Hedge funds tend to be domiciled in handful of locations worldwide. In the United States, domestic hedge funds are most likely located in California, Delaware, Connecticut, Illinois, New Jersey, New York, Wyoming or Texas since these states have tax and regulatory climates friendly to funds. Outside of the United States, several locations in the Caribbean and Europe offer different costs and benefits. The most widely used places are the British Virgin Islands, the Cayman Islands, Guernsey, Bermuda, Hong Kong, the Isle of Man, Jersey, Luxembourg, and Dublin.
It is important to remember that the domicile of a fund does not have to be the same as that of its administrator or custodian. Factors such as the jurisdiction of service providers and what kind of investor the fund is for are probably more important factors in deciding where to domicile a fund. Some institutions may be bound by rules that limit investment to regulated jurisdictions, while others face no such requirement. Single-strategy managers continue to gravitate to traditional Caribbean locations and Bermuda, where costs are lower and the regulatory burden lighter than in Dublin and Luxembourg. Basic administrative fees are similar in all jurisdictions, but regulatory oversight adds to the expense in the European centers. While banks and large fund companies like to have regulations for their retail vehicles to reassure investors, the majority of hedge fund managers are small operators, for whom the extra costs can be a major burden.