Key Considerations in Structuring a Hedge Fund

© 2015 Dechert LLP

Key Considerations in

Structuring a Hedge Fund

An overview of common fund

structures and marketing

Corporate

2

Investors

June 25, 2015

Corporate

Assets

Partnership

3

Investors

Partnership

Types of Investors



Non-U.S. Investors, including continental European

investors



U.S. tax-exempt investors

–

qualified pension and profit-sharing plans

–

individual retirement accounts

–

endowments of educational institutions



U.S. taxpayers

–

U.S. resident individuals

–

treasuries of U.S. companies

Master-Feeder Structure

5

Corporate

Feeder

Non-U.S. investors/

U.S. tax exempt

U.S. taxpaying

_investors

Partnership/

Corporate

Master

Partnership

Feeder

Assets

Marketing in the U.S.



Section 3 of the Investment Company Act of 1940

–

definition of “investment company”



Private funds generally rely on one of two exceptions from

the definition of “investment company”:

–

Section 3(c)(1)



Accredited Investor



Slot counting (100 beneficial owner limit)

–

Section 3(c)(7)



Accredited Investor



Qualified Purchasers

Marketing in the U.S.



Regulation D – Securities Act

–

Two non-exclusive safe harbors for private placements that

qualify for the private placement exemption under Section

4(a)(2) of the Securities Act:



Rule 506(b)



Rule 506(c)



The Jumpstart Our Business Startups Act (“JOBS Act”)

–

Created the Rule 506(c) safe harbor, which permits in certain

circumstances the use of general solicitation and general

advertising to promote a private placement.

Marketing in the U.S.



Pre-Existing Relationship



Rule 502(d) Resale Restrictions



Capital Raising and Advertisement Issues

–

Anti-Fraud Provisions under the Advisers Act

–

Performance Advertising



Advisers Act



CFTC Matters

Marketing into Europe



Marketing objectives drive structure



Enhanced European-wide regulation

Marketing into Europe: Non-European

Funds



Jurisdiction-by-jurisdiction



Permissive, e.g.:

–

United Kingdom

–

Switzerland



Prohibitive, e.g.:

–

France

–

Italy

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Marketing into Europe: Non-European

Funds



Registration requirements



Disclosure/reporting

–

Prospectus and continuing disclosures to investors

–

Annual report and accounts (remuneration)

–

Reporting obligations to regulators



Swiss Representative/Paying Agent

Marketing into Europe: European Funds



Retail Funds (UCITS)

–

Higher regulatory burden

–

Global brand



Alternative Funds (AIFs)

–

Greater flexibility

–

Professional investors (+)

Marketing into Europe: European Funds



Ireland/Luxembourg

–

Investor perception

–

Time to market

–

Flexibility

–

Availability of platforms

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Reverse Solicitation



Not a reliable basis for fund raising



Jurisdiction-by-jurisdiction



Rigorous audit trail

–

Potential investor acting at their own initiative

–

Pre-existing relationship

–

Fund-specific information only communicated following

request from the investor

Any Questions?

16

Today’s Speakers

Abigail Bell Partner [email protected] +44 20 7184 7443 London Mikhaelle Schiappacasse Senior Associate [email protected] +44 20 7184 7845 London Darina Delappe Associate [email protected] +1 212 641 5679

New York City

David Vaughan Partner [email protected] +1 202 261 3355 Washington, D.C. Gemma Burke Associate [email protected] +44 20 7184 7818 London

For further information, visit our

website at dechert.com.

Dechert practices as a limited liability partnership or limited liability company other than in Dublin and Hong Kong.

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