Limited Partnerships and hedge funds...whats the difference?

[nastynatedub]

subject line sums it up. i know hedge funds require some rather large net worth clients but can anyone with more knowledge explain to me in detail ALL the major differences between a limited investment partnership and a Hedge fund? Thank You.

[ubiestmea]

For the purpose of managing the assets of persons residing in the United States, a hedge fund is ordinarily organized as a limited partnership. By purchasing an interest in the partnership, an investor becomes a limited partner of the partnership.

In an attempt to limit personal liability, the manager of a domestic fund usually forms an entity to provide advisory services to the partnership. This entity serves as the general partner of the partnership. Depending on the laws of the state in which the general partner will maintain its office, the hedge fund manager will organize the general partner as a limited liability company, corporation or limited partnership. In certain cases, however, the manager will form two entities, one entity to serve as the general partner and the other entity to serve as a management company.

The use of an entity as the general partner or management company, however, will not shield an individual manager from personal liability for fraud and other claims under the federal securities laws.

http://www.hedgefundworld.com/forming_a_hedge_fund.htm

[nastynatedub]

[ QUOTE ]


Depending on the laws of the state in which the general partner will maintain its office, the hedge fund manager will organize the general partner as a limited liability company, corporation or limited partnership. In certain cases, however, the manager will form two entities, one entity to serve as the general partner and the other entity to serve as a management company.



[/ QUOTE ]

thanks for the reply; how does one go about establishing a limited partnership? is it all state-based rules and regulations? or is there more to it?

[ubiestmea]

If you are going to use a limited partnership to invest in securities you need to comply with Regulation D.

http://www.law.uc.edu/CCL/33ActRls/regD.html

Probably best to have a lawyer that specializes in this area set it up as there can be many pitfalls.