{ "$schema": "https://hedgefund.wiki/api/schema.json#/definitions/Structure", "endpoint": "https://hedgefund.wiki/api/fund-structures.json", "version": "2026.05.0", "count": 14, "structures": [ { "id": "delaware-lp", "name": "Delaware Limited Partnership", "summary": "The default US onshore hedge fund vehicle.", "purpose": "House US-taxable investors as limited partners; the GP entity (typically a Delaware LLC) holds management and incentive economics.", "mechanics": "GP-LP relationship governed by an LPA. LPs receive K-1s reporting their share of fund income (passed through). State-of-formation: Delaware (Court of Chancery jurisprudence). Often paired with an offshore feeder in a master-feeder structure.", "tax_treatment": "Pass-through (Subchapter K). LPs taxed on share of income each year regardless of distributions.", "investor_eligibility": "Accredited investors under Reg D 506(b)/(c); typically also Qualified Purchasers if the fund relies on 3(c)(7).", "common_jurisdictions": ["Delaware (US)"], "advantages": ["Pass-through taxation", "Mature legal precedent", "LP liability limited"], "disadvantages": ["UBTI for tax-exempt LPs unless invested via blocker", "K-1 timing/complexity"], "regulations": [ { "type": "regulation", "id": "regulation-d" }, { "type": "regulation", "id": "section-3c1" }, { "type": "regulation", "id": "section-3c7" } ], "see_also": [ { "type": "structure", "id": "cayman-fund" }, { "type": "term", "id": "master-feeder" }, { "type": "term", "id": "ubti" } ] }, { "id": "cayman-fund", "name": "Cayman Islands Exempted Company", "summary": "The default offshore hedge fund vehicle for non-US and US tax-exempt investors.", "purpose": "Tax-neutral aggregation of non-US and US tax-exempt capital. The Cayman entity is treated as a corporation for US tax — providing a 'blocker' against UBTI for tax-exempt LPs.", "mechanics": "Exempted Company under Cayman Companies Act. Registered with CIMA (Cayman Islands Monetary Authority) under Mutual Funds Act. AEOI/CRS/FATCA reporting required. Typical board: 2 independent Cayman directors + 1 sponsor director.", "tax_treatment": "Cayman: 0% income tax, 0% capital gains. US tax-exempt LPs: corporate blocker shields UBTI. Non-US LPs: not subject to US tax on capital gains (subject to FIRPTA).", "investor_eligibility": "Same Reg D / 3(c)(1) or 3(c)(7) gates as onshore feeder for US investors; non-US accept under local exemptions.", "common_jurisdictions": ["Cayman Islands"], "advantages": ["Tax neutrality", "UBTI blocker for tax-exempts", "Familiar to global LPs", "Mature service-provider ecosystem"], "disadvantages": ["AEOI/FATCA reporting overhead", "EU AIFMD marketing requires NPPR or reverse-solicitation", "OECD BEPS substance pressure"], "regulations": [ { "type": "regulation", "id": "cayman-mutual-funds-act" }, { "type": "regulation", "id": "fatca" }, { "type": "regulation", "id": "crs" } ], "see_also": [ { "type": "structure", "id": "delaware-lp" }, { "type": "term", "id": "master-feeder" }, { "type": "term", "id": "ubti" } ] }, { "id": "master-feeder-structure", "name": "Master-Feeder Structure", "summary": "Two or more feeder funds in different jurisdictions pool assets in a single master fund where trading occurs.", "purpose": "Tax-neutral aggregation of US-taxable, US tax-exempt, and non-US capital while maintaining a single trading book.", "mechanics": "(1) Onshore feeder (Delaware LP) for US-taxable. (2) Offshore feeder (Cayman Ltd) for US tax-exempt and non-US. (3) Master (Cayman Ltd) where assets and trading reside. Each feeder owns master shares pro-rata to its capital. Performance allocations and management fees flow from the feeders to the GP/manager.", "tax_treatment": "K-1 to onshore LPs, blocker treatment for tax-exempts via offshore feeder, no US tax for non-US (subject to FIRPTA).", "investor_eligibility": "Set at feeder level; typically Reg D / QP standards.", "common_jurisdictions": ["Cayman Islands (master + offshore feeder)", "Delaware (onshore feeder)"], "advantages": ["Single trading book", "Tax neutrality across LP classes", "Operational efficiency"], "disadvantages": ["More entities = more fees and admin", "Pro-rata cross-class issues if master suspends"], "see_also": [ { "type": "structure", "id": "delaware-lp" }, { "type": "structure", "id": "cayman-fund" }, { "type": "term", "id": "master-feeder" } ] }, { "id": "luxembourg-raif", "name": "Luxembourg RAIF", "summary": "Reserved Alternative Investment Fund — flexible Luxembourg vehicle for AIFs requiring an authorized AIFM.", "purpose": "Marketing-passportable EU vehicle for hedge fund-style strategies under AIFMD without direct CSSF authorization of the fund itself.", "mechanics": "Set up in 1-3 weeks (no CSSF approval required), but requires an authorized AIFM. Can be structured as SCSp (limited partnership), SA, Sàrl, or umbrella with sub-funds. Often used for credit, PE, and infra; growing presence in liquid alts.", "tax_treatment": "0.01% subscription tax (SICAV-RAIF) or full corporate tax (other forms). Treaty access varies by sub-fund/legal form.", "common_jurisdictions": ["Luxembourg"], "advantages": ["Fast setup", "Passport across EU under AIFMD", "Familiar to European institutional LPs"], "disadvantages": ["Requires authorized AIFM", "Not retail-marketable (RAIF is for professional investors)"], "regulations": [{ "type": "regulation", "id": "aifmd" }, { "type": "regulation", "id": "luxembourg-raif-law" }] }, { "id": "ireland-icav", "name": "Irish ICAV", "summary": "Irish Collective Asset-management Vehicle — corporate fund vehicle, popular for UCITS and AIFMD funds.", "purpose": "EU-passportable fund structure with Irish tax-treaty access (especially favorable for US equity exposure via 0% withholding).", "mechanics": "Authorized by the Central Bank of Ireland. Can elect check-the-box for US tax purposes — partnership treatment shields tax-exempt LPs from UBTI without corporate blocker friction.", "tax_treatment": "Irish: no fund-level tax for non-Irish residents. US: check-the-box partnership election available.", "common_jurisdictions": ["Ireland"], "advantages": ["US tax-treaty (0% on US dividends for US-tax purposes if QFII status)", "Check-the-box flexibility", "Strong UCITS ecosystem"], "disadvantages": ["Higher setup and ongoing costs than RAIF", "Central Bank approval required"], "regulations": [{ "type": "regulation", "id": "ucits" }, { "type": "regulation", "id": "aifmd" }] }, { "id": "section-3c1-fund", "name": "Section 3(c)(1) Fund", "summary": "US private fund relying on Investment Company Act exemption for funds with ≤100 beneficial owners.", "purpose": "Avoid registration as an investment company under the ICA.", "mechanics": "Limit beneficial owners to 100 (with knowledgeable-employee carve-outs and certain look-throughs). Rely on Reg D 506 for the offering exemption. Investors must be accredited.", "investor_eligibility": "Accredited investors only (Reg D requirement); 100-investor cap.", "advantages": ["Lower investor-eligibility bar than 3(c)(7)", "Suitable for emerging managers"], "disadvantages": ["Hard cap at 100 LPs", "Difficult to scale assets without converting to 3(c)(7)"], "regulations": [ { "type": "regulation", "id": "section-3c1" }, { "type": "regulation", "id": "regulation-d" } ] }, { "id": "section-3c7-fund", "name": "Section 3(c)(7) Fund", "summary": "US private fund relying on ICA exemption for funds whose investors are all Qualified Purchasers — no investor-count cap.", "purpose": "Scale beyond the 100-investor cap of 3(c)(1) by restricting to QPs.", "mechanics": "All beneficial owners must be QPs ($5m investments individuals, $25m entities). 'Section 12(g)' record-holder limit (2,000 holders / 500 non-accredited) caps practical scale before 1934 Act registration is triggered.", "investor_eligibility": "Qualified Purchasers only.", "advantages": ["No 100-investor cap", "Standard for institutional-scale funds"], "disadvantages": ["Higher eligibility bar excludes many accredited individuals"], "regulations": [ { "type": "regulation", "id": "section-3c7" }, { "type": "regulation", "id": "regulation-d" } ] }, { "id": "side-pocket-structure", "name": "Side Pocket", "summary": "Segregated accounting compartment for illiquid or hard-to-value positions within a hedge fund.", "purpose": "Prevent stale-mark dilution between subscribers and redeemers when an asset becomes illiquid or impaired.", "mechanics": "On designation, the asset is moved to the side pocket. Existing investors hold pro-rata Series-B shares; new subscribers do not participate; redemptions of side-pocket shares occur only on realization. Performance fees on side-pocket P&L crystallize at realization.", "common_jurisdictions": ["Cayman", "Delaware"], "advantages": ["Fair to all classes when illiquidity emerges", "Preserves manager flexibility"], "disadvantages": ["Investor sentiment damage when used", "SEC scrutiny of designation criteria post-2008"], "see_also": [{ "type": "term", "id": "side-pocket" }, { "type": "term", "id": "level-3-asset" }] }, { "id": "gate-mechanism", "name": "Gate", "summary": "Redemption restriction limiting the percentage of fund AUM (or per-investor stake) redeemable in a single window.", "purpose": "Prevent fire-sale liquidations that would crystallize losses for remaining LPs.", "mechanics": "Investor-level gate: caps each LP at e.g. 25% of stake per quarter. Fund-level gate: caps total redemptions