Offshore Hedge Funds

Hedge fund need to structure their legal situation in a manner that will maximize profits. Whether this means allow for more flexibility in terms of selling securities or lowering their tax expense. Very often hedge funds are placed offshore because of favorable tax environments. For example many hedge funds are placed offshore to the country where the portfolio manager lives. This is to minimize the amount of taxes the hedge fund pays. By 2004 over half of the hedge funds were registered offshore. The most popular location are the Cayman islands, Virgin Islands and Bermuda. The US is the most popular onshore location accounting for nearly a third of the funds. Hedge funds that are onshore structure themselves legally as “Limited Partnerships”. This means that the portfolio manager is the general partner and the investors are limited partners. The funds are pooled together and the general partner makes the investment decisions.