How it works
What it actually takes to start a hedge fund.
Nobody puts this in one place. Here is the whole list, in the order it happens, with who does each step. We do every step with you; the ones marked counsel are done by the independent fund lawyer we engage on your behalf.
Three entities
A Delaware limited partnership (the fund), an LLC general partner, and an LLC management company that earns the fees. EINs for each and a registered agent. About a week. Digital asset funds add a wallet policy and custody agreements at this step.
Pick your exemption counsel
Rule 506(b) if you'll raise from people you know (no public solicitation); 506(c) if you want to market openly but must verify every investor is accredited. Section 3(c)(1) caps you at 100 investors; 3(c)(7) means qualified purchasers only.
Offering documents counsel
Private placement memorandum, limited partnership agreement, subscription agreement and investor questionnaire. They set your management fee, incentive allocation, lockups, redemption terms, side pockets, valuation policy and what happens when things go wrong.
Adviser status
Under $150M in private fund assets you are usually an exempt reporting adviser: file Form ADV Part 1 with the SEC and update it yearly. Some states still require their own registration. Over $150M you register as an RIA with a full compliance program and a chief compliance officer.
Performance fee rules
To take an incentive allocation, each investor generally has to be a qualified client: $1.1M managed with you or $2.2M net worth. The subscription documents screen for it.
Filings after first close
Form D with the SEC within 15 days of the first sale, then notice filings and fees in every state where an investor lives. If you trade futures, swaps or crypto perpetuals, a CFTC/NFA commodity pool registration or exemption too.
Service providers
Fund administrator for NAV and capital accounts (us), a prime broker or qualified custodian, a bank account, an auditor for the annual audit investors expect, and a tax preparer for the partnership return and K-1s.
The money math
Running costs are $50,000 to $100,000 a year even on a platform, so most launches need $2M to $5M to be worth it and $5M+ to be comfortable. 2-and-20 is mostly gone for new managers; 1 to 1.5 and 15 to 20 is where emerging funds land.
Who does what
Three parties, one plan.
You
- Strategy, terms and the investor list
- Sign two engagement letters: ours and counsel's
- Review the documents with counsel
- Open the brokerage or custody account we set up
Independent fund counsel
- Drafts and signs off the PPM, LPA, subscription documents
- Advises on exemptions, adviser status and state rules
- Counsel of record on offshore structures
- Standing counsel add-on: contracts, risk, defense
Hedge Fund in a Box
- Entities, EINs, registered agent
- Form D, blue sky and ADV filings, compliance manual
- Administration: NAV, capital accounts, statements, KYC/AML
- Investor portal, bank, brokerage and custody onboarding
- Audit and tax coordinated at cost
Hedge Fund in a Box is not a law firm and does not give legal advice. Your offering documents are prepared and signed off by independent fund-formation counsel engaged on your behalf. Nothing on this page is an offer to sell securities.
Timeline
Six weeks onshore. Eight to ten with an offshore feeder.
| Week | What happens | Who |
|---|---|---|
| 1 | Launch plan signed; entities filed; EINs; bank account | Us |
| 2 to 4 | Offering documents drafted and reviewed with you | Counsel |
| 3 to 5 | Brokerage or custody onboarding; administrator and portal live; compliance manual; Form ADV filed | Us |
| 6 | First close through the portal; Form D within 15 days; state notices | Us + counsel |
| Monthly | NAV, capital accounts, statements; investor onboarding | Us |
| Yearly | ADV update, compliance review, audit and tax coordinated | Us + counsel |