Getting The Structure Right

Sun Dec 1, 2002


Meeting the tax needs of investors will determine where a fund is located and how it is structured, explain Daniel Shapiro and Christopher Hilditch, partners at Schulte Roth & Zabel International


Structuring a fund of hedge funds involves balancing many different and complex issues and the methods of structuring funds of funds are evolving rapidly. The chosen structure depends entirely on the type of investors you wish to attract as each group of investors faces different tax and regulatory issues.

Non-US investors. Non-US investors will typically invest in an offshore fund of funds. These can be established to operate with single or multiple currencies using separate classes of shares.

Alternatively a feeder structure can be used. Similarly, separate feeders can be organised to deal with other specific requirements, such as German investors which may require to invest through a derivative instrument such as a structured note.

Various other specific needs for non-US investors from different countries can also be accommodated. For instance, Japanese investors typically invest through a separate trust organised in the Cayman Islands. Therefore a special class of shares...

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