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The Fund Terms Checklist: Every Decision Your Offering Document Needs
Before counsel can draft an offering document, roughly sixty commercial decisions have to be settled. They fall into twelve clusters: strategy and manager, vehicle, investor eligibility, share classes, subscriptions, redemptions, fees, leverage, counterparties, valuation, governance and reporting. This checklist sets out each decision, why it matters, and which document it eventually lands in. Managers who work through it before instructing counsel typically remove three weeks from a launch and avoid the reopened terms that cause most drafting delay.
- Fund terms are commercial decisions, not legal ones. Counsel drafts them; the manager makes them.
- Each decision lands in a specific document. Knowing which one prevents the same point being negotiated three times.
- The terms that cause the most trouble later are not the fee terms. They are the liquidity terms, because they must match how quickly the portfolio can actually be sold.
- Decisions left open are the primary cause of drafting cycles. Every reopened term restarts a review round.
- This is a decision inventory. For guidance on how to choose between the options, see the companion articles linked throughout.
Why this checklist exists
A recurring pattern in first time launches is that the manager engages counsel early, expecting the process to surface the decisions. It does not work that way. Counsel will ask the questions, but the answers are commercial, and a document cannot be drafted around answers that do not yet exist. The result is a drafting process that stalls, restarts, and consumes the weeks that the manager assumed were legal work.
This article is deliberately a checklist rather than a guide. It does not argue for particular terms. Our companion piece on designing fund terms a manager can actually operate deals with how to choose; this one deals with what must be chosen. Read together they cover the ground. For the wider launch sequence, see the institutional hedge fund launch checklist and our note on how long a hedge fund launch actually takes.
Where each decision lands
Terms are not recorded in one place. Knowing the destination of each decision is what stops the same point being renegotiated at three different stages.
| Document | What it records | Who relies on it |
|---|---|---|
| Offering document | Strategy, risk factors, dealing terms, fees, valuation, conflicts, service providers | Investors, CIMA, allocators conducting due diligence |
| Constitutional documents | Share classes, rights attaching to each class, director powers | Registrar, administrator, board |
| Investment management agreement | Mandate, discretion, restrictions, manager fees, termination | Manager, board |
| Subscription document | Investor eligibility, AML and source of funds, representations, tax classification | Administrator, AML officers |
| Administration agreement | NAV frequency, valuation sources, dealing cut offs, transfer agency | Administrator, auditor |
| Board resolutions | Appointments, approvals, policy adoption, delegations | Board, regulator, allocators |
1. Strategy and investment manager
| Decision | Why it matters |
|---|---|
| Strategy description as it will appear in the offering document | Defines the mandate and constrains what the manager may do. Too narrow limits the fund; too broad concerns allocators. |
| Asset classes and instruments permitted | Drives administrator capability, valuation approach and counterparty requirements. |
| Geographic and sector focus, if any | Appears in the mandate and in investor reporting. |
| Investment manager entity and its jurisdiction | Determines local licensing analysis and sits on the critical path. |
| Ownership and key persons of the manager | Required for know your business packs at every counterparty. |
| Any key person provisions | Increasingly requested by institutional investors. |
| Delegation or sub advisory arrangements | Must be disclosed and reflected in the agreement chain. |
2. Vehicle and structure
| Decision | Why it matters |
|---|---|
| Standalone company or segregated portfolio within an umbrella | The largest single determinant of cost, timeline and operational burden. |
| Open ended or closed ended | Determines whether the Mutual Funds Act or the Private Funds Act applies. |
| Registration route under the applicable statute | Section 4(3) registration carries a minimum initial investment threshold; other routes do not. |
| Standalone, master feeder or parallel structure | Driven by the investor base rather than by the strategy. |
| Whether a listing is intended | Affects the offering document and ongoing obligations. |
The statutory distinction is set out in our explainer on the Cayman Mutual Funds Act. Managers weighing the umbrella question should read the segregated portfolio company against standalone fund comparison.
The CV5 Hedge Fund Launch Questionnaire is built around this exact inventory. Completing it produces a structured record of the strategy, manager, investor profile, launch capital and dealing terms, in the form counsel and service providers need.
Start the Hedge Fund Launch Questionnaire3. Investors and eligibility
| Decision | Why it matters |
|---|---|
| Target investor types and their jurisdictions | Determines offering restrictions, tax reporting and marketing analysis. |
| Whether US investors will be accepted, and on what basis | Drives a distinct set of representations and structural consequences. |
| Whether tax exempt investors are expected | May influence structure and the treatment of leverage. |
| Investor eligibility standard applied | Recorded in the subscription document and enforced by the administrator. |
| Whether side letters will be entertained | Better decided as a policy before the first is requested. |
| Maximum number of investors, if capped | Relevant to certain registration routes. |
The relevant standards are covered in our notes on accredited and sophisticated investor definitions and on Cayman funds taking US accredited investors and qualified purchasers. On the last point, see side letters and the governance risk they carry.
