Most hedge funds raise money through a private offering exemption under Regulation D of the Securities Act of 1933. Although Reg. D prohibits general advertising, fund managers do distribute certain documents to prospective investors. These documents are designed to give an investor a complete picture of the fund’s investment strategy as well as the risks of investing in the fund. Having improper or incomplete documentation can subject a fund manager to the risk of regulatory intervention and civil liability, both of which may carry significant costs. Generally, a start up hedge fund requires a private placement memorandum, a limited partnership agreement or operating agreement, and subscription documents. If the hedge fund has multiple managing principals, these principals should generally have a management agreement or other operating agreement between themselves to define rights and responsibilities. Hedge funds that utilize third-party placement agents to solicit investors will also need additional documentation. Finally, hedge funds often develop collateral marketing material, including a “pitch book” and a “tear sheet” to provide an overview of the fund for prospective investors. All of the legal documents necessary to start a hedge fund should be drafted or reviewed by a licensed attorney with experience in the investment management industry.
Can a hedge fund advertise on the Internet?
Historically, hedge funds have been prohibited from conducting any public offering by Rule 502(c) of Regulation D, which prohibited all forms of general solicitation and advertising. However, the JOBS Act…
Does a hedge fund need to register with any regulator?
Hedge fund managers are often regulated by the state in which the hedge fund manager conducts business or by the SEC, depending on the manager’s assets under management (known as…
Can another hedge fund invest in my 3(c)(1) fund?
For a 3(c)(1) fund (or a 3(c)(7) fund) to invest in another 3(c)(1) fund and only be counted as 1 owner for the purposes of the 100 beneficial owner limitation,…