Offshore Hedge Fund Structures: Jurisdictions, Entities & Strategies

Offshore hedge funds are strategic investment vehicles used by fund managers to attract non-U.S. investors and U.S. tax-exempt institutions such as pension funds, endowments, and foundations. These funds are typically domiciled in tax-neutral jurisdictions and offer flexibility in structuring, compliance, and investor onboarding.

At SCG Fund Services, we help investment managers design, launch, and administer offshore hedge funds in top-tier jurisdictions like the Cayman Islands, British Virgin Islands (BVI), Bahamas, and Panama, using industry-standard legal structures such as single fund, side-by-side, master-feeder, and segregated portfolio companies (SPCs).

What Is an Offshore Hedge Fund?

An offshore hedge fund is a pooled investment vehicle formed outside of the United States. These structures are designed to:

• Appeal to non-U.S. investors seeking global diversification
• Accommodate U.S. tax-exempt investors (e.g., endowments, retirement plans)
• Operate under favorable tax and regulatory frameworks
• Offer access to a broad range of asset classes and investment strategies

Common Offshore Hedge Fund Jurisdictions

Most offshore funds are formed in tax-neutral jurisdictions with robust legal frameworks and regulatory clarity. Popular choices include:

• Cayman Islands – Global leader in hedge fund domiciliation with modern fund legislation
• British Virgin Islands (BVI) – Efficient setup process and flexible fund categories
• Bahamas – Home to SMART Funds, ICON structures, and professional funds
• Panama, Nevis, Bermuda, Jersey, Guernsey, Dubai – Jurisdictional options based on investor preference and strategy

Each jurisdiction offers unique benefits in terms of regulation, privacy, compliance, and operational costs. Fund managers should consult with legal and tax professionals before selecting a domicile.

Offshore Hedge Fund Structures

1. Single Fund Structure

• Typically used for non-U.S. and U.S. tax-exempt investors
• Offers simple administration and streamlined fund governance
• Managed by either an offshore or onshore investment manager
• Ideal for standalone strategies not requiring U.S. taxable investor participation

2. Side-by-Side Structure

• Involves two separate funds—one domestic, one offshore—with mirrored investment strategies
• Managed independently but concurrently by the same investment advisor
• Suitable for fund-of-funds or tax-sensitive strategies
• May involve operational complexity due to split trades and duplicate portfolios

3. Master-Feeder Structure

The most common structure for attracting both U.S. and non-U.S. investors

Consists of:

• Offshore Master Fund (typically a Cayman or BVI entity)
• Offshore Feeder Fund (non-U.S. investors, U.S. tax-exempt entities)
• Onshore Feeder Fund (U.S. taxable investors)
• Centralizes portfolio management and reduces operational redundancy
• Offers pass-through tax treatment for U.S. feeder investors

Segregated Portfolio Companies (SPCs)

A Segregated Portfolio Company (SPC) is an offshore fund structure that allows the creation of multiple, legally distinct portfolios (or “cells”) under a single legal entity. Each portfolio maintains its own assets and liabilities, providing asset protection and structural efficiency.

Common SPC Jurisdictions

• Cayman Islands
• British Virgin Islands (BVI)
• Anguilla
• Isle of Man
• Jersey

SPC Fund Structures

Single Entity SPC Fund

• Structured entirely offshore
• Best suited for funds targeting only non-U.S. and tax-exempt investors
• Offers cost savings and flexible portfolio creation under one umbrella

Master-Feeder SPC Structure

Designed for managers operating a fund platform for both onshore and offshore investors

Common structure:

• Offshore SPC Master Fund
• Offshore Feeder (individual funds or another SPC)
• U.S. Feeder (limited partnerships, LLCs, or series LLCs)
• Ideal for multi-strategy, multi-manager, or white-label platforms

Offshore Hedge Fund Offering Documents

Each offshore hedge fund—especially SPCs—requires a set of detailed legal and compliance documents, including:

• Offering Memorandum or Private Placement Memorandum (PPM)
• Memorandum & Articles of Association
• Subscription Documents
• Portfolio Supplements (for SPCs offering multiple strategies or sub-funds)

There are two common approaches to drafting offering documents for SPCs:

1. A general offering memorandum paired with individual portfolio supplements, detailing the specifics of each investment program and its associated risks.
2. A comprehensive offering memorandum that includes information on the fund and each of its investment strategies in one document.

Is an Offshore Hedge Fund Right for You?

The choice of fund structure and jurisdiction should be guided by:

• Your target investor base (U.S. taxable, tax-exempt, or international)
• Investment strategy and asset class
• Tax efficiency and compliance requirements
• Desired operational complexity and scale

At SCG Fund Services, we help new and experienced managers launch tailored offshore hedge funds that meet strategic, regulatory, and investor objectives.