Starting a Hedge Fund

[Naked shorts]

I like.



http://www.mallesons.com/expertise/funds_management/5541919W.htm

Hahah, you might be able to squeeze these guys to give you better prices. I've been reading on the news recently about Australian companies reducing their use of outsourced lawyers/advisors. Even the government is reducing their use of these companies.

 

[nizar]

Ok I've been looking at existing hedge funds and their structure and came across these guys:

http://www.basiscap.com.au/basiscap_aust-rim.htm

Now going off the "Fund Structure" section on the above link, I can understand why you need lawyers, accountants, and an administrator, but why would you need BOTH a "register" and an "administrator" ?

It seems what Registries are doing is pretty much what an administrator would do:

Processing daily cash / wrap applications and redemptions
Banking monies, reconciling bank accounts
Producing acknowledgement and confirmation letters and holding statements,
Ongoing Day to day maintenance of the register - processing unitholder transfers, changes of address, distribution payment instructions, DRP election, recording TFN details, notation of probates and Powers of Attorney.
Call Centre - responding to all telephone, written and email enquiries from issuers, investors, financial advisers, executors and solicitors.
Maintain dealer group & adviser details
Online access for issuers, investors and financial advisers
Calculation and payment of distributions
Calculation and allotment of units in case of a Dividend Reinvestment Plan (DRP)
Set up and management of savings plans
Calculation and production of annual tax statements
Calculation and payment of dealer groups and adviser commissions
Planning and managing in-house and external print and mailing services
Statutory reporting

Taken from: http://www.registries.com.au/unlisted_securities.html

What would an Administrator do in addition to whats already being done by Registries?

And also, why would they have an "Auditor" in addition to "Accountants" ?

Is this so they only get E&Y to do audits and the Accountants to do the other general day-to-day stuff? An attempt to cut costs instead of getting E&Y to do the lot?

Lastly, what is the purpose of having a Custodian?
So does the custodian holds (owns??) the assets of the fund?

Can anybody expand?

Thanks.

 

[skc]

Nizar, this come across my email that might be of interest to you if you are still looking around...

I can't remember signing up for it so it could be spam... so as always DYOR.

Hello Everyone,

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There will be special industry experts, who will speak and cover some of the topics and things you will need to know and
understand as you make your decision.

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Best Wishes,
John F. Netto
The 10 Attributes of a Great Trader:
1. Heart/Courage
2. Intuition
3. Vision
4. Discipline
5. Decisiveness
6. Patience
7. Confidence
8. Focus
9. Being Dynamic/Fluid/Flexible
10. Willingness to Learn and Improve

 

[gooner]

Hi,

I've got a few questions about starting a hedge fund in Australia.
Heaps of stuff online about the Yanks, but not much relevant to us, here.

1/ What would be the best structure to incorporate the hedge fund?
As a Limited Liability Company (LLC) or Limited Liability Partnership (LP) or something else?

2/ Alot of US hedge funds are based "offshore" like in the Cayman Islands or Bermuda, etc. Do Australian-based hedge funds do the same? In the States, I don't think it's illegal to base offshore, but here it may be??

3/ Generally, what would be the standard range of charges to get a big4 accounting firm to audit your returns? $30k p.a. ? Would this include more sophisticated auditing such as real-estate, emerging market investments, and other illiquid investments?

4/ As a hedge fund, I understand a AFS License is required.

i) What are the minimum requirements for hedge fund investors? Are they only open to "sophisticated investors"?

ii) How do you know if a client is "sophisticated"? A letter from their accountant?

5/ As a hedge fund, is there any requirement/obligation to report the unit value of the fund on a basis more regular than annually? Or does anything go, as long as your investors are happy? Maybe quarterly is the minimum acceptable timeframe?

I will be speaking to an accountant about the above, but since the questions are not very specific, some answers from others on this board would be appreciated.

Thanks.

Nizar,

My understanding as follows, but not an expert in all the areas:

1 and 2. If investors are Australian residents, then there are no advantages to an offshore fund structure. Australian funds pay 15% tax, I think and must distribute all realised profits to investors. There are funds managed in Australia that are Cayman registered - for the benefit of offshore investors not Australian ones.

3,4,5 - no idea

And on your auditors vs accountants question, they MUST be different. It is a breach of audit independence requirements to audit accounts that have been prepared by the same firm.

 

[dasmith1973]

Hi Nizar, have a friend in Brisbane who started a hedge / investment fund this year, can't comment on structures, but I remember he had a number of startup costs & compliance issues. For a public fund you need various licencing & overviewing managers as per ASIC. Luckily he had a backer to get started.

If its just for family/friends why not just keep it private thru a trust & company & create individual legal agreements or do you still run into legal issues that need asic compliance?

I can pass on the following direct comments from his recent experience:

- Licensing costs a lot (in excess of 50k by the time I’m done)
- Not getting licensed is a serious offence, and the penalties are very harsh – potentially jail time.
- Responsible managers (requirement by ASIC) cost a fortune
- Spend at least 3 – 6 months learning about operating in a compliant way... no matter how much money you make for your investors, if you aren’t compliant with ASIC regulations.... which is inherently easy to do for a person that hasn’t worked in the industry, then you are likely to run into serious legal problems.

Hope that helps..
Chrs, Dave

 

[Temjin]

Another easier way is to skip getting an ASIC license and only setup an offshore company and only allow NON-AUSTRALIAN INVESTORS.

That's my belief anyway because offshore hedge fund companies operated by non-Australians DO NOT REQUIRE an ASIC license to sell their service to Australian investors.

But of course, I could be wrong and that essentially means this country is a crappy place to start a hedge fund at all. I suggest moving oversea with less compliance requirement.

 

[Sirloin Steak]

Im also interested in starting a hedge fund.
My reason for this is that I have found arbitrage and equity opportunities that I need more capital to utilise.
Do I need any official qualifications in order to get a license?
If initially Im only going to need 1-2 million then will the costs involved in hiring reputable auditors outweigh the potential benefits?
I would prefer to register in Australia so that my investors can see a higher level of integrity but will it be too expensive and difficult for the amount of capital I want?

 

[doctorj]

Surely a fund that small would be sub-scale for the overheads required to support a fund (one of which is obviously audit fees).

 

[MRC & Co]

Over a year later now, hows that fund coming along?

 

[Naked shorts]

Im also interested in starting a hedge fund.
My reason for this is that I have found arbitrage and equity opportunities that I need more capital to utilise.
Do I need any official qualifications in order to get a license?
If initially Im only going to need 1-2 million then will the costs involved in hiring reputable auditors outweigh the potential benefits?
I would prefer to register in Australia so that my investors can see a higher level of integrity but will it be too expensive and difficult for the amount of capital I want?

would probably be better to start at a prop

 

[RazzaDazzla]

Damn, just wrote a detailed reply and it didn't post.

In summary, very curious to hear how Nizar and others have progressed.

Would love to know if there is official requirements put in place by ASIC or other relevant bodies.

What are estimated costs to get fund/CMT setup and ready to start looking for investors?

Very interesting thread.

 

[RazzaDazzla]

The fund must be a raging success and he's now on his Yacht... Or a flop and he's running from angry creditors!

 

[professor_frink]

Razza,

You won't find nizar posting here these days, he's no longer a member. He has a blog that he set up when he first started trading his system,

http://thetrendfollower.blogspot.com/

Doesn't get updated much these days though. As far as I can tell, he's still trying to claw his way out of a massive drawdown.

Can't imagine he'd have set up a fund or anything like that. You'd think that any investors would want to see him turn a profit before they invested with him

 

[RazzaDazzla]

Thanks for the heads up Frink