In concept, hedge funds are “continuously offered” and, unlike their private equity cousins, have no built-in end date. In practice, however, hedge funds do not last forever. For various reasons – this article catalogues nine of them – hedge fund managers may wish to close their funds, or may close their funds without wishing to. More often than not, a hedge fund manager that closes a fund remains in the investment management business, and continues to interact with the same employees, investors and service providers – even if that interaction occurs under a different structure. Closing a fund is a complex process involving hard legal and business issues, often with an overlay of meaningful personal dynamics. This article – the first in a two-part series – aims to add some structure to what can be a fraught and unruly process by presenting an eight-step framework for hedge fund closures. The second article in this series will highlight a number of challenges that managers typically encounter in the course of those eight steps, and suggest best practices for negotiating the challenges. It should be emphasized that this series is about winding down the business and investment affairs of a hedge fund. In industry parlance, “closing” also refers to a situation in which a hedge fund is not accepting new investors or investments. That latter type of “closing” is not the subject of this series, but was the subject of prior articles in the HFLR. See “Legal and Investment Considerations in Connection with Closing Hedge Funds to New Investors or Investments
,” Hedge Fund Law Report, Vol. 3, No. 37 (Sep. 24, 2010); “Primary Legal and Business Considerations in Structuring Hedge Fund Capacity Rights
,” Hedge Fund Law Report, Vol. 3, No. 22 (Jun. 3, 2010).