Are Hedge Funds Legal?

Understanding Hedge Funds

Legally, hedge funds are most often set up as private investment limited partnerships that are open to a limited number of accredited investors and require a large initial minimum investment.

What is a hedge fund in simple terms?

Hedge Fund is a type of Investment Partnership.

They invest in publicly traded securities (stocks & bonds), and anyone is allowed to join. To protect general public investors, Mutual Funds are heavily regulated and restricted in what they can invest into.

What license is required to run a hedge fund?

First, a potential hedge fund manager does not need to have a series 7 license in order to manager a hedge fund. The series 7 license is the general securities representative licese which allows an individual to be a representative (broker) of a FINRA registered member firm (brokerage firm or broker-dealer).

Do all hedge funds have to register with the SEC?

Hedge Fund Regulation

An advisor of a mid-sized hedge fund does not have to register with the SEC if he is registered with the state where his principal office is located.

What happens if a hedge fund loses your money?

When Hedge funds when make losses, fund managers just get their fees and investor lose their money. On the flip side, when they make profit, it will negate all the previous losses. Management wise, a loss means more leverage. Direct loss of equity AND probable withdrawals from unhappy investors.

Can anyone start a hedge fund?

To start a hedge fund, you’ll need to create and register a fund and start an investment company to be the fund’s general partner. In this endeavor, the investors will act as limited partners in a private partnership.

Are hedge funds high risk?

Hedge Fund Risks

Hedge funds are very risky. It is exactly this risk that attracts many investors who believe higher risk leads to higher return. This structure means hedge funds managers are very risk tolerant. This makes the funds very risky for the investor, who can lose all the money they invested in the fund.

Do you need a degree to start a hedge fund?

Do I need a college degree to start a hedge fund? Practically, there is no way around it. Hedge funds have to fulfill high regulatory requirements regarding accounting, compliance, risk management and IT infrastructure. And guess whom institutional investors will not even talk to people without college degrees.

Do you need a license to be a hedge fund manager?

The only universal license requirement for a hedge fund manager is an ordinary business license. However, since a hedge fund manager is in the position of acting as an investment advisor, he may be required to take the Series 65 exam and obtain a Series 65 license.

How much money do you need to start a hedge fund?

Grant Thornton estimates that new hedge funds will need $75,000 for startup costs, with $100,000 needed annually for ongoing operations.

Do hedge funds have to be audited?

Do domestic hedge funds need to be audited on a yearly basis? Generally there is no requirement for a domestic hedge fund to have a yearly audit.

Are Hedge Funds 40 Act funds?

Registered ’40 Act mutual funds offer a larger distribution base with fewer barriers of entry for the average shareholder. By converting to a mutual fund, the hedge fund manager can bring over their track record from the hedge fund and begin to attract new investors.

Are hedge funds registered investment advisers?

Beginning in 2012, most hedge fund managers with more than $150 million in assets under management will be required to register as an investment adviser with the SEC under the Investment Advisers Act of 1940. Many hedge fund managers already are registered with the SEC.