Starting a Hedge Fund

[italkcash]

How do I start my own hedge fund?

Forming a hedge fund is a relatively easy process, provided that the potential manager has access to enough capital to implement his or her trading strategy and to cover the administrative and legal costs associated with the start up.

Essentially, the fund manager needs only a few documents to get started.
These include:

• A Private Placement Memorandum which is drawn up with the aid of an attorney and reviewed by an accountant, who will typically act as auditor. The partnership agreement may be in the form of a limited partnership or a limited liability corporation. The Private Placement Memorandum explains relevant trading strategies, the associated risks, the biographies of key personnel, and contains documents disclosing the names of the attorneys, accountants, and other administrators as appropriate, as well as the partnership's compliance with blue sky laws.

• Subscription Agreements which are signed by the investors in the partnership.

A more complete listing of documents that a hedge fund manager may need to create is listed below:

• Confidential Offering Memorandum
• Limited Partnership Agreement
• Offering Memorandum Instructions
• Subscription Agreements
• Limited Partner's Suitability Letters
• Limited Partner's Signature Pages
• Legal and Regulatory Handbook
• Accounting and Tax Handbook
• SEC Regulation D Code (U.S.A. related)
• Instructions and Ongoing Responsibilities
• Accounting Spreadsheet & Templates
• File SEC, CFTC, NFA, and State Forms (U.S.A. related)
• Quarters End and Year End Duties
• Fund Account Ledger
• Prospects and Subscription Log
• General Fund Ledger
• General Partner Corporate Books and Records
• The new hedge fund manager must establish relationships with several industry service providers from the outset of the fund. Some of these include:

• # Administrator (typically non-U.S.A. related)
• # Auditor
• # Prime Broker
• # Attorney
• # Custodian and Registrar Bank (typically non-U.S.A. related)

A new manager can expect to spend approximately 25 to 75 thousand dollars in legal and administrative fees. The fees for setting up a domestic fund are, in most cases, less than the fees forstarting an offshore fund. Once the hedge fund manager has enough capital to begin implementing his or her trading strategy, and has established the necessary relationships that are involved in the transactional aspect of the business, the hedge fund can begin trading.

How is an offshore hedge fund started?

Since most offshore hedge funds are structured as corporations, the primary difference between starting a US-domiciled hedge fund and an offshore hedge fund lies in the process of incorporation as a foreign based entity. The same types of relationships must be established with industry service providers, and as noted above, the fees associated with creating an offshore fund may be higher than the fees associated with starting a US-domiciled fund.

[kushmoney]

I did some research on this before. You must have $20 million of your own before any one would even think about investing in your fund.

[italkcash]

Well yes and no! I would say that a proven track record on trading stocks could be a much better attraction for potential investors.
I also discovered that offshore Hedge Funds in jurisdictions such as Panama or Seychelles can be setup for as low as 36.000$

[bluechip]

I agree with you . A proven track record speaks much and helps investors to take decision whether to invest in Hedge fund or not.

Moreover as private, lightly regulated partnerships, hedge funds do not have to disclose their activities to third parties. This is in contrast to a fully regulated mutual fund (or unit trust) which will typically have to meet regulatory requirements for disclosure. An investor in a hedge fund usually has direct access to the investment advisor of the fund, and may enjoy more personalised reporting than investors in retail investment funds. This may include detailed discussions of risks assumed and significant positions. However, this high level of disclosure is not available to non-investors, contributing to hedge funds' reputation for secrecy.

[elvenrunelord]

Correct, but it would be very hard to get investors of any great amount of money if you incorporated in those countries due to the lack of legal protections the investors have if the manager runs with the money.

If your going to invest and your not a huge investor you better stick with a fund in your won coutry where you are familiar with the laws and such.