If setting up a hedge fund is something you have been considering, it is important to realize the finer details associated with this process including what will be expected of you.
Before you do anything, take the time to complete some hedge fund research as a means of learning more about those who are most successful. This will go a long way in helping you better understand how to get started and what it will take to achieve success.
Seven Considerations when Starting a Hedge Fund
According to a recent study conducted by Hedge Fund Research, more than 1,000 hedge funds are set-up every year. Some have the proper management team and have been able to navigate their way through a pool of potential issues to reach profitability. Others have failed due to a lack of organization and poor decisions.
Here are seven details to consider if interested in setting up a hedge fund:
1. Determine your competitive advantage. In order to be successful, you must do something that separates your hedge fund from the rest of the pack. This could be anything from a marketing advantage to relationships with a large number of high net worth investors.
Pinpoint your competitive advantages upfront, and seize on these as you move forward.
2. Create a strategy and be ready to stick with it through thick and thin. Starting a hedge fund is not something you do on a whim.
Answer this question: what is your strategy and how will you explain this to investors in a way that will get them excited about what you bring to the table?
3. Seed money. It is essential to know the amount of assets your fund will need to manage in order to reach profitability. This is based on a variety of factors, including but not limited to:
- Size of your fund in terms of the number of employees
- Investment partners
- Cost structure
4. Sales and marketing plan. Even those with a large network of connections need a sales and marketing plan to guide them while getting started. How are you going to raise assets to ensure that you have the proper “base” for moving forward?
5. Risk management. This is an important piece of not only setting up a hedge fund but also the day-to-day operations. You need a risk management plan that will set your business apart from the rest of the pack.
6. Compliance. Although the hedge fund industry is not regulated the same way as mutual funds, for example, there are compliance issues to consider along the way.
It is best to hire a knowledge hedge fund attorney upfront, helping you to avoid any downfalls and challenges as you begin to build your business.
Overlooking compliance and regulatory issues can land you in hot water soon enough.
7. Surround yourself with the right people. When setting up a hedge fund, don’t fall into the trap of thinking you can do everything on your own. You must hire employees who understand your goals and can help you reach these through a well-crafted strategy and business plan.