How to Start a Hedge Fund

A hedge fund has no fixed term and no capital calls. Investors subscribe on dealing dates (usually monthly), their capital is invested immediately, and they redeem at NAV subject to the liquidity terms in the documents. That means the mechanics that matter are liquidity mechanics, not waterfall mechanics.

The terms LPs will actually negotiate: the lockup (how long a new investor's capital is committed before it can be redeemed), the redemption schedule and notice period (monthly or quarterly, with 30–90 days' notice), gates (a cap on how much of the fund can exit in one period, protecting remaining investors from a fire sale), and the high-water mark (the manager earns incentive compensation only on net new gains — if the fund draws down, no incentive is paid until the prior peak is recovered). Get these coherent with your strategy's actual liquidity: promising monthly redemptions on positions that take a quarter to unwind is the classic first-fund mismatch.

A first US hedge fund is usually a standalone domestic vehicle — typically Delaware entities — with the same three-entity skeleton as other private funds.

The master-feeder structure — an offshore feeder (typically Cayman) for non-US and US tax-exempt investors, alongside the domestic fund, both trading through a master — exists for good reasons, but it roughly doubles formation and annual costs. Most first-time managers launch domestic-only and add the offshore feeder when a specific tax-exempt or non-US allocation justifies it. Building the domestic fund cleanly first keeps that door open.

Hedge fund interests are securities, so the raise runs under Regulation D like any private fund. Rule 506(b) prohibits general solicitation but allows self-certification of accredited status; Rule 506(c) permits public marketing with documentary accreditation verification. You file a Form D and state blue-sky notices, and the fund typically relies on the Investment Company Act 3(c)(1) exclusion — up to 100 beneficial owners (3(c)(7) with qualified purchasers only comes later, at institutional scale).

Hedge funds carry one extra layer: where the manager is a registered investment adviser, performance compensation generally requires investors to be qualified clients under Rule 205-3 — a higher bar than accredited (currently $1.1M+ managed with the adviser or a $2.2M+ net worth, inflation-adjusted). Whether you must register — SEC, state, or neither via an exemption — depends on your assets and the states involved, and the answer determines who can lawfully pay your incentive allocation. This is the first conversation to have with counsel, not the last.

Allocators diligence the operations as hard as the strategy. Three providers are the expected minimum.

The traditional path runs $50,000–$100,000+ in formation legal fees and commonly three to six months of elapsed time. On Fund Launch, the fund formation package — complete formation and offering documents prepared for your fund and reviewed by independent counsel — is $6,000, and managers typically have a complete LP-ready package in days rather than months.

The recurring stack is heavier than in closed-end funds: administration (commonly $30,000–$60,000+/year), the annual audit, prime brokerage minimums, market data, and compliance upkeep. That's the real break-even math — at a 1.5% management fee, $10M of AUM produces $150,000 a year against a cost stack that can approach it, which is why most managers launch with committed day-one capital and personal runway rather than hoping subscriptions arrive.

Fund Launch is a fund-building workspace: you describe the strategy, and the platform builds every surface investors will touch. The Fund Builder models the fund's terms — management fee, incentive allocation, high-water mark, lockup, redemption schedule, gates, founders-class terms — so the economics stay coherent with the strategy's actual liquidity. Scroll Deck turns the fund into an investor-facing pitch deck, Legal Canvas prepares the formation and offering documents for counsel review, and a generated fund site gives the fund a professional front door.

Because every surface is built from the same fund, the redemption terms in your deck match the ones in your limited partnership agreement exactly — which is precisely what operational due diligence is checking for.