How to start a hedge fund

Starting a hedge fund means setting up a private investment partnership, a company to manage it, and the documents and service providers investors expect. Here are the steps in the order most managers take them, with data from the 8,516 U.S. hedge funds that filed a Form D with the SEC.

1. Strategy and track record

Allocators back a repeatable process and evidence that it works. Most new managers come from a larger firm, a proprietary account or a separately managed account they can point to. Write down the strategy, the risk limits and the capacity you expect, because the offering documents will need all three.

2. Legal structure

• The fund is usually a Delaware limited partnership (or LLC). Investors become limited partners.
• The general partner is a separate entity, controlled by the manager, that runs the partnership and typically receives the performance allocation.
• The management company is the investment adviser. It signs the advisory agreement, employs the team and receives the management fee.
• An offshore feeder, usually in the Cayman Islands, is often added for non-U.S. and U.S. tax-exempt investors. See offshore and master-feeder funds.

3. Offering documents

A securities lawyer drafts the private placement memorandum (strategy, risks, terms and conflicts), the limited partnership agreement, the subscription documents and the investment advisory agreement. These set the fees, the lock-up, redemption terms and who may invest.

4. Choose your exemptions

Two decisions shape how you can raise money:

• Rule 506(b) or 506(c). 506(b) bars general solicitation; 506(c) allows public advertising but every investor must be verified as accredited. 9% of U.S. hedge funds use 506(c). See Rule 506(b) vs 506(c).
• Section 3(c)(1) or 3(c)(7). 3(c)(1) caps the fund at 100 beneficial owners; 3(c)(7) allows more but only qualified purchasers. See 3(c)(1) vs 3(c)(7).

5. Register the adviser

The management company generally must register as an investment adviser or report as an exempt adviser. Advisers that only manage private funds and have less than $150 million in U.S. assets can usually file as an exempt reporting adviser on Form ADV instead of registering with the SEC, though some states require their own registration. Larger advisers register with the SEC. Registration status and Form ADV are public, which is how allocators check you.

6. Service providers

• Fund administrator: calculates net asset value, keeps investor records and handles subscriptions and redemptions.
• Auditor: an annual audit by an independent accounting firm is expected by almost every allocator.
• Prime broker and custodian: holds assets, provides financing and executes trades.
• Legal and compliance: fund counsel, plus a compliance manual and code of ethics for the adviser.

7. File Form D and state notices

Within 15 days after the first sale, the fund files a Form D with the SEC and notice filings in the states where its investors live. Form D is public, which is why every fund appears on sites like HedgeMountain. Funds amend it at least once a year while the offering continues.

8. Raise the first capital

New funds start small. Among the 2,543 emerging U.S. hedge funds (first sale since 2021, under $50 million raised), the median has raised $9.0M and the median minimum investment is $250K. First money usually comes from the manager, friends and family, former colleagues and a few early allocators, sometimes in exchange for reduced fees as founding investors.

Once your Form D is filed, your fund already has a page on HedgeMountain. Claim it for free to add your strategy, team and contact details.

Figures are HedgeMountain calculations from the latest Form D of each of the 8,516 U.S.-based hedge funds that filed between Oct 1, 2024 and Oct 29, 2026. They describe what funds reported, not what investors earned.

Education, not advice. This guide explains general rules and market practice. It is not legal, tax or investment advice, not an offer or solicitation, and not a recommendation of any fund. Rules change; confirm details with the SEC and a qualified professional. Disclosures