Offshore Fund Structures If you expect to have only U.S. investors, set up a U.S. fund. However, if you anticipate significant participation by offshore investors and/or U.S. tax-exempt investors (IRAs, pension plans, endowments, etc.) an offshore fund may be more appropriate. In any event, anyone can invest in an offshore fund (i.e., it is a legal form of investment). Hedge funds are set up as offshore and/or onshore funds to allow for different groups of investors. Hedge fund managers who have significant potential investors from different countries create offshore funds to make it easier to blend their customer base. Many hedge fund managers use offshore hedge funds to provide financial privacy to investors. The major consideration for establishing an offshore hedge fund is regulatory efficiency. The majority of offshore hedge funds are established in low or zero tax jurisdictions (i.e., tax neutral countries with no entity level tax applied to hedge fund profits).
UBTI Blocker Funds Hedge fund managers expecting U.S. tax-exempt investors to invest in the fund (i.e., (such as an IRA, ERISA-type retirement plan, foundation, endowment, etc.) should set up an offshore hedge fund (i.e., a blocker entity) when margin trading is required to execute the hedge fund's trading program. The reason for this is the need for such tax-exempt investors to avoid unrelated business taxable income (UBTI) tax exposure. Under U.S. income tax laws, a tax-exempt organization (such as an ERISA plan, a foundation, or an endowment) engaging in an investment strategy that involves borrowing money is liable for income tax notwithstanding its tax-exempt status. The UBTI tax can be avoided by having the tax-exempt organization invest in non-U.S. corporate structures (i.e., offshore hedge funds). Learn More About U.S. and Offshore Tax Issues While the UBTI tax is a unique concern of U.S. tax law, similar laws in other countries encourage fund organizers to set up offshore funds. Awareness of the need for a UBTI blocker fund is useful to non U.S. fund managers seeking to create an offshore fund structure attractive to U.S. investors. While we are based in the United States we have a truly global focus. Contact Hedge Fund & International Tax Attorney Hannah Terhune for Assistance
Master Feeder Fund Structure It is common for hedge fund managers to offer both an onshore U.S. limited partnership for taxable U.S. investors as well as an offshore company for tax-exempt U.S. investors. Arranging the investments of two separate funds so that each fund has the same asset allocation and is pursuing the same investment strategy can be very difficult. This problem has been solved through the development of the “master-feeder” fund structure in which the onshore U.S. limited partnership and the offshore company act as “feeder” funds and invest all their assets in an offshore “master” fund company, which conducts all trading. Pooling the assets into a master fund helps to increase the total amount of tradable assets, achieve economies of scale, and enhance operational efficiencies. When properly structured, an offshore feeder fund structure blocks offshore and tax-exempt U.S. investors from the UBTI tax. The most common offshore fund structures are the master-feeder structure and the side-by-side structure. Once the structure of the offshore fund has been determined, the next step is choosing an offshore jurisdiction.
Single Fund Structure This is a structure which is geared primarily towards non-U.S. investors, and also potentially to U.S. based non-taxable investors (such as pensions and endowments). The sponsor and management company can be either U.S. based or offshore based, but most offshore stand alone fund structures are managed by offshore individuals.
Side by Side Structure In this structure a U.S. based (typical) investment manager will run two completely separate funds in the exact same manner. This means that the manager will form both a domestic and offshore hedge fund. This structure is often good for certain strategies such as a fund of funds strategy. It is not as good for other, trading intensive strategies simply because trade tickets are typically split between the domestic and offshore fund which creates administrative hassles
Why Start an Offshore Hedge Fund? The number of offshore hedge funds continues to increase in numbers. The term "offshore" means not in your home country and the term does not refer to any one country in particular. Hedge funds are set up offshore usually for tax neutrality and/or regulatory reasons.
Hedge fund managers should consider setting up an offshore hedge fund if they expect to have investors from other countries or if their home country's laws are not geared toward the hedge fund industry. With a handful of exceptions, most countries have high territorial and jurisdictional taxes. Why would someone not from your home country want exposure to your home country's tax laws? Offshore hedge funds are generally organized as corporations (except in the United States) for tax and regulatory reasons when the investors live in high tax countries. Learn More by Reading our Leading Media Articles
We Offer an International Bias Our law firm is based in the United States but we have solid ties to law offices and hedge fund lawyers around the globe. We can set up offshore funds anywhere in the world. At times on this web site we note items of interest for U.S. fund organizers. However, most of what we suggest to U.S. fund promoters applies equally to non U.S. fund promoters.
Best Hedge Fund Countries For a new hedge fund manager who is a small operator the best location to launch an offshore hedge fund is the United States, the British Virgin Islands, the Bahamas, or the Cayman Islands. These countries have favorable hedge fund and tax laws that allow hedge funds to start out as unregulated funds (private two share class companies) with the option to "upgrade" to a licensed (i.e., fully regulated) hedge fund. At the onset of hedge fund development, it is not necessary or practical to set up a licensed, fully-regulated hedge fund. For smaller startups, it is more practical to set up an unregulated hedge fund. Setting up a licensed, fully-regulated hedge fund takes more time and money.
Offshore Limited Partnerships By dividing the functions of ownership and control, limited partnerships are very effective at protecting assets from seizure by creditors. Private equity funds with a limited number of investors will often make use of offshore limited partnerships. The offshore limited partnership vehicle is very popular among U.S. investors who tend to already be familiar with Delaware limited partnerships which the Cayman limited partnership structure is based on.
