If you’re a trader, you likely know how to trade. If you’re an asset buyer – whether in real estate, commodities, options, or stocks – you’re probably pretty good at picking the right assets. If you’ve had long and successful career managing portfolios at a large asset management firm, or have gathered assets as an RIA, you likely have a specific asset management strategy in place.
Are you are looking to leverage your expertise to buy more of what you do with the help of other investors, and want to start a hedge fund? Well, how to you do that?
“The first decisions that must be made are not about the legal structure of your firm or finding someone to ask for help,” said the guidebook. “They are about making a commitment to the fund’s success, developing a thoroughly vetted and articulated investment strategy and creating a framework for raising capital.”
2. Legal Formation
Once committed, job one is to select the legal firm you want to represent you, and to create the Private Placement Memorandum and other legal documents for the fund.
3. Service Providers
How do you go about choosing your other key service providers – in accounting, administration, prime brokerage, and marketing? According to the guidebook, the right blend of smarts and experience in your service providers will play a major role in your hedge fund’s success.
What IT issues will you have in establishing your infrastructure? “Technology plays a major role in defining a firm’s capabilities and competitive advantages,” said the guidebook. Some of the steps you’ll need to check off your list include selecting an IT consultant, defining your network requirements, establishing business continuity plans, and test, test, test.
5. Human Resources
How will you and your partners and associates be compensated?
What insurance is required to hedge your hedge fund, your staff, and your personal assets, from business and other risks?
Who is responsible for what? “For a single-strategy fund with limited staff, the operations of the firm are relatively straightforward, as the manager is typically responsible for all tasks,” the guidebook said. Whether you are one-man shop or have associates, operational questions also include decisions regarding where to office.
8. Capital Raise
What’s your sales plan? Who are your target investors? Will you seek out a capital introduction firm, a third party marketer, or do it in-house – and if so, how? And how do you plan to sustain your business model though potential early tough times?
Another consideration: your marketing plan. You will need to create a pitch book, website, email marketing, and potentially other content, all consistent, differentiated, and informative in seeking to nurture your potential investors into satisfied clients.