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Hedge Fund Basics

How and when did hedge funds originate?
Alfred Winslow Jones is usually credited with forming the first modern hedge fund in 1949. He
opened an equity fund that was organized as a private partnership and therefore e!empt from
"#$ regulations% to provide ma!imum latitude and fle!i&ility in constructing a portfolio. 'n his
original hedge fund model( Jones merged two speculative tools))short sales and leverage))into a
conservative form of investing. Jones* model was &ased on the premise that performance
depends more on superior stoc+ selection than on mar+et direction. ,or e!ample( he &elieved
that during a rising mar+et( good stoc+ selection will identify stoc+s that rise more than the
mar+et( while good short stoc+ selection will identify stoc+s that rise less than the mar+et. Jones*
model outperformed the mar+et. He converted his general partnership to a limited partnership in
19-.( used performance)&ased fee compensation( and operated his fund in complete secrecy for
seventeen years.
What are some defining characteristics of hedge funds?
Structure: US and Offshore
/")domiciled hedge funds are almost always structured as 0imited 1artnerships 01s%. 2ffshore
funds are usually structured as corporations( and therefore( are not limited to a certain num&er of
investors.
Open- versus closed-end
3ost hedge funds are structured as open)end funds( issuing new shares to investors on an
ongoing &asis. #!isting investors may redeem shares to the fund at the then)current net asset
value( su&4ect to the fund*s redemption policies as specified in its offering memorandum and
organizational documents.
Lack of Transparenc
5he hedge fund industry has traditionally &een characterized &y a lac+ of transparency. 5hat is( if
it conforms to specific "#$ e!emptions( the hedge fund does not even have to &e registered with
the "#$. 'n addition( hedge fund managers are not required to pu&licize performance information(
asset allocations( or earnings.
!erformance "ased fee structure
Hedge fund managers are rewarded primarily in proportion to the profita&ility of the fund*s
investments typically .67 of profits%. 3any times a 8hurdle8 rate of return must &e achieved or
any previous losses recouped &efore the performance fee is paid. 5his performance &ased fee
structure gives the manager great incentive to achieve ma!imum returns. 3ost hedge funds also
include a management fee &ased on a percentage of assets under management typically 1 to
.7%.
#und manager is general partner and limited partner
As the fund manager( he or she is a general partner. 9ut the fund manager is also a limited
partner &ecause he or she commits a large portion of his or her own wealth to the fund.
High minimum investment
9ecause of the limited num&er of investors that a /")domiciled fund can have( minimum
investments in hedge funds are relatively high. Having a sufficient amount of capital resulting
from high minimum investments% ensures that the fund manager will &e a&le to properly
implement his:her strategy.
$"solute return
Hedge funds are investment vehicles that usually aim for a ris+)ad4usted a&solute return( as
opposed to traditional investment vehicles( which aim to outperform a standard mar+et
&enchmar+ such as the ";1 -66 or <ussell 'nde!%.
#le%i"ilit in &nvestment Tools
Hedge funds have a higher degree of fle!i&ility in the instruments that the fund can invest in. ,or
e!ample( a hedge fund can invest in nearly any and every investment instrument that e!ists.
3any &ut not all hedge funds invest in derivatives)instruments that derive from an underlying
security. "ome of these instruments include options( futures( converti&les and warrants. 5here are
four main reasons hedge funds use derivatives= to reduce ris+( to capture a manager*s opinion in
a cost effective way( to e!ploit inefficiencies in the pricing of derivatives arising from intrinsic
pricing comple!ities( and to increase e!posure without e!cessively e!panding the fund*s &alance
sheet.
#le%i"ilit in &nvestment Strategies
Hedge funds have a high degree of fle!i&ility in the investment strategies they employ. A hedge
fund manager can use leverage( short selling( ar&itrage( or a focus in a specific industry or +ind of
security. 3anagers can &e active on the long and short side of the mar+et.
Low market correlation
5he diversity of strategies and instruments utilized &y hedge funds result in the low correlation to
typical equity mar+et &enchmar+s. 5his relates to Jones* &elief that performance has more to do
with superior stoc+ selection than mar+et direction.
Li'uidit
Hedge funds are generally less liquid than traditional investment vehicles. 3ost allow
redemptions on a quarterly &asis( &ut very few allow redemptions more frequently than that.
"ome hedge funds have longer e.g. one year% loc+ up periods( so that they can properly
implement their trading strategy without concern for fluctuations in assets. "ome funds charge a
redemption fee> this dissuades early redemption.
$ctive management
3ost funds see+ to add value through active management. 5here are several overarching
techniques &y which hedge fund managers see+ to gain a competitive advantage. 5hese include
superior information collection> superior access to opportunities> superior analysis of
opportunities> and superior trade or portfolio structuring.
Who invests in hedge funds?
Hedge ,und investors include=
"wiss private &an+s
High net worth families ; ,amily 2ffices
Japanese proprietary capital
/" endowments( foundations( pension funds
3iddle #ast investors
"tructured notes for Japanese institutions and ?erman investors
'nsurance companies
Accredited individual investors
'nstitutional investors
The hedge fund industr has grown considera"l in the last decade(
'n 1996( there were a&out @66 hedge funds worldwide with assets of appro!imately ABC &illion.
According to industry pu&lications( at the end of 199C( despite even the much pu&licized collapse
of 0ong 5erm $apital 3anagement( there were some B(B66 hedge funds with assets of
appro!imately ABD- &illion. E13? 1eat 3arwic+ and << $apital 3anagement $orp.( in a 3arch
199C report( pro4ected an appro!imate .@7 annual growth rate of hedge fund assets( li+ely
resulting in a A-66 &illion mar+et in .661( and growing to A1.D trillion mar+et within the ne!t ten
years.