Offshore CompaniesThe vast majority of companies are incorporated with limited liability. Some companies may have more than one class of shares, which denote various fee structures and/or denote limitations on the types of investments some shareholders can make. There may also exist multiple series within each class of shares. Companies are the most common offshore vehicle for both open-end and closed-end funds.
Offshore Unit Trusts Formed under a trust deed, a unit trust is an unincorporated mutual fund structure. All unit trusts are open-ended. When investors in a unit trust add funds to their account, they are held by a trustee who has the option of acting as the custodian or selecting another custodian. Profits from these investments in the form of capital gains, interest, and dividends are paid out tax-free to investors rather than being reinvested back into the fund. Many offshore unit trusts act as “umbrella” trusts that encompass several smaller “sub-trusts” (or “series trusts”), each of which represents a single investor’s portfolio. The main “umbrella” unit trust must be carefully structured so that the assets and liabilities of each sub-trust are considered separate from the assets and liabilities of other sub-trusts. As an aside, holding units in a unit trust may be more attractive than holding shares in a company in some jurisdictions. It is possible that local regulations may not consider the units to be securities under their domestic securities laws.
Our Offshore Fund Services Include:
Consulting with and advising you on International legal and business matters (i.e., operative agreements among multiple hedge fund organizers, contractor agreements, algorithm licensing agreements, etc.) that apply to you, your intellectual property, the fund and your investment management company;
Advising on the proper fund structure, entity selection, and jurisdiction of formation.
Consulting, recommending, and linking managers to available third party legal counsel and service providers in the offshore jurisdictions.
Structuring hedge fund performance and management fees (plain vanilla & graduated rate fees) that are lawful;
Answering your fund and management company related questions;
Preparing the Private Placement Memorandum (PPM, Prospectus, etc.) in plain English while accurately and lawfully disclosing the fund’s investment terms, trading approach, and other relevant data from a legal and marketing standpoint;
Preparing the fund's constitutive documents (i.e., M&A and AA);;
Preparing the hedge fund Subscription Agreement;
Preparing the investment management agreement between the fund and the investment management company;
Forming the hedge fund and its management company;
Advising you on fund marketing, branding and operational issues;
Coordinating and arranging for the fund administrator, auditor, prime broker and other service providers; and
Advising you on capital raising issues, database listings, and resources related to finding investors for your hedge fund, and
Numerous other advisory services (i.e., capital introductions).
U.S. SEC Offshore AlertThe U.S. SEC's 134-page report published in 2003--The Implications of the Growth of Hedge Funds--presents the status of the hedge fund industry as viewed in the United States. What is interesting about this SEC Report is that articles and web content authored by our very own hedge fund attorney Hannah Terhune, JD, LLM (Taxation) (when she was the Chief and only Attorney at GreenCompany.com) on offshore hedge funds was cited on page 10 of the U.S. SEC Report as providing information the SEC Staff found to be valuable in its understanding of the hedge fund industry. For a decade, hedge fund attorney Hannah Terhune has been counted on by the U.S. government and hedge fund organizers worldwide as a source of cutting edge and practical information on hedge fund formations.
You will see from this web site that we supply more information about hedge funds than most books do on the subject. It's great to see that Hannah Terhune's expertise is appreciated by the SEC! This is quite a coup for Hannah, and provides one more piece of evidence as to how she can help you. You can reach her today at firstname.lastname@example.org or at +1 (307) 413-2212 or on Skype at: CapitalManagementServicesGroup.
Why Speak With Us? When you speak to us, you gain access to a unique combination of securities, tax, and international experience. We have established a leadership position. We think we have the best set of hedge fund offering documents (and related documents) based on the current and ever changing federal, state and offshore securities, commodities, and tax laws. We have quick turnaround times because we understand that our customers want to begin business as soon as possible. We are one destination for all your legal, tax, accounting and audit needs. Our customers value this one-stop relationship. We will help you start your business and continue to assist you. Only one thing counts with us and that's our customer relationships!
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Capital Management Service Group, Inc. is dedicated to providing the highest quality of services on a personal level and in a timely manner. We offer flat-fee engagements, which include start-to-finish legal services and counsel with all aspects of launching a domestic or offshore hedge fund. No two funds are identical. We use a client-based approach to our fund structuring and analysis. Our clients routinely comment on the excellence of our personal service and the time we take to properly understand and implement the client’s unique circumstances and objectives. Call Us at +1 (307) 213-4732, Email Us and Read What Our Client Say About Us on LinkedIn
Read leading, cutting-edge articles on hedge funds and taxes by Hannah Terhune, hedge fund and international tax attorney. Her articles are widely published on the Internet and recommended by TheStreet.com and other respected media.
Capital Management Services Group, Inc. is recognized by discriminating business owners as being the foremost tax and legal authority in the hedge fund industry. Attorney Hannah Terhune's education and experience are unsurpassed in the area of hedge fund creation, development and launch. Ms. Terhune's extensive international tax knowledge and hedge fund experience have made her an indispensable resource for serious hedge fund and business professionals. Ms. Terhune's numerous articles on the subjects have appeared in over 100 publications worldwide. Chances are, if you have read anything related to the hedge fund business, Ms. Terhune wrote it.
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Give us the opportunity to use that knowledge and experience for you. Each client receives personalized attention from our attorneys and staff. No client is too large or small for us. We pride ourselves in providing personal attention to each client. We provide the best services and support needed for hedge funds and business projects. No need to coordinate work between accounting, administrative and law firms--we handle the entire hedge fund business process from start to finish. We offer legal services, accounting services, tax planning services, tax return preparation services, business consulting services, and U.S. and offshore company formation services. We provide high quality services at competitive rates. But don't take our word for it, give us a call and let us prove what we can do for you.
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