How to Set Up Your Own Hedge Fund Author: Hannah M. Terhune is an attorney with Capital Management Law Group, PLLC, based in Washington, DC. Miss Terhune specializes in setting up hedge funds, incubator funds, master/feeder funds, forex funds, commodity pools and other financial products of interest to the alternative investment community. Miss Terhune and her legal team can be reached at (202) 498-7533 or legal@capitalmanagementlaw.com. © Copyright 2006 – Hannah Terhune Traders and money managers often dream about one day running their own hedge fund, managing large sums of money, and competing head to head with the world’s top traders. For many, though, this dream remains unfulfilled, because they do not know where to begin and do not want to squander their resources “reinventing the wheel.” The first step toward setting up a hedge fund is getting a better grasp of what exactly a hedge fund is. Hedge funds often are compared to registered investment companies, unregistered investment pools, venture capital funds, private equity funds, and commodity pools. Although all of these investment vehicles are similar in that they accept investors’ money and generally invest it on a collective basis, they also have characteristics that distinguish them from hedge funds and they generally are not categorized as hedge funds. Unlike a mutual fund, a hedge fund is not registered as an investment company under the Investment Company Act and interest in the fund is not sold in a registered public offering. Hedge funds can trade in a wider range of assets than a mutual fund. Portfolios of hedge funds may include fixed income securities, currencies, exchange-traded futures, over-the-counter derivatives, futures contracts, commodity options and other nonsecurities investments. As the name indicates, hedge funds initially specialized in hedging and arbitrage strategies. When Alfred Winslow Jones established the first hedge fund as a private partnership in 1949, that fund invested in