For U.S. based managers and investors, hedge funds are typically structured as limited partnerships. The hedge fund manager is the general partner and the investors are the limited partners. The funds are pooled together in the partnership and the general partner (hedge fund manager) makes all the investment decisions based on the strategy the hedge fund manager has outlined in their offering documents. In return for managing these funds, the hedge fund manager will receive a management fee and an incentive fee.

The fee structures of these limited partnerships (U.S. based hedge funds) vary but typically the management fee ranges from 1-2% of the assets under management and an additional fee called an "incentive fee" will be charged on the profits of the fund at a specified date. The incentive fee is usually 20% of the profits of the fund and can include "hurdles" or other items.

Offshore hedge funds are usually domiciled in a tax haven and are designed for U.S.-based hedge fund managers to manage the assets of foreign investors and tax exempt U.S. investors. In this structure, the manager will receive a management and incentive fee and will also be invested in the fund as an investment manager.

The typical hedge fund asset management firm includes both the domestic U.S. hedge fund and the offshore hedge fund. This allows hedge fund managers to attract capital from all over the world. Both funds will trade in tandem based on the strategy outlined in the offering documents.