As hedge fund consultants, Frank Nagy Financial Services can offer the opportunity form and launch a US or Offshore Hedge fund.
WHICH BUSINESS SOLUTION IS RIGHT FOR YOU?
Choosing and offshore jurisdiction
The British Virgin Islands (BVI) is an attractive 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. It is considerably less expensive to establish a fund in the BVI than comparable jurisdictions such as the Cayman Islands. Hedge funds domiciled in the BVI would benefit from the availability of higher quality banking and custody services in the jurisdiction.
Currently, The British Virgin Islands (BVI) have approximately 3,000 investment funds registered by the BVI Financial Services Commission (FSC). The most popular fund structures are a Closed-ended company (fund) and a licensed Professional Fund.
Choosing a state jurisdiction in the U.S.
Delaware is a typical state in the United States to form a U.S. hedge fund. The fund is usually set up as a limited liability company (LLC) or a limited partnership (LP). Depending on which type of strategy you choose will determine which set of regulations will apply when starting a hedge fund. Private hedge funds can rely on Regulation D, Rule 506 of the Securities Act of 1933 to avoid registering a public offering. To be exempt from registration as an investment company with the SEC, a fund may qualify to rely on Investment Company Act of 1940 Section 3(c)(1). Maximum accredited investors are 100. Title IV of the Dodd-Frank Act (Act) requires the SEC to provide an exemption to private fund advisers with assets under management in the U.S. of under $150 million. State regulations may apply.
When setting up a U.S. and BVI hedge fund, there are two structures that managers need to consider.
Side-by-Side structure - An investment manager will run two independent hedge funds in the exact same manner. The manager will form both a domestic and offshore hedge fund. This structure is ideal for certain strategies such as a fund of funds and other types of trading with illiquid securities (REITs, Partnerships, Private Placement Offerings, etc.). For active managers who trade regularly, this strategy may not be a wise choice because trade orders would need to be split between the domestic and offshore fund which creates administrative headaches.
Master-feeder structure - This common structure entails having a domestic hedge fund "feeder," an offshore hedge fund "feeder" and an offshore hedge fund "master." In most cases the master-feeder structure is a preferred structure from an administration point of view. However, there are several tax considerations which you should be aware of when establishing a master-feeder structure. Also, there is an added cost to setting up an additional offshore entity in addition to the domestic and offshore hedge fund.