Sunday, June 15, 2008

Legal Structure

From a legal perspective, the structure of a hedge fund is very simple. It’s basically a means for holding and investing the funds of its investors. The fund itself is not a genuine business. This means that it has no employees and no assets other than its investment portfolio and a small amount of cash, and its investors are simply considered clients. This is very different from a public mutual fund that has a very defined structure. In a hedge fund, the portfolio is managed by the investment manager, which has employees and property and is the actual business. There is nothing to prevent an investment manager from having numerous hedge funds under his control. This of course, has led to people questioning whether a conflict of interest exists when a hedge fund manager invests his own money into one of the funds they are managing.

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