Solicitation fees paid to a solicitor should only be paid pursuant to a written agreement between the manager and the solicitor. The existence of the agreement must be disclosed to each prospective investor introduced by the solicitor. The written agreement typically contains the following information:
- A description of the services to be provided by the solicitor;
- The amount of compensation to be paid to the solicitor and the circumstances of payment (e.g. will the solicitor be compensated for a referral by a person previously referred);
- A carve out of prospective investors with whom the sponsor of the manager has already established a relationship but who have yet to make an investment in the specified product;
- Representations by the solicitor that it will perform its services in compliance with applicable law and pursuant to the terms of the referral fee agreement;
- A description of the products for which the solicitor has been engaged to raise assets (e.g. a specific hedge fund, all of the hedge funds in existence at the time of entering into the solicitation agreement or including all hedge funds to be formed in the future);
- Indemnification from the solicitor’s actions;
- Representations that the solicitor will provide a written disclosure document to prospective investors containing:
- The name of the solicitor;
- The name of the manager and the product;
- The nature of the solicitor’s and manager’s relationship; and
- A statement that the solicitor will be compensated by the manager and the terms of such compensation.
A hedge fund manager should receive from each prospective investor introduced by a solicitor, prior to or at the time of accepting an investment in a hedge fund, a signed and dated acknowledgment of receipt of the solicitor’s written disclosure statement and, if applicable, a copy of Part II of the manager’s Form ADV or its equivalent.