniques to improve investment performance and insulate returns from market risk. Among these portfolio techniques are short selling and the use of leverage and derivative instruments.
Key hedge fund documents, such as the offering memorandum, limited partnership agreement, and subscription agreement, serve as the backbone of any hedge fund.
Hedge funds face little regulation from the Securities and Exchange Commission (SEC) compared to other investment vehicles. The SEC only requires hedge funds to register if they have more than $150 million in private funds and manage one or more funds.
A fund is an entity created to pool money from multiple investors—often referred to as limited partners.
A private fund and any management entities require legal formation. For example, some private funds are structured as limited partnerships, in which case, the partnership will have a general partner and investors will participate as limited partners.
Hedge Fund Structures. US taxable investors prefer entities that are pass though entities for US income tax purposes. These include limited partnerships (LP) or limited liability companies (LLC).
A hedge fund is a limited partnership of private investors whose money is managed by professional fund managers who use a wide range of strategies, including leveraging or trading of non-traditional assets, to earn above-average investment returns.
Still, while direct interaction with hedge funds is still mostly limited to accredited investors, some private equity partnerships that engage in hedge fund-like activity do list themselves on public stock exchanges and can thus be traded by otherwise-excluded participants.
Hedge funds are not subject to some of the regulations that are designed to protect investors. Depending on the amount of assets in the hedge funds advised by a manager, some hedge fund managers may not be required to register or to file public reports with the SEC.
What is an illegal hedge fund?
a sham or Ponzi scheme that makes few or no investments, and instead managers outright steal investor money or use it to pay off earlier investors (such as in the case of Bernie Madoff) making unauthorized or “self-dealing” investments, such as investing in property or businesses controlled by the fund's managers.
The fund's legal documents, such as the partnership agreement, offering memorandum, and subscription agreement, provide the framework for the fund's operations and investments. These documents must accurately reflect the fund's investment strategy, risk management framework, and regulatory requirements.
Most commonly, domestic hedge funds are structured as a limited partnership with an LLC as the general partner. In this structure the hedge fund managers are provided limited personal liability in their position as member-managers of the general partner LLC.
Yes, unless a hedge fund meets certain exemption criteria (such as the assets under management threshold mentioned above), they will have to register with the SEC. Among other requirements, hedge fund advisers must file a Form ADV to the SEC.
Are Hedge Funds Legal? Yes, they are legal. That is, if they are doing the right thing. The usual problems that present are insider trading and market manipulation.
A legal entity is any business organization that is legally permitted to enter into a contract, including a contract for the purchase, sale, or lease of real property. Legal entity interests may be owned individually, owned by another legal entity, or held in trust.
Private equity funds are closed-end investment vehicles, which means that there is a limited window to raise funds and once this window has expired no further funds can be raised. These funds are generally formed as either a Limited Partnership (“LP”) or Limited Liability Company (“LLC”).
A legal entity is a legal construct through which the law allows a group of natural persons to act as if they were a single person for certain purposes. The most common purposes are lawsuits, property ownership, and contracts.
Private investment funds technically are not structured as corporations, but rather as limited partnerships (LPs) or limited liability companies (LLCs). (In a few states — Delaware and Florida among them — the fund can also register as a limited liability limited partnership (LLLP).)
Creating a distinct legal entity (like an LLC or corporation) is the only true way to ensure personal liability protection. This is especially important if you plan to invest in high-risk ventures or real estate.
Is a hedge fund a registered investment company?
Hedge funds are typically required to register with the SEC if they maintain investor assets of more than $100 million. New legislation pertaining to the regulation and registration of hedge funds was enacted through the 2010 Dodd-Frank Act and implemented in the Investment Advisers Act of 1940.
An LLC can be the hedge fund manager, AKA hedge fund management company. But the hedge fund itself is usually a partnership, consisting of a general partner and up to 99 limited partners, or LPs. The general partner is the hedge fund manager, usually an LLC.
Hedge funds are not a single asset class. With their light levels of regulation, hedge funds can invest across a wide range of asset classes and instruments, without the constraints that many public or mutual funds must adhere to. Hedge funds do not invest in a consistent way.
Most U.S. hedge funds are established as limited partnerships between the fund manager and investors. While the specific structure can vary from fund to fund, there are a few characteristics that are applicable across the industry. This presentation provides a brief overview of some of the most common fund structures.
Can I start my own hedge fund? Most likely (provided you're not a convicted felon, recently filed for bankruptcy, have a judgment against you for fraud, or several other similar categories that would legally prevent you from doing so).
