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.

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.

A custodian is often appointed by a fund to act as guardian of its assets pursuant to the terms of the relevant custodian agreement. Except providing custody for all assets of the fund, a custodian 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.

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.

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”).

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.

VAM has established close relationships with the best professional service providers in the industry. You’re free to choose which provider you feel best suits the needs of your fund.