Hedge Fund Styles

Hedge #und Stles
While more than D67 of the total assets under management in hedge funds are invested in the
equity mar+ets( the investment disciplines are diverse and distinct. HedgeWorld uses the $redit
"uisse 5remont 'nde! 00$*s series of su&)indices( which are designed to trac+ the primary
categories of investment styles used &y hedge fund managers.
)onverti"le $r"itrage
5his strategy is identified &y hedge investing in the converti&le securities of a company. A typical
investment is to &e long the converti&le &ond and short the common stoc+ of the same company.
1ositions are designed to generate profits from the fi!ed income security as well as the short sale
of stoc+( while protecting principal from mar+et moves.
*edicated Short +ias
Fedicated short sellers were once a ro&ust category of hedge funds &efore the long &ull mar+et
rendered the strategy difficult to implement. A new category( short &iased( has emerged. 5he
strategy is to maintain net short as opposed to pure short e!posure. "hort &ias managers ta+e
short positions in mostly equities and derivatives. 5he short &ias of a manager*s portfolio must &e
constantly greater than zero to &e classified in this category.
,merging -arkets
5his strategy involves equity or fi!ed income investing in emerging mar+ets around the world.
9ecause many emerging mar+ets do not allow short selling( nor offer via&le futures or other
derivative products with which to hedge( emerging mar+et investing often employs a long)only
strategy.
,'uit -arket .eutral
5his investment strategy is designed to e!ploit equity mar+et inefficiencies and usually involves
&eing simultaneously long and short matched equity portfolios of the same size within a country.
3ar+et neutral portfolios are designed to &e either &eta or currency neutral( or &oth. Well)
designed portfolios typically control for industry( sector( mar+et capitalization( and other
e!posures. 0everage is often applied to enhance returns.
,vent-*riven
5his strategy is defined as equity)oriented investing designed to capture price movement
generated &y an anticipated corporate event. 5here are four popular su&)categories in event)
driven strategies= ris+ ar&itrage( distressed securities( <egulation F and high yield investing.
<is+ Ar&itrage= "pecialists invest simultaneously in long and short positions in &oth
companies involved in a merger or acquisition. <is+ ar&itrageurs are typically long the
stoc+ of the company &eing acquired and short the stoc+ of the acquirer. 5he principal
ris+ is deal ris+( should the deal fail to close.
Fistressed "ecurities= ,und managers invest in the de&t( equity or trade claims of
companies in financial distress and generally &an+ruptcy. 5he securities of companies in
need of legal action or restructuring to revive financial sta&ility typically trade at
su&stantial discounts to par value and there&y attract investments when managers
perceive a turn)around will materialize.
<egulation F( or <eg. F= 5his su&set refers to investments in micro and small
capitalization pu&lic companies that are raising money in private capital mar+ets.
'nvestments usually ta+e the form of a converti&le security with an e!ercise price that
floats or is su&4ect to a loo+)&ac+ provision that insulates the investor from a decline in
the price of the underlying stoc+.
High Gield= 2ften called 4un+ &onds( this su&set refers to investing in low)graded fi!ed)
income securities of companies that show significant upside potential. 3anagers
generally &uy and hold high yield de&t.
#i%ed &ncome $r"itrage
5he fi!ed income ar&itrageur aims to profit from price anomalies &etween related interest rate
securities. 3ost managers trade glo&ally with a goal of generating steady returns with low
volatility. 5his category includes interest rate swap ar&itrage( /" and non)/" government &ond
ar&itrage( forward yield curve ar&itrage( and mortgage)&ac+ed securities ar&itrage. 5he
mortgage)&ac+ed mar+et is primarily /")&ased( over)the)counter and particularly comple!.
/lo"al -acro
?lo&al macro managers carry long and short positions in any of the world*s ma4or capital or
derivative mar+ets. 5hese positions reflect their views on overall mar+et direction as influence &y
ma4or economic trends and:or events. 5he portfolios of these funds can include stoc+s( &onds(
currencies( and commodities in the form of cash or derivatives instruments. 3ost funds invest
glo&ally in &oth developed and emerging mar+ets.
Long0Short ,'uit
5his directional strategy involves equity)oriented investing on &oth the long and short sides of the
mar+et. 5he o&4ective is not to &e mar+et neutral. 3anagers have the a&ility to shift from value to
growth( from small to medium to large capitalization stoc+s( and from a net long position to a net
short position. 3anagers may use futures and options to hedge. 5he focus may &e regional( such
as long:short /" or #uropean equity( or sector specific( such as long and short technology or
healthcare stoc+s. 0ong:short equity funds tend to &uild and hold portfolios that are su&stantially
more concentrated than those of traditional stoc+ funds.
-anaged #utures
5his strategy invests in listed financial and commodity futures mar+ets and currency mar+ets
around the world. 5he managers are usually referred to as $ommodity 5rading Advisors( or $5As.
5rading disciplines are generally systematic or discretionary. "ystematic traders tend to use price
and mar+et specific information often technical% to ma+e trading decisions( while discretionary
managers use a 4udgmental approach.

