The F&H Law Firm represents clients in establishing Hedge Funds, both domestic and off-shore. A Hedge Fund is a private (as compared to a public company whose stock is freely traded on an open exchange) investment comprised of a pool of investors· money, often combined with contributions from the Hedge Fund organizer, designed to make investments that utilize a sophisticated or at least a dedicated strategy or group of strategies.
The organizer of a Hedge Fund is the person or entity that starts the Hedge Fund, typically referred to as the “manager”. Investors make contributions into the Hedge Fund in exchange for an equity percentage in the Hedge Fund. The Hedge Fund manager manages the Hedge Fund, and makes decisions such as which investment strategies to use, when to make investments, as well as general operational decisions.
The investors typically make money on their Hedge Fund investments in the form of regular returns on the gains from the investments, as well as redemptions on the sale of their percentage of equity interest. A key component to Hedge Funds is the minimization of the risk of loss by “hedging”.
How Companies Make Money?
Issuance of Stock
Stock of a corporation can be classified as common and preferred. There are three main differences between the two. Typically preferred stock do not allow for voting rights. Second, in the event of a liquidation of the corporation, the
preferred shareholders are given preference over common stock shareholders. Third, preferred shares can offer a somewhat guaranteed return in ways similar to bonds. Convertible preferred shares of stock offer the convertible option to the corporation or the shareholder to convert preferred shares of stock into common shares.
A corporation can issue bonds which are debt securities. Bonds are issued as a means of raising capital. A corporate bond is a loan to the corporation that offers a guaranteed return of interest payments until the bond matures, at which point the bond holder receives a return of the principal. A corporate bond is not the same as shares of stock as they offer no ownership interest in the corporation.
A convertible debt instrument is a form of debenture wherein a corporate loan can be converted into an equity stake in the company. Like most loans, a convertible debt pays interest, often referred to as a coupon rate, and repayment of principle at a stated time. However, the company or the lender may convert the loan into shares of common
Capital can be raised by private and public offerings wherein a partnership, limited liability company, or corporation whereby in exchange for the capital contribution, equity in the entity is given. Equity can be in the form of a partnership interest, unit membership interest in a limited liability company, or shares of stock of a corporation.
A business entity can obtain money from lenders. The lender can be an institution such as a bank, or a private equity firm, angel investor, or any other source agreeing to offer money. In return for the loan, the lender will typically be entitled to interest on the principle amount lent. The borrower is required to pay back the principle, possibly with accrued interest, at a stated time.