What is the advantage of establishing a hedge fund as an offshore
company as opposed to a domestic American company?

Hi turk006,

I hope the next link is enough:

http://en.wikipedia.org/wiki/Hedge_fund

"Offshore hedge funds are usually domiciled in a tax haven and, for
U.S.-based fund managers, are designed to allow the manager 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 as
in an onshore fund.
The typical hedge fund 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 'Pari passu' based on the strategy outlined in the offering
documents".

Otherwise try to check the links below.

http://en.wikipedia.org/wiki/Offshore_company#Relocation_of_companies

http://en.wikipedia.org/wiki/Hedge_fund

http://www.investmentinternational.com/_offshore_company_tax_advantages.asp

ciao,

KDT_IT