Hedge Funds: Company Structures

Hedge funds are an investment opportunity like no other. The industry has over $1 trillion dollars worth of assets world wide and to qualify, you must have a substantial bankroll to the tune of at least $1 million dollars in personal assets. Hedge fund companies are structured as limited partnerships and according the the U.S. Securities and Exchange Commission website.

Limited Partnerships

Since hedge fund companies are structured as a limited partnership, an investor must purchase an interest in the partnership and that will provide them with the status of limited partner. Because of the fiduciary expenses of managing such large investment instruments as hedge funds, the average income investor is generally priced out of putting their money into hedge funds.

Hedge fund companies are structured differently based on what audience they are catering too. Hedge funds formed for U.S. residents will have a different legal structure than those created to benefit other residents of the world. As always, different financial markets have different legalities in place to govern their economic industries. Some hedge fund company structures include offshore funds, side-by-side and master-feeder.

Key Hedge Fund Structure

  • “Entities” are created to limit the personal liability of the hedge fund manager
  • The entity will provide consulting services to the partnership
  • This entity is the acting general partner
  • The state in which the entity is based will determine whether the hedge fund manager organizes the general partner as a corporation, limited partnership or limited liability company
  • Sometimes the hedge fund manager will create two entities, one to be the general partner and the other to be the management company

If you are interested in pursuing and investing in a hedge fund, it will be your responsibility to thoroughly review the prospectus to determine if it is the right investment type for you.