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What is a Purchaser's Representative?

A Purchaser's Representative is a person who satisfies all of the following conditions or who the issuer reasonably believes satisfies all of the following conditions: is not an affiliate, director, officer or other employee of issuer, or the beneficial owner of 10% or more of any class of equities securities or 10% or more of the equity interest in the issuer except where the purchaser is (i) a relative of Purchaser's Representative by blood, marriage or adoption and not more remote than a 1st cousin; (ii) a trust or a state in which the Purchaser's Representative and any persons related to him have specified in Paragraph h(i) or h(iii) of this section collectively have more than 50% of the beneficial interest (excluding continued interest) or of which the Purchaser's Representative serves as trustee, executive or in a similar capacity; or, (iii) a corporation or other organization which the Purchaser's Representative and any persons related to him as specified in Paragraph h(i) or (h)1(ii) of this section collectively are the beneficial owners of more than 50% of the equity securities (excluding directors' qualifying shares) or equity interest; has such knowledge and experience in financial and business matters that he is capable of evaluating, alone, or together with other Purchaser Representatives of the purchaser, or together with the purchaser, the merits and risks of the prospective investment; is acknowledged by the purchaser in writing, during the course of the transaction, to be his Purchaser Representative in connection with evaluating the merits and risks of the prospective investment; and, discloses to the purchaser in writing a reasonable time prior to the sale of securities to that purchaser any material relationship to himself or his affiliates in the issuer or its affiliates that then exists, that is mutually understood to be contemplated, or that has existed at any time during the previous 2 years, and any compensation received or to be received as a result of such relationship.

Can I advertise my hedge fund on the internet?

Rule 502(C) of Regulation D prohibits any form of a general solicitation or general advertising. However, where the web page is a "secure" page, and access is limited to "accredited investors" and contains other safeguards, it may be possible to craft such a page in such a way so as to comply with the prohibitions against general solicitation or advertising.

Why are hedge funds limited to no more than 100 investors?

The so called 3(c)(1) Hedge Fund refers to a provision of the Investment Company Act that exempts hedge funds from certain registration and clients' requirements of the Investment Company Act of 1940 as long as there are less than 100 investors.

Is there a limitation on the amount of investors in a 3(c)(7) hedge fund?

The 3(c)(7) hedge fund offers securities to "qualified purchasers." There are no such limitations on the number of qualified purchasers under the Investment Company Act of 1940. However, where there are more than 500 investors in the limited partnership, the entity my be subject to classification as a "publicly traded entity. " Should that occur, the entity may lose its flow-through tax treatment which is one of the primary benefits of the hedge fund's limited partnership structure.

Can a hedge fund be created to invest in other funds?

Yes. This is called a fund of funds. However, a fund created specifically for the purpose of investing in another fund and for the purpose of avoiding the limitation requirements on the number of investors, could violate the various provisions of the Federal Securities Law as it relates to numbers of investors and the qualification or status of investors.

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