HEDGE FUND FORMATION (3(C)(1) OR 3(C)(7))
Not every hedge fund should be built the same way. One of the earliest and most important formation decisions is whether the fund will rely on the 3(c)(1) or 3(c)(7) exemption under the Investment Company Act. That choice affects the investor base, the fundraising path, the subscription process, and, in many cases, the way the entire structure should be put together.
The Framework
Turning Decisions Into a Workable Legal Package
We advise sponsors on hedge fund formation for both 3(c)(1) and 3(c)(7) funds. In practice, that means helping clients make the right structural call at the outset and then turning that decision into a workable legal package:
- the fund vehicle
- the manager and GP entities
- the offering documents
- the subscription materials
- the governance terms that will shape the relationship with investors after launch.
The Choice
Finding the Fit: 3(c)(1) vs. 3(c)(7)
For some managers, a 3(c)(1) fund is the better fit because it allows for a more limited and controlled investor base. For others, a 3(c)(7) structure makes more sense because it opens the door to qualified purchasers and a different capital-raising strategy.
We help clients think through that choice in practical terms, not abstract ones. The question is not just what is legally available. The question is which structure matches the manager’s business plan, target investors, economics, and growth plans.
Documents
Core Formation Documents
Our hedge fund formation work typically includes:
- private placement memoranda
- limited partnership agreements or LLC operating agreements
- subscription documents
- side letters
- management company and general partner formation
- related organizational documents.
Advanced Advisory
Advanced Structuring & Allocation
We also advise on master-feeder structures, offshore funds, parallel vehicles, seed arrangements, founder terms, and the allocation of rights and economics among sponsors, principals, and early investors.
Why It Matters
Built to Support Your Offering
These early formation decisions matter because they tend to shape the fund for years to come. A structure may look fine on paper, but if it does not match how the manager actually plans to raise capital, bring in investors, and grow the platform, problems often show up later. We help clients think through those issues at the outset and put in place a structure that is practical, credible, and built to support the offering.
Insights & News
