- June 28, 2017
- Posted by: Vincent Sarullo
- Category: Hedge Funds
Starting a Hedge Fund
What will a lawyer help with when starting a hedge fund?
- Help determine the name of the fund and management companies based on industry standards.
- Determine appropriate domicile for the fund and management entities and entity types (limited liability company, limited partners, onshore or offshore structure, etc.)
- Applying for Tax ID numbers
- Reviewing and settling on fund terms such as management and performance fees, fund liquidity (lock-up, frequency of redemption, notice requirements), strategy description, etc.
- Review marketing materials, website and other collateral
- Prepare fund and management company documents (offering document, partnership agreement, investor subscription document, side letters, and management company operating agreement)
- Registry as an RIA on a state or federal basis, or determining what exemptions are available; CFTC or NFA registration if trading forex or futures
- Filing Form D with the SEC and Blue Sky Filings in states where fund sells an interest
Thank you to Simon Riveles of Riveles Wahab LLP for their contribution. Riveles Wahab is a boutique law firm representing hedge and private equity funds, investment managers, startups, creative businesses, technology companies, and other ventures. Learn more on their website, http://randwlawfirm.com/.
As hedge fund administrators, we often refer our clients to lawyers in the industry to assist with fund formation. We have extensive experience working with these lawyers and only refer lawyers we know will act in our clients’ best interests.
Outside of legal formation, we spend a lot of time with these lawyers getting to know them and making sure they are a suitable fit for our clients. We network with them at events like SALT, the SkyBridge Alternatives Conference. Attorneys co-sponsor events with us like the recent NYC Alternative Investments Summit.
Our lawyers stay on top of the issues most vital to our clients. They are leaders in alternative investments legal practice areas.
Many of our clients ask us to detail fund formation legal steps. What can they expect from their attorney when starting a fund?
The steps above are only a brief outline of what lawyers can provide their clients during the process of fund formation. There are of course many intangible benefits.
The steps outlined above are an overview of what a lawyer can provide when starting a hedge fund. Lawyers may also typically provide guidance on technical issues and trends they are seeing in the industry that their other clients have dealt with that could affect your fund or management company operations.
Of course, important too is the moral support and confidence having a dedicated legal team instills in the manager. A lawyer provides guidance that allows the manager to move forward with confidence and focus.
The Tower motto is “we enable our clients to focus on their core business: investing.” The same can be said for our fellow service providers. When fund managers are bogged down with worry and insecurity over complicated legal matters beyond their forte, how can they focus on what’s most important to their clients, responsible investing?
When we meet with emerging fund managers across the industry, we consistently find many are concerned about the wide array of regulations. Newer SEC regulations and SEC investigations into fund manager misconduct have made many newer managers eager for legal guidance when starting their fund.
And rightly so, even the most expert fund attorneys occasionally describe regulations from the SEC as confusing. Some firms typically require their attorneys to spend additional years outside of law school only studying SEC rules before ever taking on clients individually.
The simple fact is that right now it is more important than ever for fund managers to have an experienced and knowledgeable legal team on their side. Hedge fund managers are indeed under SEC scrutiny.
Examples of expenses being scrutinized by the SEC include:
- travel and entertainment;
- consulting arrangements;
- broken deal expenses;
- and transactional expenses shared among different funds
Budget considerations are also important to us when we recommend attorneys. Different attorneys work on different scales, and we make sure to determine these scales and inform our clients of the rates.
Ultimately, our clients can choose the lawyer they are most satisfied with, but we make it part of our business to have reliable recommendations readily available.