The Dynamics Underlying Hedge Fund Structure: Why Fund Managers Adopt a Myriad of Legal Forms

This article will discuss the similarities and differences between: (1) mutual funds—open-end funds which are relatively heavily regulated and must provide daily redemptions for investor liquidity, (2) closed-end investment companies—funds that are subject to similar regulations as mutual funds yet provide infrequent (if any) investor redemptions, (3) private-equity funds—funds which are subject to fewer regulations since only accredited investors and sophisticated institutions can invest and are designed to provide liquidity after ten years, and (4) hedge funds—funds which are historically subject to limited regulations since they invest capital only on behalf of accredited investors and typically allow investors to redeem shares semi-regularly (most often quarterly). This article applies special focus on hedge funds’ structures because these structures have proved the most dynamic since Alfred Winslow Jones created the first “hedged fund” in 1949.