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Hedge Fund Formation

WHAT IS AN OFFSHORE FUND?

An offshore hedge fund is simply a structure used by hedge fund managers as a way to attract offshore investors (non-U.S. citizens) or U.S. tax-exempt investors such as pension and endowment funds. The offshore hedge fund will generally be established in different jurisdictions through a variety of structures such as a single entity structure, a side by side structure or a master-feeder structure. If the major considerations for establishing an offshore hedge fund is tax efficiency, both the structure and jurisdiction should be discussed with your attorney.

Offshore Hedge Fund Jurisdictions

The offshore hedge fund can be established in a variety of different jurisdictions and the driving force for the jurisdiction of choice is usually the tax considerations. The majority of the hedge funds are established in low or zero tax jurisdictions. This means that there is no corporate level tax for the offshore hedge fund. Investors in the fund will generally be taxed in their country of residence on the income received from the fund. Another consideration will be the regulatory laws in place in the jurisdiction.

The two most common offshore jurisdictions are the Cayman Islands and the British Virgin Islands (BVI). In both the Caymans and the BVI there are strong regulatory structures in place in order to assure investors that the managers of the offshore funds are legitimate. Other offshore hedge fund jurisdictions include: Bahamas, Bermuda, Nevis, Guernsey, Jersey, Dubai, among many others.

 

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