Investment Fund Formation Process

Step I. Initial Consultation

During your initial consultation with the firm’s principal, Simon Riveles, we will discuss topics including your hedge fund’s strategy, whether you intend to trade liquid or invest in illiquid assets, the profile of your target investors, regulatory and compliance requirements applicable to your particular situation, the initial and ongoing costs associated with running the fund and management company.

Step II. Fund Formation Questionnaire

To begin the fund formation process we will ask that you complete our fund formation questionnaire. The questionnaire includes a comprehensive set of questions covering

• Principal investment strategy, instruments traded and use of leverage (if illiquid strategy a private equity fund questionnaire will be substituted);
• Target investors (e.g. US taxable, US tax exempt or offshore);
• Proposed fund structure and naming of entities;
• Information regarding management company’s principals and how decision making authority will be divided between principals; disciplinary history, if any
• Compensation of the GP, including management and incentive fee and imposition of high water mark and hurdle, if any;
• Conflicts of interest, use of soft dollars and new issue restrictions;
• Minimum initial and minimum additional investment terms;
• Liquidity terms including lock-up, gate and frequency of withdrawal provisions;
• Fund dissolution terms and key man provision;
• US regulatory matters including state investment adviser registration and federal commodity pool, commodity trading adviser, broker dealer or investment adviser registration;
• Election of fund exempt under Sections 3(c)(1) or 3(c)(7) of the Investment Company Act;
• Use of general solicitation under new Rule 506(c);
• Accreditation of investors (non-accredited, accredited, qualified client or qualified purchaser);
• States of initial investor residence (blue sky state notice filing requirements);
• Use of placement agents or finders and compensation thereof;
• Selection of service providers including brokers, administrators, auditors and marketers;
• Relevant Tax and ERISA matters;
• Use of side letter and third party managers;

Step III. Structuring the Fund

After completing the fund formation questionnaire, you and Mr. Riveles will review the questionnaire in depth together. He will advise regarding the core considerations involved in establishing a fund and consult with you to structure the fund in manner best suited to meet your objectives. A domestic hedge fund is typically structured as a Limited Partnership (LP) with its General Partner organized as a limited liability company (LLC) to protect the personal liability of the GP’s principals. The LP is domiciled in Delaware and the GP in the state where the manager provides the investment advice. An operating agreement is prepared for the management company and a limited partnership agreement for the Fund (the “LPA”). A private placement memorandum (PPM or offering memorandum) is provided to each investor along with the fund’s LPA and subscription agreement.

Step IV. Introduction to Service Providers

To be marketable each Fund should have a broker, administrator and auditor engaged before taking on outside investors. We have extensive contacts in the hedge fund industry and can introduce the manager to service providers suited to their unique needs.

Step V. Preparation of the Fund and Management Company Operating Agreements and Offering Memorandum

Limited Partnership Agreement (LPA)

The operating agreement for the Fund that sets forth the powers, duties, and rights of the General Partner and Limited Partners and provides for all relevant terms governing the fund including compensation of the GP, valuation of assets, subscription and withdrawal terms, indemnification, dissolution, among other terms.

Private Placement Memorandum (PPM)

The disclosure document prospective investors receive to allow them to make a fully informed decision regarding an investment in the Fund. It contains full and fair disclosure regarding investing in the Fund, including specific information as to investment strategy, the background of the principals, potential risks, terms of the LPA, valuation procedures, tax disclosures and a listing of the Fund’s service providers.

Subscription Documents

The investor questionnaire contains questions meant to determine the sophistication, accreditation and tax status of prospective investors. The subscription agreement for the fund requires the investor to acknowledge a number of representations regarding their investment in the Fund and their execution of the subscription agreement formally entitles such investor to all rights as a limited partner.

General Partner’s Operating Agreement

The operating agreement for the manager of the Fund outlines the equity ownership of each principal and their decision making authority. The agreement outlines the allocation of profits and losses, indemnification of the members, provisions regarding the transfer of membership interest and the dissolution and winding up of the Company, among other terms.

Step IV. Compliance with federal and state securities laws

SEC Form D

Form D is a filing with the SEC that provides notice of an exempt securities offering providing detailed information regarding the offering, the Fund, use of proceeds, types of investors and placement agents used. Form D is not subject to review or approval by the SEC but must be filed within 15 days of the first sale of interests to investors in the offering.

State “Blue Sky” Notice Filings

Along with the Form D notice filing at the federal level, each state requires that notice be provided to its securities regulatory authority when an exempt offering is made to a resident of the state. The timing and content of the notice and fee payable to the state differ between jurisdictions.

Step IV. Additional Services

• Registering CPO and CTAs with the CFTC/NFA and preparing NFA approved disclosure document;
• Registering investment advisers at the state and SEC;
• Structuring and real estate and other private equity funds;
• Draft investment advisory agreements for separately managed accounts;
• Working in conjunction with offshore counsel establish parallel onshore and offshore fund structures, mini or master feeder funds, whether in the British Virgin Islands or Cayman Islands;
• Advise on the rules governing use of finder’s and placement agent and draft third party marketing agreements;
• Advise on the rules governing advertising and the use of historical performance;
• Advice concerning the general solicitation under new rule 506(c) and compliance procedures needed to verify accredited investor status;
• Advise on custody agreements and prime broker arrangements;
• Advise on use of soft dollars to pay for services used by the fund and management company;
• Advise on the trading of new issues when certain investors are restricted persons;
• Advise on investing IRA capital in a domestic fund and UBTI issues that may result.