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Are hedge funds registered in Delaware different?

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  • Cumming, Douglas
  • Dai, Na
  • Johan, Sofia

Abstract

Delaware hedge funds exhibit significant differences in contractual structure in terms of higher management and incentive fees. Delaware funds are more likely to use high watermark provisions and less likely to invest their personal capital. Both the redemption notice periods and lock up periods are significantly longer for Delaware hedge funds. While Delaware hedge funds do not outperform or underperform funds registered elsewhere, fund flows are more sensitive to Delaware funds' prior performance and Delaware funds are more likely to be liquidated due to poor performance. Further, Delaware funds are more likely to increase risk after poor absolute performance.

Suggested Citation

  • Cumming, Douglas & Dai, Na & Johan, Sofia, 2015. "Are hedge funds registered in Delaware different?," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 232-246.
  • Handle: RePEc:eee:corfin:v:35:y:2015:i:c:p:232-246
    DOI: 10.1016/j.jcorpfin.2015.09.003
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    Keywords

    Hedge funds; Delaware; Law and finance;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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