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Hedge Fund/ Investment Partnership Group


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Domestic Hedge Fund Start-up Checklist

General Procedures

  • Choose your external consultants: independent accountant, attorney, prime broker, clearing broker, technology support
  • Develop a business plan, including cash flow projections
  • Determine your investment strategy
  • Find a location for your business (negotiate lease and design layout of premises), furnish the space and equip it with the necessary technology and phone system (this may be available through your prime broker)
  • Purchase adequate insurance for personnel (disability, life, medical) and for the entities (liability)
  • Order business cards and stationery
  • Set up checking account

Accounting and Auditing Services

  • File for your Federal Identification Number (SS-4)
  • Determine the provisions to be included in your
    partnership documents to be prepared by your attorneys:
    • Capital transactions
      1. Contributions
      2. Distributions
      3. Withdrawals/lock-up periods
    • Allocation of profits and losses:
      1. Economic allocations
      2. Incentive allocation or Fee
      3. High-water marks, loss carry-forwards, hurdle rates and claw-back clauses
    • Tax allocations (aggregate vs. layering)
      1. Management fees
      2. Hot issues
    • Determine the fund's year-end date (generally 12/31) and break-periods
    • Determine your daily, monthly, quarterly and annual bookkeeping needs and your financial and investor reporting needs
    • Determine your annual audit needs
    • Determine the year-end tax reporting needs
    • For tax purposes, maintain your records according to the aggregate or layering method
    • For tax purposes, determine your classification as a "Trader" versus an "Investor"

Checklists






Legal Counsel

  • Prepare all necessary legal documents:
  • Private Placement Memorandum (should be prepared before solicitation is made to outsiders)
  • Partnership Agreement
  • Subscription Agreements
  • Partnership Questionnaire (address Accredited Investors/Qualified Purchasers and Hot Issues)
  • Choose your form of legal entity (coordinate this with your accountant)
  • File organization papers with the appropriate jurisdiction (e.g. Delaware, New York) and register
    to do business in such state
  • Set up your general partner and management company entities
  • Assure compliance with regulatory bodies (SEC, NASD, IRS, CFTC, ERISA)
  • Assure compliance with solicitation rules
  • Register as a Commodity Pool Operator (CPO) if you
    intend to trade even a single commodity or a future on a commodity

Prime Brokerage Services
The basic services that may be provided include:

  • Processing and clearing of trades (may be done by separate brokers)
  • Holding of securities (custodian)
  • Portfolio maintenance
  • Daily, monthly and annual portfolio reporting
  • Performance analysis
  • On-line communication
  • Trade date versus settlement date reconciliations
  • Securities lending for short sale purposes
  • Provider of margin
  • Tax compliance reporting (including layering reports, wash sale reports and K-1 equivalents)
  • Research

The criteria for being accepted as a prime brokerage client may include:

  • Minimum requirement of partnership capital or capital commitments
  • Volume of transactions
  • Size of debit balances
  • Volume of shorting transactions
  • Investment history, track record and integrity of the partnerships principles

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