What is an incubator fund?

An incubator fund is a cost-effective fund alternative for managers who prefer to gradually transition to a full-fledged hedge fund.  The key difference between a full-fledged hedge fund and an incubator fund is that the incubator fund is typically capitalized solely with the manager’s own assets.  Because the fund is closed to outside investors, there is no requirement to prepare an offering memorandum and subscription documents for the fund during the incubator stage.

Why establish an incubator fund?

Establishing an incubator fund allows the manager to soft-circle prospective investors and obtain indications of interest in the fund prior to incurring the increased costs of launching a full-fledged hedge fund.  In the interim, the incubator fund can be used to accumulate a marketable track record for the fund and test investment strategies.  The incubation period varies from manager to manager, but a positive six to twelve month track record is commonly used to transition to a full-fledged hedge fund.

What does it cost to establish an incubator fund?

The cost to establish an incubator fund can vary based on the jurisdiction of the fund and the scope of the project, but a standard domestic incubator fund can typically be established for a fraction of the cost of a full-fledged fund.  Depending on the manager’s timeframe, the entire process of establishing the incubator fund can be completed in as little as two weeks by a qualified hedge fund attorney.

Please contact us for a free consultation if you are interested in starting an incubator fund or would like to discuss the incubator fund formation process in greater detail.