Hedge fund managers typically charge an asset management fee based on the fund’s net assets, along with a performance-based fee structured as a share of the fund’s capital appreciation. The asset management fee is generally between 1% and 2% of the fund’s net assets, and is typically charged on a monthly or quarterly basis. The performance fee, structured as an allocation of partnership profits for tax purposes, has historically been 20% of each investor’s net profits for each calendar year. Hedge fund performance fees are almost always subject to a “high water mark” mechanism that prevents a fund manager from earning a performance fee on the same gains twice. That is, the “high water mark” ensures that the manager has recouped all prior losses for an investor before the manager earns a performance fee with respect to that investor. Some hedge funds also utilize a “hurdle rate”, which requires that the fund achieve a stated return before the manager can earn its performance fee.
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…
What documents do I need to start a hedge fund?
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…