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Written by the managing partner of Capital Fund Law Group, Forming and Operating a Hedge Fund provides an in-depth guide to assist emerging hedge fund managers through the process of successfully structuring,
Among the key topics discussed are:
This is a brief excerpt of a sample hedge fund Private Placement Memorandum (PPM) with footnoted explanations of the PPM provisions.
The PPM is based on a fictitious master-feeder hedge fund using a global fixed-income arbitrage strategy. The accompanying explanations discuss the reasons behind certain disclosure language as well as a more detailed examination of certain fund topics and how they apply to the disclosure document.
The excerpt also provides drafting tips, best practices recommendations, potential pitfalls and common mistakes in hedge fund PPMs.
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Emerging hedge fund managers face a labyrinth of regulatory and tax considerations, investor reporting requirements, and business operation issues. Managers must also balance investor relationships, capital raising, developing their investment strategies, and a myriad of other roles. Operating a hedge fund entails significant legal exposure, with substantial liability for improper disclosure. Even inadvertent mistakes can lead to substantial personal liability.
The structure of a hedge fund is dependent on a number of tax, regulatory, and financial considerations. Fund structure is also driven in large part by the fund’s strategy, such as the degree of liquidity of the portfolio investments. The fund structure should be developed based on careful and thorough analysis with the assistance of an experienced fund attorney.
“There are significant risks involved in marketing a hedge fund, both from a regulatory and investor disclosure perspective. Care must be taken when conducting marketing efforts to avoid running afoul of regulatory restrictions and overstepping disclosure parameters. Legal counsel should be involved at each step of a fund’s marketing process.
In addition to the legal issues involved in marketing a fund, there are practical, business considerations that can be outcome determinative when launching a fund. In our work with funds of varying sizes, backgrounds and strategies, we have seen a number of factors that influence a fund’s marketing success. This white paper addresses both the legal and business issues that fund managers should deal with when raising capital for an emerging fund.”
READ NOWOUR LEGAL COUNSEL HAS BEEN QUOTED IN LEADING FINANCIAL PUBLICATIONS, INCLUDING FORBES, ENTREPRENEUR, BUSINESS, AND OTHERS. CAPITAL FUND LAW GROUP HAS BEEN RECOGNIZED FOR ITS INVESTMENT FUND EXPERTISE BY WEALTH & FINANCE INTERNATIONAL IN ITSALTERNATIVE INVESTMENT AWARDS.
...The case should serve as a reminder that investors as well as money managers serving as stewards of their clients' financial resources (not to mention their own reputations) need to take reasonable steps to undertake due diligence when researching the viability of an investment...
SEEING PAST THE ICO SPARKLES: A DUE DILIGENCE CAUTIONARY TALE
"There's a lot of short-term trepidation based on regulatory uncertainty based on the SEC, with what the European Union is doing, and what various Asian regulators are doing," said John Lore, managing partner at Capital Fund Law Group.
Lore's firm advises hedge funds and private equity groups in the crypto-space. He said he's seeing an "unprecedented" number of new fund starts continuing from February.
"I think the sell-off this year has more to do with short term concern than any long-term general distaste for the asset," Lore said.
The SEC’s desire to interview cryptocurrency hedge funds, the only asset managers currently operating in the space, seems a logical next step in the development of the digital asset regulatory framework. The probe also underscores the fact that the SEC takes the crypto hedge fund space very seriously and will continue to keep a close eye on it moving forward.
SEC’S CRYPTO HEDGE FUND PROBE IS HEALTHY FOR THE INDUSTRY
“According to John S. Lore, Esq., owner of Capital Fund Law Group, PC, ‘When selecting service providers, including an attorney, administrator, and auditor, the management should consider the professional background of each provider. The level of quality of the service providers says much about the quality of the corporation’s management and business plan. Before smart people will invest in or purchase anything they seek signs of competence and stability from all tiers of the organization.”
The Five Keys To Marketing An Emerging Service Or Product | By Steve Olenski
“An accredited investor is an investor that meets the income or net worth tests established by the SEC,’ says John Lore, managing partner of Capital Fund Law Group. ‘For individuals, the investor must have a net worth or joint net worth with his or her spouse exceeding one million dollars or meet a $200,000 per year annual income threshold ($300,000 if combined with spouse).”
4 Options for Raising Capital From Friends, Investors or Even the Feds | By John Boitnott
“John is one of the more thoughtful and detailed attorney’s we have had the pleasure to work with. He pushes us to be a better company and we have total confidence that once he has analyzed an issue and provided an opinion, it is the correct one. I’d highly recommend him to a new or experienced fund.”
— Mark Taylor | Partner | Taylor Derrick Capital, LLC
“My experience using Capital Fund Law Group to launch my hedge fund has been outstanding. While I had access to other legal talent, using a true specialist in the space proved to be extremely valuable for my firm. John Lore and his team skillfully guided my team through the necessary steps to get started with the right structure and terms. I value the ongoing relationship I have with this outstanding legal firm, and continue to benefit from the high value added by John and his team in a complex and changing regulatory environment for financial service firms.”
— Joseph Cook | Managing Director | Concentus Global Partners, LLC
“John Lore and the Capital Fund Law Group team were an extremely professional solution for the legal side of my macro hedge fund launch. Their expertise in all matters relevant to the drafting of fund documents and the applicable statutory requirements was evident throughout the process of my launch. I would recommend their counsel highly.”
— Matthew Klecker | Founder, CIO | Klecker Capital Management, LLC