Hedge Funds Vs. Mutual Funds

Hedge #unds vs( -utual #unds
What are some characteristics of hedge funds that help differentiate them from mutual funds in
the /nited "tatesH
Hedge #unds -utual #unds
1rivate investment vehicles "#$ <egistered investment vehicles
3ay use leverage e!tensively 0imited use of leverage
3ay engage in short selling 3a!imum B67 of profits from short)sales
3ay use derivatives 3ay not use derivatives
0arge minimum investments "mall minimum investments
<estricted from advertising 3ay freely advertise and promote
2ffered &y private placement memo 2ffered &y prospectus
0iquidity varies from monthly to annually Faily liquidity and redemption
3anager compensated on performance 3anager paid a salary and &onus
3anager invests own capital 3anager typically does not invest own capital
,le!i&ility in investment strategies <elatively infle!i&le
/sually aim for a&solute return o&4ective Aim to outperform +nown mar+et &enchmar+


Accredited Investor Information

What is an 1$ccredited &nvestor1 in the United States?
8Accredited 'nvestor8 within the meaning of <ule -61a% promulgated under the /.". "ecurities
Act of 19BB( as amended( is defined as one of the following=
8An individual with at least a A.66(666 annual income or a net worth of at least A1(666(666.8
2r( 8A corporation( partnership( 00$( &usiness trust or ta!)e!empt organization not formed for the
purpose of investing in hedge funds and with total assets in e!cess of A-(666(666.8
Starting a Hedge Fund

