Rules: marketing hedgefunds/CPO etc?

Discussion in 'Professional Trading' started by traderob, Feb 4, 2007.

  1. traderob


    For someone starting a hedgefund, or as a CTA, or money advisor, money manager etc: What are the rules in USA, and offshore, with regard to marketing the fund?
  2. impractical, thats what they are 'em rules
  3. Pekelo


  4. Hedge funds are formed as limited partnerships for a good reason, to limit the investors risk to the amount of capital committed. The general partner assumes the risk. Therefore the General partner is organized as a limited liability company.

    Since the SEC will not allow a investment company to register as a security, you cannot register with a form SB-2.

    Private placements are 'exempt securities' meaning they need not be registered under the 1934 Securities Act. Regulation D governs the sale or money raise. It is a SEC form called a 13D that each state security regulator accepts. The process of selling in a state is known as 'Blue Skying". Some states require prior notice like Texas and Mass. California requires notification within 10 days after the end of the first month the first sale is made. It is a notification filing, meaning you send the 13D that is all.

    You are still subject to SEC anti-fraud provisions, ie., making false performance claims, misrepresenting material facts, etc.

    1) Family, friends. 80% of hedge fund are in the $1mm to $4mm range in AUM

    2) Third party marketers, who will market to their contacts which may be family offices or high net worth individuals. They normally take 20% of both your management and incentive fee.

    3) With 3 years of audited numbers along with a steady growth in assets under management your investment constituency becomes fund of funds, and family offices.

    Most primebrokers have Capital Introduction Programs, 'meet and greet' affairs, again at this point a fund normally has met the test and can turn on and off new capital at will.

    Organizations like Opal have events where managers pays anywhere from $5,000 to $10,000 to make a 20 minute presentation and question/answer period to a room of Accredited investors.

    Typically you have your primebroker pay the fee by debiting the 'soft dollars' bucket you have accumulated with them. But that is another story.