Hedge funds, more than 1,000 times a day on blogs, newspapers, magazines and radio stations are mentioned on. At the end of 2011 there were over 9,000 hedgefunds in existence in 1113 with starting this year, according to Hedge Fund Research. In this article we will explore the reasons why these funds continue to be popular and what you should consider before you take your own hedge fund.
Why Start a Hedge Fund?
There are many reasons why starting a hedge fund of the new American dream.Here are some of the most popular:
- Almost everyone has the news of the few hedge fund managers who earned over $ 1 billion a year in sequence to read their funds.
- To grace the cover of the hedge fund mainstream media newspapers and magazines on an almost-daily basis.
- The mysterious and exclusive nature of hedge funds has a draw, compared to many other areas of finance and investments, which sometimes seem trite.
With a bit of capital, it is relatively easy to start a hedge fund. However, the implementation of risk control, growing assets, hiring of staff and the organization to operate as a profitable business while generating positive performance, very demanding.
Failure between 4 and 10% of all hedge funds or close each year, and countless others have begun half, abandoned or in private investments for friends and familyre-designed. This is not to say that starting a hedge fund is a bad idea, but it is important to recognize that it is a very difficult task - one that can be approximated necessary with the same long-term prospects for running a business must.
Tips for hedge fund start-ups
If you start a hedge fund on-set, there are dozens of factors that will determineyour success. Here are seven tips or important areas of your new business that you should think through and be aware of before shows all potential investors orpartners, your business plan for your fund.
1. Competitive Advantage
Their hedge funds have a competitive advantage over others on the market. This can be a marketing advantage, information advantage, trade, or resourceadvantage advantage. A marketing advantage could be close to career-longrelationships with hundreds of high net worth investors and family offices. An example of a resource would be beneficial if it for a large asset managementcompanies that would like to invest heavily in launching a hedge fund.
2. Strategy definition
Some hedge-fund start-ups underestimate the importance of a clear definition of their investment strategy of the fund.
- What is your strategy, and how you will define and explain your investment process to create your own team and first investors? The development of a repeatable, defensible and profitable investment process after taking the costs of running a hedge fund account can be difficult.
- Ideas that were not tested (or have been backtested only) in the real markets do not hold much water with investors and advisors, the hundreds of would-be hedge fund managers look to one years.
- It will help you to do some hedge-fund performance research, if you do not already have and know which strategies are currently doing well, what can not, and whythis happens.
- Are you starting your fund at a time when your strategy is in very high demand, orhas the pendulum in the opposite direction at the moment?
Start building a list of other hedge funds that run the same strategy as your business and conduct competitive intelligence on them as much as you are able,ethically and legally.
3. Capitalization and Seed Capital
It is important that your new hedge funds are well capitalized. Need to manage the amount of the assets of your fund to be profitable will focus on three things from:
- Team size
- Investment Partners
- Unique cost structure
Some hedge fund managers maintain profitability with less than $ 10 million in assets under management, while others claim that you are managing to $ 110000000-125000000 $ in assets to be considered a serious company with some long-term prospects for survival . The number is probably somewhere in the middle, but everyone is unique and performance fees, you can see some big gains with relatively low asset levels.
4. Marketing and Sales Plan
Like any business, nothing happens until a sale is made. It is important to a customer order plan for raising assets before you open your doors for business to develop. One of the first steps to decide to be there, where you can try is to increase assets. There are many possible sources of investors, including:
- Seed capital providers
- Family and Friends
- High Net Worth Individuals
- Financial Advisor
- Wealth Management offices and RIAs
- Single-and multi-family offices
- Fund of Hedge Funds
- Corporations
- Foundations and endowments,
- Pensions
- Sub-advisory relationships
Small hedge fund start-ups usually try to develop long-term relationships with seed capital providers, family and friends and high net worth individuals (directly or through a financial advisor). Working with institutional investors could invest $ 25 million after all the quality to $ 100 million at a time can be difficult to a two-to three-year track record and more than $ 100 million in total assets under management have.
To complete some simple marketing and sales activities and to create before the start of your fund are:
- Newsletter
- Website
- Two-page marketing piece
- 20-page PowerPoint presentation
- Professional Logo
- Letterhead
- Business
- Folder with logos for presentations
Many of them are 101-type business details, but they are often overlooked or poorly executed. Who can really help grow your business sees hundreds if not thousands of hedge fund managers each year, and for them it is easy to see that the managers have invested their time and effort and have something thrown together at the last minute. All marketing and sales materials should be under the direction of your chief compliance officer or compliance consultant be made because there are many limitations and details that need to be tested and evaluated.
5th Risk Management
Risk management is an important piece of the puzzle in the execution of a successful hedge fund. Your company must deal with a specific and competitive way to manage both business and portfolio risk, or you'll come off as not serious about your business or long-term growth objectives. There are many consultants and consulting firms that do nothing but advise on hedge-fund portfolio and operational risk management issues.
6th Compliance and Legal Assistance
Hire large legal advice should be seen as an investment. An experienced hedge fund lawyer can help you avoid pitfalls and build relationships and invite you to networking events such as private capital introduction dinner. It also shows others in the industry that you invest in your own business because you want to be in the business for the long haul.
7th The decision for the Prime Brokerage
Many start-up hedge fund managers underestimate the importance of choosing a prime brokerage firm that can act as a partner for their business. The Prime Broker is such an integral part of how your hedge fund is to act and operate, you should take several weeks or months to evaluate your options and weigh the costs and benefits of doing business with the various companies you will meetwith.
Usually it is wise, a prime brokerage team is very motivated to serve your needs, but not so small that they can not physically meet all meets your trading and prime brokerage needs. While the capital introduction services can be a great thing to offer for your prime broker has to know that they often help nine-to 12-month-balance to a minimum before they can do a lot for you also consider start-up capital his sources. Once your team has proven to be a good prime broker will help make introductions when you high performance and a solid team behind the portfolio going forward.
The Bottom Line
Starting a hedge fund is a challenging undertaking, a multi-year commitment to refine your strategy, build a team, and the search takes both trading and marketing niches where your business can operate profitably. While many hedge funds fail, before they are large enough to be viable businesses, according to the above tips help you save time and gain some early momentum in the marketing of your portfolio to be.
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