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How long does it take to set up a fund? | |
| Although legal structuring can be completed in just 2 to 3 months, in our experience, most managers will take 6 months to launch. This is because some decisions require careful deliberation. Depending on the complexity of the fund strategy and parties involved, delays are often unavoidable. Service providers and other stake holders need to be kept in the loop which will take time. However, once key terms are established, the process can move quickly. | ||
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Do I need a prime broker? | |
| Prime brokerage arrangements are common in the hedge fund industry and are particularly attractive to emerging managers who frequently do not have extensive capital or other resources. Prime brokers generally provide custody, back office support, and other services, while the manager concentrates on managing the fund’s portfolio. However, most prime brokers will require minimum fees generated through trade related commissions or financing. | ||
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Do I need a custodian? | |
| A custodian is often appointed by a fund to act as guardian of its assets pursuant to the terms of the relevant custodian agreement. If appointed, a custodian will hold in custody all assets of the fund. It may also collect dividends and other payments due in respect of the fund's assets and make dividend and redemption payments. To this end, there can be some overlap between the role of a custodian and the role of an administrator. There is no requirement that a custodian be based in the Cayman Islands. Most Cayman Islands based administrators hold trust licenses pursuant to the Banks and Trust Companies Law (2009 Revision) (as amended) of the Cayman Islands as well. | ||
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What’s the difference between a fund administrator and the auditor? | |
| Typically an administrator will be appointed to oversee the day-to-day operations of the hedge fund, and (depending on the terms of the contract between itself and the hedge fund), assist in the calculation of (or make the ultimate determination of) the net asset value ("NAV") of the hedge fund, to process subscriptions and redemptions, to act as registrar and transfer agent and usually undertake anti-money laundering ("AML") procedures on behalf of the hedge fund. The administrator will also usually coordinate the opening of a bank account for the fund to deal with subscriptions and redemptions. In addition, a Cayman regulated or licensed fund will need to appoint Cayman based and CIMA approved auditors. A regulated mutual fund is obliged to file its financial statements audited by an approved auditor and fund annual return form within six months of its financial year end. Furthermore, the accounts of regulated funds are required to be audited by an approved Cayman Islands based audit firm (or be audited by another audit firm but be signed-off by an approved Cayman Islands based audit firm). The auditor has certain reporting obligations to CIMA under the Mutual Funds Law regarding the operations of a fund that it audits. |
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Do I need any registrations or licenses to operate a fund? | |
| If the fund manager is located and operates from offshore which is the same jurisdiction as the hedge fund itself, it is not subject to the licensing or regulatory requirements of Hong Kong. The fund manager will have day to day investment discretion for the hedge fund. It may appoint an investment adviser to provide it with (non-discretionary) investment advice. However, if a firm carries on a business in the regulated activities in or from Hong Kong, or holds itself out as carrying on such a business, it is required to set up a presence in Hong Kong and be appropriately licensed by the Securities and Futures Commission (“SFC”). | ||
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What is the preferred hedge fund structure for Hong Kong based manager? | |
| The preferred hedge fund structure for Hong Kong based managers and advisors tend to be offshore limited liability company. The main factors determining this preference is investor familiarity, and that such a vehicle is relatively low risk to the hedge fund manager (ie. It has a separate legal entity distinct from the management functions, and is easy to operate with respect to day-to-day subscriptions and redemption of shares). Furthermore, offshore jurisdictions used such as Cayman Islands, British Virgin Islands, and Bermuda are tax neutral. Currently, Cayman Islands remains the favorite for hedge funds where BVI has traditionally been preferred for private equity funds. | ||
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What is the typical fee structure for a hedge fund? | |
| Typically investors in a hedge fund will pay the manager a management fee and a performance fee. The management fee, paid either quarterly or monthly, will range from 1—2% of AUM. The performance fee is generally assessed annually (although some managers will assess the fee frequently as quarterly) and typically is 20% of the fund’s profits (subject to a “high water mark”). It also depends on the complexity of your fund. Despite a growing trend for fee compression in long-only and long-biased funds, there will always be a market for outperformers. Economics are also a point of negotiation with early investors and seeders, which can be addressed either through separate share classes or side letters. | ||
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Do I have a choice which professional providers I use? | |
| Yes. OPIM has established relationships with the best professional service providers in the industry. However, if you’re setting up a standalone fund, you’re free to choose which provider you feel best suits the needs of your fund. OPIM’s Sunrise SPC platform has already engaged a series of professional partners, brokers, and independent directors, so funds launched through this process enjoy the benefit of just plugging into the current arrangements with hedge fund industry leaders. |
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