How do & start m own hedge fund?
,orming a hedge fund is a relatively easy process( provided that the potential manager has
access to enough capital to implement his or her trading strategy and to cover the administrative
and legal costs associated with the start up.
#ssentially( the fund manager needs only a few documents to get started.
5hese include=
A !rivate !lacement -emorandum which is drawn up with the aid of an attorney and
reviewed &y an accountant( who will typically act as auditor. 5he partnership agreement
may &e in the form of a limited partnership or a limited lia&ility corporation. 5he 1rivate
1lacement 3emorandum e!plains relevant trading strategies( the associated ris+s( the
&iographies of +ey personnel( and contains documents disclosing the names of the
attorneys( accountants( and other administrators as appropriate( as well as the
partnership*s compliance with &lue s+y laws.
Su"scription $greements which are signed &y the investors in the partnership.
A more complete listing of documents that a hedge fund manager may need to create is listed
&elow=
$onfidential 2ffering 3emorandum
0imited 1artnership Agreement
2ffering 3emorandum 'nstructions
"u&scription Agreements
0imited 1artner*s "uita&ility 0etters
0imited 1artner*s "ignature 1ages
0egal and <egulatory Hand&oo+
Accounting and 5a! Hand&oo+
"#$ <egulation F $ode /.".A. related%
'nstructions and 2ngoing <esponsi&ilities
Accounting "preadsheet ; 5emplates
,ile "#$( $,5$( I,A( and "tate ,orms /.".A. related%
Juarters #nd and Gear #nd Futies
,und Account 0edger
1rospects and "u&scription 0og
?eneral ,und 0edger
?eneral 1artner $orporate 9oo+s and <ecords
5he new hedge fund manager must esta&lish relationships with several industry service providers
from the outset of the fund. "ome of these include=
Administrator typically non)/.".A. related%
Auditor
1rime 9ro+er
Attorney
$ustodian and <egistrar 9an+ typically non)/.".A. related%
A new manager can e!pect to spend appro!imately .- to D- thousand dollars in legal and
administrative fees. 5he fees for setting up a domestic fund are( in most cases( less than the fees
forstarting an offshore fund. 2nce the hedge fund manager has enough capital to &egin
implementing his or her trading strategy( and has esta&lished the necessary relationships that are
involved in the transactional aspect of the &usiness( the hedge fund can &egin trading.
How is an offshore hedge fund started?
"ince most offshore hedge funds are structured as corporations( the primary difference &etween
starting a /")domiciled hedge fund and an offshore hedge fund lies in the process of
incorporation as a foreign &ased entity. 5he same types of relationships must &e esta&lished with
industry service providers( and as noted a&ove( the fees associated with creating an offshore
fund may &e higher than the fees associated with starting a /")domiciled fund.

Hedge Funds & the Internet

.,W to this section2
Fownload in 1F, format a recent article &y 3ichael ?. 5annen&aum( #sq. entitled 8/.".
<egulation of 2ffers of 'nvestment Advisory "ervices and Hedge ,und 3ar+eting over the
'nternet.8
& am a fund manager( How can & use the we" to disseminate information a"out m fund?
5his is a very important question( given two seemingly conflicting issues. 2ne of the primary
&enefits of doing &usiness on the internet is the efficient and economical means of disseminating
information to a glo&al audience. 9ut /")domiciled hedge funds are private placements and
cannot hold themselves out for solicitation( and offshore hedge funds are off limits to most /"
investors. 5hese restrictions on the ways hedge funds raise capital are at odds with the inherent
nature of the internet.
Use of the &nternet " *omestic Hedge #unds
'n 199-( the "#$ determined that providing offering materials for a hedge fund on a we&site
constitutes a general advertisement or solicitation( unless the materials are only provided to
persons who had a previous relationship with the issuer)even when access to those materials is
restricted to password holders. 5here may &e no lin+s from outside the site to an interior page of
the fund we&site. And passwords may &e given only to users with previous relationship to fund
and only if financial sophistication is verified.
2ne solution to these restrictions is for the hedge fund we&site to consist of very simple front
page( only listing name of fund and request for the user*s name and a password.
'n addition( there are several issues that the hedge fund manager should +eep in mind=
'nvestment managers with related &usinesses that can &e mar+eted over the 'nternet
must pay close attention to the way lin+s are used.
5he more information that is availa&le increases the chances that the we&site will &e
deemed solicitous.
8"pamming8( or sending out mass emails( is considered general solicitation.
Use of the &nternet " Offshore Hedge #unds
2ne would thin+ that since offshore hedge funds are not directed at /" investors( they are
outside the 4urisdiction of /" regulators. However( the glo&al nature of the internet means that the
we&sites of offshore funds are still accessi&le to /" investors. 'n this regard( the "#$ is still quite
interested in the ways in which offshore hedge funds use the internet to disseminate information.
'n 199C( the "#$ released the 8/se of 'nternet We&sites to 2ffer "ecurities( "olicit "ecurities
5ransaction or Advertise 'nvestment 2pportunities 2ffshore.8 5his set of guidelines states that
offshore funds must 8implement measures that are reasona&ly designed8 to guard against sales
to /" investors.
Areas of concern for offshore hedge funds=
#mail= in addition to the restriction against spamming that applies to /" and offshore
funds( the offshore fund has the &urden of determining whether the receiver is a /"
investor.
We&site disclaimers should &e displayed prominently on the we&site and should clearly
and meaningfully state that the offer is directed only to persons outside of the /"
esta&lishing reasona&le procedures to guard against /" investors
'n addition to maintaining a password)protected we&site( offshore hedge funds can follow several
procedures to assure the non)/" status of potential investors. 5hey can=
As+ for proof of non)/" residency>
2&taining mailing addresses prior to sale>
<efuse to sell to investors with a /" mailing address or area code>
Additionally( they should &eware of chec+s drawn on /" &an+s.
#und of #unds
,und of funds and multiple offerings that com&ine /" and 2ffshore funds must &e most cautious
in the construction of a we&site( since these sites must a&ide &y the restrictions for &oth /" and
offshore funds with respect to issues such as password protection and determining residency.

