Private Equity and Hedge Funds
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A hedge fund is a fund which undertakes a range of investments financed by pooling
the contributions of private investors, who are subject only to limited liability. Since
the goal of a hedge fund is to minimize personal liability, the general (managing)
partner will usually also form an limited liability entity for managing and administrative
purposes. Because a hedge fund is private and constrained to certain private investors,
it is exempt from many regulations. Most hedge funds have a particular investment
strategy to inform investors of the fund's nature. Hedge funds are also structured
differently depending on whether they are formed for the benefit of persons residing
within or without the United States. Persons residing outside the United States have
the option of establishing an offshore fund to manage their investments. Thus, hedge
funds are organized in either a master-feeder structure or side-by-side structure. In the
former, domestic investors contribute to a limited partnership structured in the United
States which acts as a feeder for the larger fund. Parallel limited partnerships exist for
offshore investors, creating an offshore feeder also leading back to the main fund,
which is controlled by the fund manager. In a side-by-side structure, U.S. investors
pool their money in a domestic limited partnership, while offshore investors contribute
their money to an offshore corporation.
A private equity fund is a pooled investment fund financed by private investors who
are only exposed to limited liability. It is very similar in structure to a hedge fund, and
is also subject to fewer governmental regulations than a mutual fund or other
investment in a public company.
Hedge funds differ from private equity funds in that they invest mostly in liquid assets.
Private equity funds make less liquid investments and may require an investor to lock
their money with the fund for a period of 3-10 years.
Question about forming a hedge fund or private equity fund? Contact us for assistance.
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