Be adaptive to changing conditions, yet anchor investment
decisions on aspects having substantial certainties . . .
decisions on aspects having substantial certainties . . .
Hedge Fund Legal Structure
Regulation and Legal Structure
Unlike mutual funds, hedge funds generally rely on Sections 3(C)(1) and 3(C)(7) of the Investment Company Act of 1940 to avoid registration and regulation as investment companies. To avoid having to register with the SEC the securities they offer, hedge funds often rely on Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933
For the purpose of managing the assets of persons residing in the United States, a hedge fund is organized as a limited partnership. By purchasing an interest in the partnership, an investor becomes a limited partner of the partnership.
The manager of a domestic fund usually forms an entity to provide advisory services to the partnership. This entity serves as the general partner of the partnership, and provides the fund management services. And it is typically registered as investment advisors in the states of operations. The use of an entity as the general partner or management company, however, will not shield a manager from personal liability for fraud and other claims under the federal securities laws.