Hedge Funds & the Internet

.,W to this section2
Fownload in 1F, format a recent article &y 3ichael ?. 5annen&aum( #sq. entitled 8/.".
<egulation of 2ffers of 'nvestment Advisory "ervices and Hedge ,und 3ar+eting over the
'nternet.8
& am a fund manager( How can & use the we" to disseminate information a"out m fund?
5his is a very important question( given two seemingly conflicting issues. 2ne of the primary
&enefits of doing &usiness on the internet is the efficient and economical means of disseminating
information to a glo&al audience. 9ut /")domiciled hedge funds are private placements and
cannot hold themselves out for solicitation( and offshore hedge funds are off limits to most /"
investors. 5hese restrictions on the ways hedge funds raise capital are at odds with the inherent
nature of the internet.
Use of the &nternet " *omestic Hedge #unds
'n 199-( the "#$ determined that providing offering materials for a hedge fund on a we&site
constitutes a general advertisement or solicitation( unless the materials are only provided to
persons who had a previous relationship with the issuer)even when access to those materials is
restricted to password holders. 5here may &e no lin+s from outside the site to an interior page of
the fund we&site. And passwords may &e given only to users with previous relationship to fund
and only if financial sophistication is verified.
2ne solution to these restrictions is for the hedge fund we&site to consist of very simple front
page( only listing name of fund and request for the user*s name and a password.
'n addition( there are several issues that the hedge fund manager should +eep in mind=
'nvestment managers with related &usinesses that can &e mar+eted over the 'nternet
must pay close attention to the way lin+s are used.
5he more information that is availa&le increases the chances that the we&site will &e
deemed solicitous.
8"pamming8( or sending out mass emails( is considered general solicitation.
Use of the &nternet " Offshore Hedge #unds
2ne would thin+ that since offshore hedge funds are not directed at /" investors( they are
outside the 4urisdiction of /" regulators. However( the glo&al nature of the internet means that the
we&sites of offshore funds are still accessi&le to /" investors. 'n this regard( the "#$ is still quite
interested in the ways in which offshore hedge funds use the internet to disseminate information.
'n 199C( the "#$ released the 8/se of 'nternet We&sites to 2ffer "ecurities( "olicit "ecurities
5ransaction or Advertise 'nvestment 2pportunities 2ffshore.8 5his set of guidelines states that
offshore funds must 8implement measures that are reasona&ly designed8 to guard against sales
to /" investors.
Areas of concern for offshore hedge funds=
#mail= in addition to the restriction against spamming that applies to /" and offshore
funds( the offshore fund has the &urden of determining whether the receiver is a /"
investor.
We&site disclaimers should &e displayed prominently on the we&site and should clearly
and meaningfully state that the offer is directed only to persons outside of the /"
esta&lishing reasona&le procedures to guard against /" investors
'n addition to maintaining a password)protected we&site( offshore hedge funds can follow several
procedures to assure the non)/" status of potential investors. 5hey can=
As+ for proof of non)/" residency>
2&taining mailing addresses prior to sale>
<efuse to sell to investors with a /" mailing address or area code>
Additionally( they should &eware of chec+s drawn on /" &an+s.
#und of #unds
,und of funds and multiple offerings that com&ine /" and 2ffshore funds must &e most cautious
in the construction of a we&site( since these sites must a&ide &y the restrictions for &oth /" and
offshore funds with respect to issues such as password protection and determining residency.


