Hedge fund structure

A hedge fund may be established by a managing company with subsequent attraction of investors. Operations start only after interested investors place their funds under management. A managing company's staff perform all selling/buying operations via their partners, brokers and banks.

A big difference is made by a guarantor bank, which keeps investors' assets (money, gold, securities, etc.). As a rule, not being a prime broker, it performs all transactions, that's why requirements imposed to the bank are quite high: it must be pretty big, have the quality of inspiring confidence to clients, and be influential in the financial world.

To perform transactions, hedge funds require prime brokers with a great variety of functions. When a managing company orders to perform a financial operation, prime brokers take care of the technical part, starting from executing a transaction on a stock exchange to custody business and lending. Since hedge funds operate in different parts of the world, prime brokers must be able to perform transactions everywhere their clients find it necessary. So, quite often prime brokers are large international banks, such as Goldman Sachs, Merrill Lynch, or Morgan Stanley.

An integral part of hedge funds' activities is a fiscal audit. Auditors watch them and assess their asset values independently of a managing company. The purpose of this is to reduce potential risks. In addition to that, auditors control accounting of funds and prepare various financial reports, including the ones for investors.