As an investment manager looking into starting a hedge fund, you know that a successful launch is critical to standing out in the increasingly competitive investment management business. If you want to attract capital from the right investors, you must put in place the right team and structure for your new fund. Discounting the legal and regulatory complexity involved with forming a hedge fund or trying to wear too many hats could lead to early mistakes that stifle momentum and are expensive to fix. This post describes some key considerations for aspiring hedge fund managers who are contemplating the formation of a new fund.
Hedge Fund Archives
Guide to Starting a Hedge Fund
March 28, 2017 by
SEC Enforcement Division’s Asset Management Unit Chief Reveals New Priorities in Regulation of Private Funds
January 9, 2013 by
Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit, gave a speech entitled “Enforcement Priorities in the Alternative Space” on December 18, 2012. The recently established 75-member Asset Management Unit (AMU) is dedicated to investigating investment advisers, investment companies, hedge funds, mutual funds, and private equity funds making up the “alternative space” referred to in the speech’s title. Karpati addressed current enforcement priorities, touching upon, among other topics, the AMU’s enhanced expertise, investor risks, and how the hedge fund operating model incentivizes misconduct. As outlined in Karpati’s speech, the AMU’s current priorities indicate that, while traditionally hedge funds and private equity funds were lightly regulated, this will likely no longer be the case. [Read more…]
Maryland Securities Commissioner Issues New Order Adopting a Private Fund Exemption Based on Model NASAA Rule
June 22, 2012 by
On June 15, 2012, the Maryland Securities Commissioner issued an order adopting the NASAA model rule exemption for investment advisers to private funds.
Like the model rule, the new order issued by the Maryland Securities Commissioner, provides for an exemption from registration for “private fund advisers”, which is any investment adviser who provides advice solely to one or more private funds (i.e. a 3(c)(1) fund or a 3(c)(7) fund). A private fund adviser must not be subject to disqualification from prior bad acts such as fraud or other securities law violations. The private fund adviser must also make the same Form ADV filings as an exempt reporting adviser would. [Read more…]
Missouri Commissioner of Securities Proposes New Private Fund Exemption Based on Model NASAA Rule
May 9, 2012 by
On April 26, 2012, the Missouri Commissioner of Securities proposed revised regulations exempting certain private fund managers from investment adviser registration with the State of Missouri.
Background
Prior to the repeal of the federal 15-client exemption, Missouri had an exemption for fund managers who were exempt under the old federal 15-client exemption and who managed investments solely for private funds with at least $5 million under management. After the repeal of the federal 15-client exemption, fund managers have relied on a No-Action Determination by the Missouri Commissioner of Securities dated July 20, 2011, which allowed private fund managers in Missouri to continue to rely on Missouri’s old exemption, until the earlier of June 28, 2012 or the promulgation of a new exemption, notwithstanding the repeal of the federal 15-client exemption. Now, it appears that the Missouri Commissioner of Securities is ready to adopt that new exemption. [Read more…]
The SEC Increases the Net Worth Requirement of the Definition of “Qualified Client” Impacting Both Registered and Some Unregistered Private Fund Managers
February 23, 2012 by
Private fund managers who are registered with the SEC are required to follow federal regulations on performance compensation. Generally, if a registered fund manager desires to collect fees based on fund performance (such at the typical 20% carried interest), then each investor in the fund must be a “qualified client.” Prior to the passage of the Dodd-Frank Act, a qualified client was defined as either (i) an individual or company that immediately after investing into the fund has at least $ 750,000 under the management of the fund manager or (ii) an individual or company that has a new worth of $1.5 Million or more or qualifies as a “qualified purchaser.”[1] The Dodd-Frank Act required that the SEC update these two thresholds for inflation, which it did, effective September 19, 2011. It updated the thresholds to $1 Million and $2 Million respectively. [Read more…]
