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Hedge fund structure
A hedge fund is an investment vehicle structured as a company or partnership. The fund is managed by an investment manager, which has employees and property and constitutes the actual hedge fund business. The investment manager, usually a firm, is a distinct legal entity separate from the actual hedge fund and its portfolio of assets.

The investment manager often depends upon particular service providers for operational support. The most common service providers are:


 * Prime broker: Hedge funds depend on prime brokers to clear trades and provide leverage, often in the form of short-term financing. The prime broker may also act as a counterparty to derivative contracts, and lend securities for particular investment strategies, such as long/short equities and convertible bond arbitrage.  Some prime brokers provide custodial services for the funds assets and execution and clearing services for the hedge fund manager. Prime brokers are usually divisions of large investment banks.


 * Administrator: Hedge fund administrators are responsible for operations, accounting, and valuation services. This back office support allows fund managers to concentrate on trades. Administrators also process subscriptions and redemptions, and perform various shareholder services. Hedge funds in the United States are not required to appoint an administrator, and all of these functions can be performed by an investment manager. A number of conflict of interest situations may arise in this arrangement, particularly in the calculation of a fund's net asset value (NAV). Some US funds voluntarily employ external auditors, thereby offering a greater degree of transparency.


 * Distributor: A distributor is an underwriter, broker, dealer, or other person who participates in the distribution of securities. The distributor is also responsible for marketing the fund to potential investors. As many hedge funds do not have distributors, instead the investment manager will be responsible for distribution of securities and marketing, though many funds also use placement agents and broker-dealers for distribution.


 * Auditor: Most funds use an independent accounting firm to audit the assets of the fund, provide tax services and perform a complete audit of the fund's financial statements. The year-end audit is often performed in accordance with either US generally accepted accounting principles (US GAAP) or international financial reporting standards (IFRS), depending on where the fund is established. The auditor may verify the fund's NAV and assets under management (AUM). Some auditors only provide NAV lite services, meaning that the valuation is based on prices received from the manager rather than independent assessment.