So you want to start a hedge fund. The process can be lucrative if successful. There are hedge funds which were so powerful they could cripple certain countries. At a smaller level, a hedge fund allows a group of investors to come together and combine resources for a common investing goal. Read on to find out on how to start a hedge fund.
What is a hedge fund
The two conditions to start a hedge fund are a AFS license and a registered public company. ASIC classifies a hedge fund as a managed investment scheme. A managed investment scheme is when a bunch of investors all come together. They then pool their money together. This provides funds for the interest in the scheme. Then a “responsible entity” manages, oversees and operates the scheme. Hedge funds can take many forms. Some hedge funds are property trusts or equity share trusts for example.
Starting a hedge fund
Registering a company
The first step is to create a registered public company. As such you will require an ABN, ACN, Business name, and a TFN for the company. This includes appointing directors and officeholders. The owners of the company should note their civil liability. If the responsible entity breaks any of the rules in the legislation then a member can sue. The member which had suffered loss or damage can claim this regardless of whether the responsible entity was convicted for an offence. When the hedge fund is registered all documents sent to ASIC must have either the scheme number (ASRN) or an ABN. If you are still unsure you can check with an investment lawyer.
An AFS is an Australian financial services license. The AFS allows you to provide financial advice and provide financial services. However, before you can even get started for an AFS make sure you can pass the first test. You need to show that you have relevant qualifications. As of the 1st January 2019, an AFS license requires that you need to have at least a relevant bachelor’s degree or a recognised equivalent. Then they must pass an exam and have a year of professional experience and training. A managed investment scheme is covered under chapter 5C of the Corporations Act 2001 (Cth). There are certain circumstances where you don’t need to register a managed investment scheme. For example, if the hedge fund has less than 20 members. The regulation of AFS licensee is covered under ASIC’s regulations along with Corporations Act 2001 (Cth) Chapter 7.
Running a hedge fund
As a hedge fund, they must have a compliance plan. The next step is to appoint an auditor. This auditor will oversee the compliance plan. The reporting rate is within 3 months of the end of the financial year. Along with the compliance plan audit, the responsible entity must also lodge a 5111 form. This costs around $3,079 in 2018. There is also the annual statement and solvency resolution to lodge. Likewise, the entity needs to lodge a financial and director’s report online through ASIC yearly. The entity must also have risk management systems in place as per reg 259 This is a thorough plan that documents all risks and how they will be managed.
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