Almost every hedge fund is built from the same three entities — the fund, the general partner, and the management company. Here is what each one does, and why the structure is split that way.
By A. Bradley Randall, Founding Attorney · Published October 14, 2026
Open the formation documents of almost any U.S. hedge fund and you will find the same three entities, arranged the same way. It looks like needless complexity until you see what each piece is for — at which point it becomes obvious why no serious fund is built any other way.
The fund (a Delaware limited partnership) holds the capital and makes the investments. The general partner (GP) controls the fund and receives the performance compensation. The management company employs the team and receives the management fee. Investors come in as limited partners.
At the center is the fund itself — the pool that holds investor capital and owns the positions. For a U.S. hedge fund it is almost always a Delaware limited partnership (LP). Investors invest by becoming limited partners: they contribute capital, share in the fund's profits and losses, and have limited liability, but they do not manage the fund. (A limited liability company is sometimes used instead, but the LP is the market standard.)
Delaware is the default for a reason: a mature body of business law, a specialized Court of Chancery, well-understood LP statutes, and an ecosystem of counsel and service providers who all speak the same dialect. Investors expect it, and deviating from it invites questions you do not want to answer during a raise.
A limited partnership needs a general partner, and in a fund the GP is a separate entity (often an LLC) that the manager owns and controls. The GP sits at the top of the fund: it has the authority to manage and bind the fund, and it is the entity that receives the performance compensation — the incentive allocation or carried interest, typically around 20% of profits.
Two reasons the GP is its own entity. First, liability: a general partner has unlimited liability for the partnership's obligations, so you never want that to be you personally — you want it to be an entity. Second, tax: routing performance compensation through the GP as an allocation of partnership profits (rather than a fee) can carry materially better tax treatment than ordinary fee income.
The management company is where the business actually lives. It employs the portfolio manager, analysts, and staff, signs the office lease, and runs operations. It enters into an investment management agreement (IMA) with the fund, under which it provides investment and administrative services and receives the management fee — typically around 2% of assets, used to pay salaries and keep the lights on.
Separating the management company from the GP keeps fee income (ordinary, in the management company) distinct from performance compensation (the allocation, in the GP), and it lets one management company run multiple funds over time without re-patching the whole structure for each one.
Investors (LPs) put capital into the fund. The GP controls the fund and takes the carry. The management company provides services under the IMA and takes the management fee. The manager owns the GP and the management company; the investors own their limited-partnership interests in the fund.
A pooled vehicle that invests in securities would, by default, be an “investment company” subject to the heavy Investment Company Act of 1940. Hedge funds avoid that by fitting an exclusion — either Section 3(c)(1) (no more than 100 beneficial owners) or Section 3(c)(7) (investors limited to qualified purchasers, generally $5 million+ in investments, with up to 1,999 holders). The fund then sells its interests privately under Regulation D (Rule 506(b) or 506(c)) rather than in a public offering. (We compare the two fund exclusions in 3(c)(1) vs. 3(c)(7), and the two Reg D paths in 506(b) vs. 506(c).)
The three-entity structure above is the domestic core. When a fund takes non-U.S. or tax-exempt U.S. investors, it often adds an offshore feeder in a master-feeder arrangement so those investors can invest through a vehicle suited to them while everyone trades through one master portfolio. That is an addition to the core structure, not a replacement for it — see the master-feeder structure explained.
The fund itself (usually a Delaware limited partnership) that holds capital and makes investments; the general partner that controls the fund and earns the performance compensation (carry); and the management company that employs the team and earns the management fee under an investment management agreement. Investors invest as limited partners.
Delaware offers a mature body of business law, a specialized Court of Chancery, well-understood limited partnership statutes, and an ecosystem of counsel and service providers. Investors expect it, and the limited partnership gives investors limited liability and pass-through tax treatment.
To separate performance compensation from fee income and to isolate liability. The general partner (which has control and unlimited liability for the partnership) receives the carried interest as an allocation of profits, often with better tax treatment; the management company employs the team and receives the management fee. The split also lets one management company run multiple funds.
The general partner sits inside the fund's structure, controls the fund, and receives the performance allocation (carry). The management company sits outside, employs the staff, and provides services to the fund under an investment management agreement in exchange for the management fee. The manager typically owns both.
By fitting an exclusion under the Investment Company Act — Section 3(c)(1) (no more than 100 beneficial owners) or Section 3(c)(7) (only qualified purchasers, up to 1,999 holders) — and selling its interests privately under Regulation D rather than in a public offering.
No. The domestic three-entity structure is the core. An offshore feeder is added in a master-feeder arrangement when the fund takes non-U.S. or U.S. tax-exempt investors, who benefit from investing through a vehicle suited to them. A purely domestic fund usually does not need one.
This article is educational and general in nature. Fund rules, thresholds, and the structures that govern them vary by fund and change over time; this is simplified to illustrate the general picture, not to recommend any particular structure. Nothing here is legal, tax, or investment advice or creates an attorney–client relationship. Consult qualified counsel about your situation.
The fund, the GP, and the management company have to fit together — and fit your strategy, your investors, and your tax picture. We build the whole structure, cleanly, on a flat fee.
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