4. Share classes and currencies
| Decision | Why it matters |
|---|---|
| Number of classes at launch | Each class adds administration cost and NAV complexity. |
| Base currency of the fund | Determines reporting and the reference point for hedging. |
| Additional dealing currencies and whether they are hedged | Currency hedged classes require the administrator to support class level hedging. |
| Founder or early investor class terms | Should be defined before the first investor asks. |
| Whether classes differ on fees, liquidity or both | Differences on liquidity are materially harder to operate than differences on fees. |
| Management shares and voting rights | Recorded in the constitutional documents. |
See operating multiple share classes, share classes with multiple fee models and the founder share class playbook.
5. Subscriptions
| Decision | Why it matters |
|---|---|
| Subscription frequency | Monthly is common; more frequent dealing increases administrator workload. |
| Minimum initial subscription | Constrained by the registration route selected. |
| Minimum additional subscription | Operational rather than regulatory. |
| Subscription notice period and cut off | Must allow time for AML clearance and settlement. |
| Whether in kind subscriptions are permitted | Requires a valuation approach and additional AML analysis. |
| Subscription fee, if any | Rare in practice but must be decided. |
| Treatment of subscriptions received after the cut off | Prevents dispute at the first dealing day. |
6. Redemptions and liquidity
This cluster causes more post launch difficulty than any other, because redemption terms are a promise about how quickly the portfolio can be converted to cash. Where the promise and the portfolio disagree, the fund has a problem that no amount of documentation solves.
| Decision | Why it matters |
|---|---|
| Redemption frequency | Must be consistent with the liquidity of the underlying positions. |
| Redemption notice period | The manager's window to raise cash in an orderly way. |
| Lock up period, hard or soft | A soft lock up applies a redemption fee rather than a prohibition. |
| Early redemption fee and its recipient | Paying it to the fund rather than the manager is the institutional norm. |
| Investor level and fund level gates, and the threshold | Protects remaining investors in a stress event. |
| Suspension powers and who may exercise them | Typically a board power, not a manager power. |
| Side pocket capability | Far easier to include at launch than to add later. |
| Redemption payment timing and any holdback | A holdback pending audit is common and should be disclosed. |
| Compulsory redemption powers | Needed for regulatory and eligibility breaches. |
The mechanics are covered in redemption terms explained, the toolkit in fund liquidity tools, and the suspension question in when a hedge fund can suspend redemptions.
Strategy: Manager defined
Vehicle: Cayman segregated portfolio or standalone company
Investors: Professional and sophisticated investors
Terms to settle first: Dealing frequency, notice, lock up, gate, fee basis
7. Fees and economics
| Decision | Why it matters |
|---|---|
| Management fee rate and accrual frequency | Accrual affects NAV, not just revenue. |
| Whether the fee is charged on net asset value or committed capital | Materially different economics. |
| Performance fee rate | Set alongside the hurdle, not independently. |
| Crystallisation frequency | Annual is standard; more frequent crystallisation is harder to defend. |
| High water mark, and whether it resets | A resetting high water mark requires clear disclosure. |
| Hurdle rate, and whether it is hard or soft | Determines whether the fee applies to all gains or only those above the hurdle. |
| Equalisation method for performance fees | Determines fairness between investors subscribing at different times. |
| Which expenses the fund bears and which the manager bears | The most common source of later dispute with allocators. |
| Expense cap, if any | Frequently requested by early investors. |
| Organisational cost treatment and any amortisation | Affects early NAV and requires disclosure. |
See how performance fees work, high water marks explained, equalisation and series accounting, the market position in management fees, performance fees and hurdles, and the expense allocation policy.
Managers spend most of their preparation on the fee terms and almost none on the liquidity terms. It should be the other way round. A fee that is slightly off market costs you a negotiation. Redemption terms that do not match how fast the book can be sold cost you the fund.
