Starting a Hedge Fund

Quote from tjs:

From what i've read, it appears offshore funds are for non-US residents, etc.

Athough I've read in other documents that offshore funds have been offered to residents of the united states. I'm not sure why there is this discrepancy.

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I assume you are addressing this question to me.


Offshore funds are typically designed for non-US entities. But they also work very well for tax-exempt or tax-deferred U.S. entities such as an IRA, Keogh Plan or Profit Sharing Trust etc..etc..

It's the tax status of the investing entity that primarily determines if it's suitable for an Offshore structure.


Regards,
Dr. Zhivodka
 
I'm responding while on the road, and will be doing so for the next several days. Sorry for the the delayed and combined responses.

Individual US investors should not invest in offshore funds. It will have a very significant and negative impact on their personal tax situation. If you are trying to attract US investors, you should not be spending the money to form an offshore hedge fund, in my opinion.

I agree with PoundTheRock. Your Management Company almost always has a presence in your home state.

There are several software packages out there that you can use for your hedge fund accounting. You need a package that provides not only a K-1 for the hedge fund as a whole, but also provides all the data that will be need to prepare the K-1s for your investors. This is called partnership-level accounting, and is critical for the proper operation of your hedge fund. There are several packages that you can use. They range from $1,500 to over $30,000.
 
"Must I register as an Investment Adviser?
See these paragraphs from my prior posts:

Each state (with the exception of Wyoming) has created rules relating to Investment Adviser activities. Some of those state rules will take precedence over the federal rules. For example, in Texas and California (and many other states), if you have a business presence in the state and have a single client that is compensating you for investment adviser activities, you must register as an Investment Adviser. "

wesgttcpa. this statement seems to say you have done the state by state research on this subject. could you post a state by state rundown or is it privileged info. it could draw you more business if people knew they had to register in their state.
 
Vhenn, it is not privileged information, but it is not a simple yes/no. It takes research. No, I do not have a chart for each state; there are too many variables. As I said before:

Answering a "Must I register?" post is not something that can or should be done on a message board. It is an answer to a specific set of circumstances, and the answer would vary based on where you live and on your answers to a number of questions. I would be happy to help you outside of the board, but I am not here to solicit business. Talk to an experienced professional or to an attorney specializing in this field. It's an important question, and it deserves the full attention of a professional.

It's too important of a question to not get it done right. Right, in this case, in my opinion, means that you need to pay for the advice of a professional.
 
Quote from darkhorse:

...By the way, I've checked around with guys in the know and the consensus is that a domestic hedge fund can be set up for approx. $10,000 and all the regular paperwork can be outsourced for a modest charge on assets (typically 1-2% per year with a minimum fee of XXX). There's no reason to think the costs are stratospheric, paperwork is paperwork no matter how complex it is, and the basic structure of a hedge fund- an LLC set up as manager of an LLP- is just not that big a deal. Don't believe the hype about already needing to be wealthy to get in the game. Ain't true. ...
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The cost to start a "Hedge Fund" can be very low. For example, one can start an LLC or LP for less than $1,000. One can then run a "Friends and Family" account at Interactive Broker at very low commission cost. This does not require any registration / licensure with the NFA / CFTC / SEC, as long as there are less than 15 partners (i.e., investors), and less than $200K under management. Accounting can be farmed out to a firm that specialises in trader's accounting (e.g. Robert Green's firm). Advertising / sales is not an issue at this level because it is illegal. As the fund grows (and hopefully the profits, too), additional professional services (such as a consulting law firm) and a sales / marketing person / team can be added as needed, and licensure requirements can usually be satisfied with a Series 3 test and NFA / CFTC registration (as a CTA and / or CPO); in addition, state regulations need to be observed.

:)
 
Just a reminder to those interested in starting a hedge fund. First, we do have hedge funds within Bright Trading.

Second, if you're simply seeking additional capital to trade with, and would prefer to keep your profits vs. paying out 80% to "investor types"....you may want to talk to me about how we fund proficient traders.

If you plan on making money, and only need a few million to trade with, it might make sense to keep all of your profits, like I said, vs. giving away 80% or so. If you're looking simply for the 2% fee, then that is a completely different story.

Feel free to call to discuss.

Don
 
I for one think Don should be given a Nobel Prize for coming on ET and giving all you hedge fund wannabes an AUTOMATIC FREE 80% RETURN ON YOUR MONEY - out of the goodness of his heart.

The man, the myth...words cannot express my gratitude. We are truly blessed.
 
Quote from ktm:

I for one think Don should be given a Nobel Prize for coming on ET and giving all you hedge fund wannabes an AUTOMATIC FREE 80% RETURN ON YOUR MONEY - out of the goodness of his heart.

The man, the myth...words cannot express my gratitude. We are truly blessed.
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Why, thank you, your words are so kind. I don't believe that I said anything like your comment above, as you know. I was merely pointing out to those who may be serious about trading, that paying out 80% to "investors" is a tough road, and an even tougher business model for profitable traders.

As I said, some may prefer to keep their profits, some may not.

Have a good day...

Don
 
Quote from PuffyGums:

Trading the money of your friends and family is a good way to have fewer of them.
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*laugh* If you lose their money, not only will you be sad, but you won't have anyone to comfort you. :p
 
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