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Types of Hedge Fund Investors
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Types of Hedge Fund Investors
Types of Hedge Fund Investors

Types of Hedge Fund Investors

Nonaccredited Investors
Hedge funds sold under the private placement rules in the United States
may admit up to 35 nonaccredited investors in addition to an unlimited
number of employees, although having nonaccredited investors puts addi-
tional restrictions on the fund. These investors may not have sufficient in-
come or net worth to be accredited but should be knowledgeable investors.
Because of the potential for litigation if the fund loses money, often hedge
funds accept no investments from nonaccredited investors.
Nonaccredited investors can be valuable to a hedge fund start-up be-
cause the additional investors demonstrate confidence in the manager. Even
small investments might be helpful to hedge funds starting with limited as-
sets under management. However, a large fund would get little benefit
from a small increase in assets under management. The administrative bur-
dens of carrying small investors may be unprofitable. Also, if a fund is
nearing the maximum number of permitted investors (either 99 or 500 for
U.S. unregistered funds), it may be better to turn away potential new in-
vestors unless they can invest substantial sums.
Nonaccredited investors get the same benefits from hedge fund own-
ership as do other types of investors. The nonaccredited investor may be
seeking higher returns, lower risk, or lower correlation to other assets.
Likewise, the management company may get benefits from having em-
ployees carry an investment in the fund they manage to motivate good
behaviors.
FAMILY OFFICES
A family office is a group of investors who hire investment advisers, tax
and accounting advisers, estate planners, and legal advisers. Family offices
have existed for over a century to handle the affairs of the children or
grandchildren of very wealthy individuals. Family offices may have addi-
tional responsibilities to oversee closely held assets and provide for succes-
sion of control. Family offices typically are formed to serve related
individuals, but a family office may be created for any group of individuals
having certain common interests.
Although the members of this investment group may form a business
unit to hire a staff and provide office space, the investment funds are gener-
ally not commingled into this business or any other. Often, however, the in-
vestors own many of the same assets, including a family business, limited
partnerships, and investment positions in public company shares.
Types of Hedge Fund Investors
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