David Lloyd, Chief Executive Officer, CV5 Capital8. Leverage, derivatives and risk limits
| Decision | Why it matters |
|---|---|
| Whether leverage is permitted, and the stated maximum | Disclosed in the offering document and tested in due diligence. |
| How leverage is measured | Gross, net and notional exposure give very different numbers. |
| Sources of financing | Determines counterparty requirements. |
| Derivatives permitted, and for what purpose | Hedging only, or return seeking. |
| Short selling permitted | Requires borrow arrangements and disclosure. |
| Concentration limits | Allocators expect a documented answer. |
| Whether limits are hard restrictions or guidelines | A breach of a hard limit is a compliance event; a guideline is not. |
9. Banking, brokerage and custody
| Decision | Why it matters |
|---|---|
| Number and type of brokerage relationships at launch | Single broker is simpler; multiple reduces counterparty concentration. |
| Custody model and where assets are held | Central to operational due diligence. |
| Banking arrangements for subscriptions and redemptions | The most common cause of launch delay. |
| Whether rehypothecation is permitted, and any limit | Affects the fund's exposure to the broker. |
| Cash management approach for uninvested balances | Requires a documented policy. |
| Authorised signatories and payment approval thresholds | A board matter, recorded by resolution. |
10. Valuation and NAV
| Decision | Why it matters |
|---|---|
| NAV frequency and the official NAV date | Dealing terms depend on it. |
| Valuation point and pricing sources by instrument | Must be agreed with the administrator before launch. |
| Treatment of hard to value positions | Requires a documented methodology and board oversight. |
| Who has final authority on a contested valuation | Should not be the investment manager alone. |
| Error correction policy and materiality threshold | Needed before the first error, not after. |
| Whether a shadow NAV will be maintained | Increasingly expected at institutional scale. |
The framework is set out in our guidance on the fund valuation policy.
11. Governance and service providers
| Decision | Why it matters |
|---|---|
| Board composition and number of independent directors | A primary allocator due diligence question. |
| Board meeting frequency | Quarterly is the institutional baseline. |
| Administrator, auditor and registered office | Required for registration. |
| AML compliance officer, reporting officer and deputy | Appointments confirmed by board resolution. |
| Which policies will be adopted at launch | Valuation, AML, sanctions, conflicts, expense allocation, risk. |
| Conflicts of interest disclosure | Particularly where the manager runs other vehicles. |
12. Reporting and tax
| Decision | Why it matters |
|---|---|
| Investor reporting frequency and content | Sets an expectation that must then be met every period. |
| Whether estimates will be issued between NAV dates | Creates an ongoing operational commitment. |
| Financial year end | Determines the audit cycle and first filing. |
| FATCA and CRS classification and registration | Handled by the administrator but requires manager decisions. |
| Any additional investor tax reporting | Depends entirely on the investor base. |
| Performance presentation approach | Best fixed before the first factsheet is issued. |
The five decisions managers most often get wrong
- Setting redemption frequency by reference to what competitors offer rather than to how quickly the portfolio can be liquidated in a stressed market.
- Omitting side pocket capability because the strategy is liquid today. Adding it later requires investor consent.
- Leaving the expense split between fund and manager vague. Allocators test this line specifically.
- Launching with more share classes than the strategy needs, which multiplies NAV complexity for no commercial gain.
- Treating the minimum subscription as a marketing decision when it is constrained by the registration route. The interaction with viable fund size is covered in minimum viable AUM for hedge funds.
Frequently Asked Questions
What information do I need before instructing counsel on a fund launch?
At minimum: the strategy description, the investment manager entity and its jurisdiction, target investors and their jurisdictions, base currency, share classes, subscription and redemption frequency, notice periods, any lock up or gate, management and performance fee terms, leverage policy, and intended service providers. With those settled, drafting can proceed without stalling.
How many decisions are involved in setting hedge fund terms?
Approximately sixty across twelve clusters. Not all apply to every fund, and a segregated portfolio launched on an established platform inherits many governance and service provider decisions from the umbrella, which reduces the list materially.
Which fund terms are hardest to change after launch?
Terms that affect existing investors' rights: redemption frequency, lock ups, gates, fee rates and share class rights. Changing them generally requires investor consent or notice, and sometimes both. Side pocket capability is the clearest example of something far easier to include at launch than to add later.
Should fund terms match what other funds in the strategy offer?
Market convention is a useful reference point for fees, but liquidity terms should follow the liquidity of the underlying portfolio rather than convention. A fund offering monthly redemption on a book that takes a quarter to liquidate has created a mismatch that will surface in the first period of stress.
Who decides fund terms, the manager or the fund's board?
The manager proposes the commercial terms and the board approves them as part of approving the offering document. Once the fund is operating, certain powers, notably suspension of redemptions, typically sit with the board rather than the manager. That separation is a governance feature rather than an inconvenience.
Does launching on a platform reduce the number of decisions?
Yes, materially. Governance, service providers, AML framework, valuation policy and banking are already established at umbrella level. The manager still decides strategy, investor profile, share classes, dealing terms and fees, since those are specific to the portfolio.
The CV5 Hedge Fund Launch Questionnaire follows this checklist. It captures the strategy, investment manager, target investors, launch capital, share classes, dealing terms, fee basis, leverage and operational requirements in a single structured pass, which is what counsel, the administrator and counterparties each need before they can begin.
Start the Hedge Fund Launch Questionnaire
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