Hedge Fund AgreementsHedge Funds
Joining a hedge fund requires formalizing Hedge Fund Agreements between you and the general partners. Your entry into the fund is finalized after signing Hedge Fund Agreements and depositing cash. Within the limited liability partnership that constitutes the hedge fund your managers will be known as the general partners. You will be a limited partner. As a limited partner you will retain no control over operations, or investments your deposited currency purchases. Your vote on performance is the ability to withdraw your money from the fund. Due to your lack of control, you will be immune to civil or criminal prosecution resulting from the firm’s actions.
A fund’s contracts also require qualification and formal declaration of your status as both an accredited investor and limited partner. The contract will state the fund and general partner’s obligations to investors. Operational, strategic and investment limitations will be stated within the contract. Restrictions on specific asset classes, investment regions, or currencies will be detailed if they are relevant to the fund’s situation. Your contract will also state the procedures that will be followed for conflict resolution. This may or may not involve an arbitration process, but it almost surely will involve waiving certain legal rights. If the contract declares an arbitration process, it will state the overseers and where issues are resolved.
Hedge Fund Agreements: Negotiation and Review
Note that these contracts are not writ in stone. Many aspects of hedge fund agreements are negotiable by your legal team, especially if you’re handing the fund a high end deposit. Bring an experienced lawyer to argue term adjustments before you consider signing. Your legal team can adjust restrictions in several areas. Examples include withdrawals, lost legal rights, and arbitration procedures.
Note that your negotiation attempts will obviously have limits. At some point it will not be worth the general partner accommodating your demands. Drastic restrictions will be denied, potentially all of them. If the fund is popular or the general manager’s abilities are in demand, they have no need to accept your proposals. Hedge funds have investment caps for strategic efficiency, and they have no reason to accept demands if they can exceed their limit without appeasing you. They can simply replace you with another potential investor. A low demand fund is more likely to accept proposals for changes if being offered large sums of money.
Before you sign, be sure you and your legal team have completely approved the finalized contract. Note that you will have other forms to complete after the contract has been signed. Almost all of these forms will be related to taxation, fraud prevention, and money laundering prevention. It is wise to have the following with available before signing the final contract: addresses of residency, social security numbers, tax identification numbers, net worth statements, and international banking records.
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