How to Start a Hedge Fund: Structure, SEC, Costs

A hedge fund is a private investment fund: investors put money into a pooled vehicle, a manager trades it, and the manager earns a management fee and a share of profits. Starting one is mostly a legal and operational project. The trading strategy is the part you already have; the structure, registrations and service providers are the parts this guide covers.

This guide follows the US route, which is what most people searching this question mean. Every figure was checked on 12 October 2026 against the source listed at the end. For the full cost breakdown, see how much it costs to start a hedge fund.

What structure does a hedge fund use?

Most US hedge funds use three entities: a management company that employs the team and earns the management fee, a general partner that controls the fund and receives the performance allocation, and the fund itself, usually a limited partnership in which investors are limited partners.

If you also want offshore or US tax-exempt investors, the common answer is a master-feeder: a US feeder and an offshore feeder both invest into one master fund that trades. Seward & Kissel's 2025 New Manager Hedge Fund Study, published in July 2026, found that managers launching both US and offshore funds "overwhelmingly" used master-feeder structures, and that about one-third of new managers launched only a US standalone fund, often to build a track record first.

The fund also needs an exclusion from the Investment Company Act. Section 3(c)(1) covers a fund owned by no more than 100 beneficial owners that makes no public offering. Section 3(c)(7) covers a fund owned only by qualified purchasers, which for an individual means owning at least $5 million in investments. Seward & Kissel found more than 80% of master-feeder launchers relied on 3(c)(7).

Which service providers do you need?

A March 2026 AIMA article by David Goldstein of STP Investment Services lists the essential partners as the law firm, administrator, tax and audit provider, compliance adviser and prime broker, and warns against choosing them mainly on price. He notes that experienced investors treat an independent fund administrator as a basic "check the box" requirement.

Do you need to register as an investment adviser?

Usually yes, with either your state or the SEC, unless an exemption applies. The SEC says advisers with less than $100 million in regulatory assets under management are generally prohibited from registering with it and register with their state instead; registration with the SEC is permitted at $100 million and required at $110 million.

An adviser that advises only private funds and has less than $150 million in US assets under management can use the private fund adviser exemption. It then becomes an exempt reporting adviser: it does not register with the SEC but still files parts of Form ADV, and it may still face state registration or reporting. The SEC lists Form ADV filing fees of $40 to $225 for registered advisers, depending on assets, and $150 for an exempt reporting adviser's initial report and each annual amendment.

If the fund trades futures, options on futures or retail forex, it is also a commodity pool, and the operator generally registers with the CFTC through the NFA unless an exemption under CFTC Regulation 4.5 or 4.13 applies. The NFA charges a $200 application fee and $750 a year in dues for a standard commodity pool operator.

How do you raise money legally?

Most hedge funds sell their interests in a private placement under Regulation D, Rule 506. There are two versions, and the choice decides how you can market the fund, including what your website can say.

• Accredited investor (individual): income over $200,000 ($300,000 with a spouse or partner) in each of the last two years with the same expected this year, or net worth over $1 million excluding the primary residence, or certain licences such as the Series 65.
• Verification under 506(c): in March 2025 SEC staff issued a no-action letter accepting high minimum investments ($200,000 for individuals, $1 million for most entities) plus written representations as reasonable steps, according to King & Spalding. It is staff guidance, not a rule.
• Form D: the SEC charges no filing fee, but states may require their own notice filings and fees.

What fees and terms do new funds offer?

New managers usually launch below the classic "2 and 20". Seward & Kissel's 2025 study found standard-class management fees averaged 1.69% for equity strategies and 1.88% for non-equity strategies, with incentive allocations averaging 18.93% of annual net profits. About 69% of equity funds and 33% of non-equity funds offered a founders' class with reduced fees for early investors, and 82% of equity funds offered quarterly or less frequent liquidity.

How much money do you need?

You need two budgets: launch costs and enough assets to cover running costs. Goldstein wrote in March 2026 that he used to tell managers they needed at least US$250,000 to launch, and that "today, the minimum is closer to US$100,000", while calling that "a very thin budget". On assets, a 2024 Hedgeweek and Marex survey reported by AIMA found the break-even point for an emerging manager is widely seen as below US$100 million: 32% of respondents said US$50 million or less and 55% said US$50–100 million.

Line-by-line ranges for legal, administration, audit and technology are in our hedge fund cost guide.

What is the launch order, step by step?

The order matters because each step feeds the next. A typical sequence:

• Write the strategy, terms (fees, liquidity, lock-ups) and target investors on one page.
• Hire fund counsel; choose standalone or master-feeder and 3(c)(1) or 3(c)(7).
• Form the management company, general partner and fund entities.
• Appoint the administrator, auditor and prime broker; open accounts.
• Register the adviser with the state or SEC, or file as an exempt reporting adviser; check CFTC/NFA if you trade futures or forex.
• Choose Rule 506(b) or 506(c), then build marketing materials and your website to match.
• Accept subscriptions, file Form D within 15 days of the first sale and make any state notice filings.

What should the fund's website do?

A fund website has to look institutional while saying very little in public, especially under Rule 506(b). Our guide to what a hedge fund website can and can't say covers the Marketing Rule, general solicitation and investor gating.

PipValley builds websites for prop firms and the trading businesses next to them. We have not built a hedge fund website for a client yet, so we work to your counsel's rules rather than our own; see websites for hedge funds and trading firms.

Questions

Sources

1. SEC: Capital raising building blocks, investment advisers (updated Sept 9, 2026)
2. SEC: IARD filing fees
3. Cornell LII: 15 U.S.C. 80a-3, definition of investment company (3(c)(1), 3(c)(7))
4. Cornell LII: 15 U.S.C. 80a-2, definitions (qualified purchaser)
5. Seward & Kissel: 2025 New Manager Hedge Fund Study (Jul 16, 2026)
6. AIMA: What emerging managers get wrong when launching a hedge fund (Mar 23, 2026)
7. AIMA: Optimism and opportunities, hedge fund launches are on the rise (Sept 23, 2024)
8. SEC: Private placements, Rule 506(b)
9. SEC: General solicitation, Rule 506(c)
10. SEC: Accredited investors
11. SEC: Filing a Form D notice
12. King & Spalding: SEC staff no-action letter eases Rule 506(c) verification (Mar 2025)
13. NFA: Commodity pool operator registration
14. NFA: Membership dues and fees