When trading funds on behalf of your investors it is important to do this from a legal entity to prevent any personal liability. To decide which jurisdiction is the best to register this entity, there are two main options to choose from:
| If you require an entity to solely trade your own funds you can learn more about setting up a Proprietary Trading Entity here.
A US fund is a great setup to start investing fund of behalf of outside investors. The State of Delaware is the most common jurisdiction in the US to register a fund. Delaware is great due to the legal precedent from the many hedge funds that are registered there. When running a fund in the US you will need to conform to US Security regulations, meaning you cannot invest in unregistered securities. This means you won't be able to invest in newly listed tokens on for instance CoinList.
To be able to accept investments into your fund you will require a tailored operating agreement to reflect your manager rights as the manager of the fund. These documents need to be drafted by US Counsel to give your investors the comfort that the documentation is in order. Otonomos can introduce you to trusted counsel to set this up.
In the US you will also have to consider accredited investor regulations. This means that your investors need to meet certain requirements to be able to invest in your fund. Below you can read more about the definition of accredited investors.
Definition of Accredited Investors
There is however Rule 506(b) which is an exemption which allows you to have a maximum of 35 unaccredited investors in your fund.
Read more about the Rule 506(b) exemption.
* US investors & non-US investors
* DeFi Strategy
* Non-leveraged trading
* Non-derivative trading
|| You can find the total setup cost for a US Fund here: US Fund Setup Cost
When it comes to setting up an offshore fund Otonomos sees the British Virgin Islands as the best jurisdiction. While the Cayman Islands are well known for hedge funds, we see this only become appealing with a launch size of $100+ million. In the BVI you can start a so called Incubator fund up to $20million with lower initial setup costs. This allows you to build a track record before you can graduate the fund into an "Approved Fund". Graduating your fund into an Approved Fund is also a fairly streamlined process that requires you to appoint a 3rd party fund administrator. For funds greater than $100+ million you will additionally be required to have a 3rd party custodian.
This setup is interesting when you invest in newly issued tokens, leveraged products and derivatives on offshore exchanges.
To accept funds from your investors you will require to have the right documents in place. The following documents are required:
* Fund's Term sheet
* Memorandum and Articles
* Subscription and Redemption Agreements
* All enabling resolutions
If you would like to open offshore exchange accounts for the BVI fund you will need to account for the US ownership in the fund. To increase the chances of opening an account it is best to keep the percentage of ownership of every US participant at 10% or lower. This is because most exchanges only want to know ownership of 10% or more.
To accept US investors in your offshore fund you can make use of a US Feeder. This allows US investors to invest in the US arm of the fund which will then "feed" the capital as one subscriber into the offshore BVI fund.
Adding a US Feeder comes at the same cost as the setup of a US Fund.
* Non-US investors
* Derivative trading
* Leveraged Trading
* Offshore exchanges
* VC Investing
* Coin listings
* SAFT Investments
* Geofenced offerings outside of the US
|| You can find the total setup cost for the setup of an Offshore Fund here: Offshore Fund Setup Cost