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      The fund manager is the entity that has staff, occupies space, pays bills, buys and sells stocks, and manages risk. The fund owns the securities purchased and any liabilities in the form of loans, borrowed shares, derivative obligations, or payables created on its behalf as a result of manager actions or omissions.

      Funds can be formed in a number of U.S. and offshore jurisdictions. Common U.S. jurisdictions include Delaware and New York. Common offshore jurisdictions include the Cayman Islands, Ireland, the British Virgin Islands, and Luxembourg. The primary purposes of the offshore fund are to solicit international investors, create eligibility for certain investments whose sale is prohibited or restricted in the United States, and facilitate the needs of U.S. tax-exempt investors. Most funds create both a domestic onshore fund and an offshore fund when they launch to broaden their appeal and accessibility to the widest range of investors possible. Retail mutual funds or UCITS funds normally do not get established until after the manager has been in operation for a year or more and has established a track record.

      The management company organizes the initial setup of the business and runs each fund investment vehicle under its domain on a day-to-day basis. The management company usually includes many people and teams responsible for executing trades, designing the portfolio, performing research, and managing risk, in addition to those needed to run operations and accounting, market the firm, and offer the funds to investors.

      Hedge fund management companies share a number of common organization design features; however, the specific organization of any management company is highly variable and dependent on its size, age, strategy, jurisdiction, and product mix and the personality of the founding partner. A fund manager who launches with $50 to $100 million in a single fund would require at least three to five people to manage and run the business effectively today. The days of launching a fund with the proverbial “two men and a dog” and later becoming highly successful are no more. A management company responsible for managing one strategy and two funds (onshore and offshore) with similar or identical mandates and $500 million to $5 billion in assets could operate out of a single location or office and might only need to employ 10 to 20 people to run the business, build effective internal controls, and provide reporting to investors. A fund that managed more than $5 billion would most likely employ over 100 people and operate in multiple offices and locations around the world with a well-defined business model and diverse functional responsibilities.

      A private fund manager in the United States may be required to register with the SEC, depending on the assets under management (AUM) of the organization. The rules today require managers to register with the SEC if they manage more than $150 million in assets. Managers with lesser amounts may be required to register with their state authorities under certain conditions.

      A fund that is managed by a specific fund manager and offered for sale may also be exempt from registration as a security under the 1933 and 1934 Acts if the fund is limited to fewer than 99 investors under safe harbor rule c3-1 or is limited to fewer than 499 investors under safe harbor rule c3-7 and if the investors meet certain qualifications based on income and net worth tests. This allows the funds to be classified as private placements rather than as public securities, which have to follow more onerous regulatory specifications and restrictions similar to mutual funds. Historically, private funds could not be advertised and sales were limited to known investors. The JOBS Act, signed in 2012, has provisions that allow managers of private funds to use more advertising and promotions, although few hedge funds have taken advantage of these provisions.

      All mutual fund managers, including those using hedge fund strategies, are required to register with the SEC, and all mutual funds must comply with the provisions of the Investment Company Act of 1940.

      Typically, the general partner or management company hired to run a fund by the fund’s board is wholly owned by the founder or senior partners of the firm. The general partner or management company employs the functional experts such as the portfolio manager, trader, director of research, treasurer, risk manager, COO, CFO, CCO, controller, head of information technology, head of human resources, and head of operations. Each department head would employ analysts and staff to support each function. Most organizations are relatively flat, with many direct reporting lines to the general partner, who is usually also the firm’s CIO. The management company earns a fee from the fund for carrying out its responsibilities.

      The specific roles and responsibilities of each individual supporting a fund vary from firm to firm and from strategy to strategy; however, most funds seek to establish a critical mass by filling certain roles needed to launch and grow the business in a controlled fashion. Without this critical mass, it is difficult for investors to take the fund seriously. When evaluating a fund, it is critical to note whether the following positions are in place, and if not, to ask why.