New York partner Kay Gordon was quoted in The Hedge Fund Law Report in an article titled, “Why and How Do Hedge Fund Managers Set Minimum Subscription Amounts?”
Minimum subscription amounts do more than govern the dollar threshold required for access to a hedge fund. Additionally, minimums communicate information about the manager’s strategy and goals; inform the composition of the investor base; enable and limit performance; impact the pace and productivity of marketing; and constrain fund liquidity.
Approximately 70% of hedge funds maintain a minimum subscription amount of $1 million; some hedge funds opted for a minimum amount as low as $250,000 while others opted for a minimum as high as $5 million.
Kay pointed out that investment minimums at the far ends of the spectrum are becoming less common. She said, “We are seeing fewer $100,000 minimums because the smaller start-up managers find it more difficult to launch funds in this credit, regulatory and economic environment. Yet, we are also seeing fewer $5 million minimums because now, even those managers who were previously targeting a select group of investors try to reach wider categories of investors. So they are lowering their minimum subscription amounts. It goes both ways.”
In considering whether a manager has the authority to raise minimum subscription amounts without investor consent, Kay advised, “In general, I do not think you need consent to simply raise the limits. I think you should treat existing investors politely and potentially apply the new limits to new investors only (or also new investments by existing investors only if you are considering closing your fund or otherwise have a limited number of spots left.)”
To read the rest of Kay’s quotes and the entire article, click here.