at e.g. 10% of AUM per quarter, pro-rated. Excess requests roll to the next redemption date.", "advantages": ["Protects continuing LPs", "Buys time in a liquidity crunch"], "disadvantages": ["Reputational damage", "Often leads to wholesale redemptions when lifted"], "see_also": [{ "type": "term", "id": "gate" }, { "type": "term", "id": "lock-up" }] }, { "id": "managed-account", "name": "Managed Account / SMA", "summary": "A separately managed account where the LP holds assets in their own name with the manager trading via limited POA.", "purpose": "Customization, transparency, and bankruptcy-remote custody for institutional LPs.", "mechanics": "LP opens accounts at LP-selected prime broker and custodian. Manager receives investment management agreement (IMA) with limited POA to trade. LP holds full position transparency, customizes guidelines, retains custody, and pays a negotiated (often lower) fee schedule.", "advantages": ["Custody control (no commingling)", "Position transparency", "Customizable guidelines (ESG, exclusions, leverage)", "Often lower fees"], "disadvantages": ["Higher operational burden for LP", "Manager dilution of attention vs commingled fund", "Capacity gating by managers"], "see_also": [{ "type": "term", "id": "transparency" }, { "type": "term", "id": "ima" }] }, { "id": "ucits-structure", "name": "UCITS", "summary": "EU regulated fund structure with daily liquidity, restricted leverage, and pan-EEA marketing passport.", "purpose": "Retail-marketable EU fund vehicle. Hedge fund strategies adapted into 'newcits' run as UCITS.", "mechanics": "Constraints: daily liquidity to investors, max 200% gross VaR-based leverage (or 100% commitment-method), 5/10/40 concentration rules, restricted instrument types (no direct commodities, limited derivatives use). UCITS V (2014) framework.", "advantages": ["Pan-EEA passport", "Retail-marketable", "Investor familiarity in Europe"], "disadvantages": ["Liquidity and leverage constraints incompatible with many HF strategies", "Higher operating cost (depositary)"], "regulations": [{ "type": "regulation", "id": "ucits" }], "see_also": [{ "type": "term", "id": "ucits" }] }, { "id": "founders-share-class", "name": "Founders / Founder Share Class", "summary": "A discounted share class for early or large investors who anchor a new fund's launch.", "purpose": "Incentivize early capital commitment and lock in long-duration backers.", "mechanics": "Typical terms: 1% management / 10% performance (vs 1.5%/20% for standard); often 2-year hard lock-up; capacity to invest up to a threshold (e.g., $25m or 15% of fund); rolls into standard class when AUM crosses a level.", "advantages": ["LP gets economics", "GP gets stable anchor capital"], "disadvantages": ["Permanent vs phase-out structure can become a drag at scale"] }, { "id": "seed-deal", "name": "Seed Deal", "summary": "An anchor LP provides initial capital plus revenue share or equity in the management company in exchange for capacity and economics.", "purpose": "Solve the chicken-and-egg of new-fund launches: PMs need capital, capital wants to see capital.", "mechanics": "Typical seed: $50-200m anchor commitment, 2-3 year lock, in exchange for 10-25% of fee revenue (sometimes capped, sometimes perpetual) or equity in the GP. Major seeders: Investcorp-Tages, Borealis, Reservoir, Stable Asset Management, Proteus, Blackstone Strategic Alliance.", "advantages": ["GP launches at credible scale", "Seeder gets economics + capacity"], "disadvantages": ["Permanent revenue dilution", "Strings attached on operations and brand"], "see_also": [{ "type": "term", "id": "anchor-investor" }] }, { "id": "pass-through-expenses", "name": "Pass-Through Expense Structure", "summary": "Multi-strat platform fee model where actual expenses (PM comp, technology, financing, infrastructure) are charged to the fund instead of a fixed management fee.", "purpose": "Fund the platform's enormous infrastructure (PMs, tech, data, financing) without an artificial management fee cap.", "mechanics": "Investors are charged actual platform expenses, typically running 5-8% of AUM gross. Performance fees layer on top of expenses. LPs receive itemized expense reports. Disclosure has tightened post-2022 SEC rules on private fund advisor fees.", "advantages": ["Aligned: expenses are actual costs", "Allows competitive PM compensation", "Has produced sustained Sharpe 2-4 returns"], "disadvantages": ["All-in cost often 5-8% gross — much higher than 2/20", "Less transparency historically (now improving)", "SEC private fund advisor rules increasing reporting burden"], "see_also": [{ "type": "term", "id": "multi-strategy-pod" }, { "type": "term", "id": "pass-through-expenses" }] } ] }