How do you start a hedge fund?

A question from Yahoo! Answers:

How do you start a hedge fund?

Depends on whether you are planning to serve taxable U.S. clients or international clients and tax-exempt U.S. clients (such as pension funds and university endowments). To start a U.S. fund, you need to form a limited partnership. Funds for international clients and tax-exempt U.S. clients are usually structured as corporations domiciled in convenient jurisdictions (Caymans, Bermuda, BVI, Jersey, Guernsey, Luxembourg, etc.)

To start a serious fund, you need an auditor (and not just any auditor, but a specialist firm with an existing hedge fund practice), a legal counsel (in case of off-shore funds, two; one in the U.S., one at the fund’s domicile), and an independent administrator. Needless to say, you are also going to need a prime broker, who will also serve as custodian for fund’s assets.

Once all service providers are in place, you can have your lawyers draft a private placement memorandum and have it reviewed by auditor, administrator, and prime broker. Once the details are hashed out, you can start marketing the fund on your own or hire a third-party marketing firm to do it for you…

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