Incubator Hedge Fund Formation
Incubator funds provide investment managers and traders with a cost-effective stepping stone toward launching a full-fledged hedge fund. Our professionals developed the concept of the incubator hedge fund and we continue to innovate the structure, assisting our clients as they explore the limits of what incubator funds can do.
An incubator hedge fund offers a prospective hedge fund manager with the opportunity to develop a marketable track record for the fund that can be used to solicit investors. The incubator phase also allows a prospective hedge fund manager to make key operational and business decisions and to determine investor appetite prior to incurring the additional costs to start a hedge fund suitable for outside investors.
Incubator funds can be used to develop a track record across virtually any asset class. With a few months of attractive, actual results in the incubator fund’s account, from trading in the fund’s actual strategy, prospective hedge fund managers will generally have a more persuasive pitch to potential investors than with only hypothetical results or results from a personal trading account.
During the typically 3 to 12 month incubator phase, the prospective manager has the time to:
- Study and take any necessary examinations
- Obtain necessary regulatory registrations and determine available exemptions
- Develop a “tear sheet” and other introductory marketing collateral
- Make key decisions regarding fund structure and terms, team composition, and service partners
- Establish operational systems and implement the strategy “live”
- Determine marketing objectives and build a website for the management company
- Reach out to early-stage investors, negotiate investment terms, and obtain non-binding indications of interest from investors
We offer the most comprehensive incubator fund formation services available. Our professional staff handles all of the logistics and is available as a resource throughout the process. We can typically establish an incubator hedge fund within two weeks from the date that we are engaged. Our pricing is extremely competitive, although fees do depend on the number of participants and the fund’s structure (onshore, offshore, etc.). If your goal is to start a hedge fund, we will apply our fees for developing the incubator fund toward our fees to convert the incubator fund into a full-fledged hedge fund.
We provide the following services in connection with the formation and operation of incubator funds:
- Research the availability of names and establish the entities that will serve as the incubator fund and management company
- Prepare a limited partnership agreement or operating agreement that will set forth each investor’s capital contribution. This agreement will provide the mechanisms for allocating net profits and losses (including items for tax purposes) to investors’ capital accounts and for distributing net profits
- Advise regarding state law issues and required registrations to launch a full-fledged hedge fund (i.e., whether investment advisor or CPO registration is required, ability to charge performance fees, etc.)
- Prepare a disclaimer for the presentation of the fund’s track record
- Advise on marketing the fund to prospective investors in a manner that will comply with the private offering exemption under Regulation D
- Advise regarding the fund’s structure (fee structure, liquidity, hurdle rates, domestic versus offshore, etc.) so that indications of interest can be obtained from initial prospective investors prior to the actual preparation of the fund’s offering documents and full costs to start a hedge fund are incurred
- Assist in developing and negotiating service provider relationships when you begin the process to transition the fund to a “full-fledged” fund
- Provide ongoing support and consultation throughout the incubator phase
- Accommodate the need for cost-effective performance verification services through introductions to cost-effective providers