Fund raising and investment, Financial Management

Fund Raising and Investment:

Fund commitment requirement in Hedge Funds sometimes exceeds millions of dollars. In addition, high minimum investments are sometimes closed to new investors due to capacity constraints and close-ended nature of the Fund. Hedge Funds also limit the number of investors due to regulatory constraints. For example in the US, the Hedge Funds limit the number of "accredited" investors up to 100 (provided that not more than 35 investors are non-accredited investors with the rest being accredited investors) or number of "qualified" investors up to 500. If it exceeds this limit, then the Fund will be treated as a mutual fund and has to comply with the SEC rules and regulations followed by a mutual fund. As a result of all of these rules, Hedge Funds are typically arranged as a partnership of 100 "accredited investors" or a partnership of up to 500 "qualified purchasers" (or "super-accredited investors").

However, large Hedge Funds allow only investors having good track records and ability to maintain long-term commitment in the present Fund and probability for investment in Funds that are to be offered in future. This closed nature will restrict new investors from accessing large funds. The alternative route for the investors is Fund of Funds (FoFs), and is the only way to gain exposure to those Funds. Generally, Hedge Funds are offered with minimum investment horizon of three-year lock-in period. On completion of lock-up restriction, investors can exit by liquidation, redemption or transfer of holding to the Fund or other genuine investors.

 

Posted Date: 9/11/2012 2:13:35 AM | Location : United States







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