Domestic Vs. Offshore Funds

*omestic vs( Offshore #unds
What are some characteristics that differentiate offshore from domestic hedge fundsH
2ffshore funds are typically more liquid than domestic funds.
2ffshore hedge funds are usually structured as corporations( not limited partnerships.
5herefore( offshore hedge funds potentially have an unlimited num&er of investors.
2ffshore hedge funds are valued as IAK net asset value%( not as account &alances( as
domestic funds are valued.
5here are no generally accepted accredited investor requirements for offshore funds.
/" individuals are not permitted to invest offshore( unless they have legally esta&lished
an offshore trust or purchase offshore life insurance.
#ach offshore venue where the hedge fund resides% has its own rules that need to &e
understood in detail.
#ach offshore domicile where the investor resides% has its own rules that limit the
activities of prospective investors into offshore funds and that need to &e understood in
detail.
3any ta!)free /" entities can invest in offshore funds. "ome of these include
endowments( #<'"As( '<As( and foundations

Fund of Funds

What is a 1#und of funds?1
A fund of funds is a hedge fund that invests money in several other hedge funds.
There are two main categories of fund of funds:
Fiversified( in which assets are invested in various types of hedge funds.
Iiche( in which assets are all invested in funds of a similar type:strategy.
There are several advantages to investing in a fund of funds:
'nstant diversification= investor can spread money &etween many different
strategies:managers.
0ower minimum investment( sometimes as low as A.-6(666.
Avoids pro&lem of finding - or @ different hedge funds to invest in( in an environment that
does not allow hedge funds to advertise.
9ecause of an e!isting relationship &etween the fund of funds and an underlying fund(
there may &e access to funds that are otherwise closed.
9ecause funds of funds are volume &uyers( participation in a desira&le fund may &e
gained at a lower price.
)aveats for &nvesting in a #und of #unds:
0iquidity= ,und of funds cannot offer greater liquidity than its components.
,ee "tructure= ,unds of funds charge another 1 to B7 fee on top of the fees charged &y
the underlying funds.
"ince the underlying ma+e)up of funds of funds varies so greatly( it is very difficult to
compare performance from one fund of fund to another.
"imilar lac+ of transparency as a singular hedge fund.
How are funds of funds formed?
'nvestment advisers often &ecome fund of fund managers)they do all the initial research for
clients and find they can ma+e more money if they create their own fund of funds than &y having
clients invest in all the different funds. 5he same process as starting a domestic /.".A.)&ased
fund is generally required for starting a fund of funds.
What criteria should & use to evaluate potential fund of funds managers?
5he following is a list of questions that will help a potential investor esta&lish some criteria for
evaluating managers=
What is the size of the fundH 'n other words( what is the &uying clout of the fundH
What is orientationH
What is manager*s methodology for selecting strategies and fundsH
What depth of due diligence does the manager perform on each fundH
What ongoing monitoring processes are maintainedH
When are funds pruned from ,2,H
Foes the fund credit re&ates to the limited partners or the general partnerH
How much of manager*s own capital is in fundH


egulatory !nvironment for "S Domiciled Hedge Funds
3egulator ,nvironment for US *omiciled Hedge #unds
5raditionally( since /" hedge funds are organized as 0imited 1artnerships private investment
vehicles%( they have e!isted with relatively few regulatory requirements. 'n fact( a /")domiciled
fund does not need to register with the "#$ if it conforms to one the following=
3egulation * ,%emption of the Securities $ct of 4566
5he "ecurities Act of 19BB states that securities sales in the /nited "tates must &e either
registered or e!empt. A security need not &e registered if it satisfies the <egulation F #!emption(
which states that=
All &ut B- holders of such securities are 8accredited investors(8as defined= a person with
net worth in e!cess of A1mm or with income of A.66(666 AB66(666 4oint income with a
spouse% in each of the prior two years with an e!pectation of earning the same in the
current year.
And( the securities are privately placed.
67c84 or 67c89 ,%clusion of &nvestment )ompan $ct of 45:;
A hedge fund manager is e!empt from the provisions of the 1946 Act if the fund can remain
outside of the statutory meaning of an investment company su&4ect to registration. 5hese
e!clusions fall primarily under two sections of the Act=
Bc%1= if a fund has under 166 &eneficial owners and they are qualified purchasers( it
need not register as an investment company.
Bc%D= if a fund has -66 8super)qualified8 higher net worth and income amounts%( then it
need not register as an investment company.
5han+s ; <egards(
I'EH'0