hedge fund

How to Start a Hedge Fund

Creating a hedge fund gives you the chance to get investors to spend millions of dollars on your assets, but how do you start one? The process can be pretty tough for someone who’s just beginning to get into the stock market (and even those who are very experienced), but this guide may help you figure out where to start.  

Gather Money

Starting a hedge fund can be extremely expensive and asking for a quote can leave you with a variety of answers. Some people suggest you only need as little as $40 thousand, while others say it can be as high as $3 million. The fees go toward legal help, management fees, resources, and the formation of the hedge fund. This amount is very high, but remember that many hedge funds see hundreds of millions in returns once financiers begin to invest.  

Assemble a Team

Assembling a team is essential to starting a hedge fund because it’s impossible for one person to accomplish all the tasks of creating and running the investments. First of all, seeking legal counsel and an experienced attorney is vital. An attorney that’s been in the field for years will have the expertise you’ll need to complete all the necessary documents, and they will also have a list of associates who will supply you with quality information. 

Hedge fund experts also encourage hiring an investment analyst early in the process who can calculate information, engage in marketing, and handle other various operations. An investment analyst can also help develop a strategy for your hedge fund, especially if you desire a complex strategy. 

Overall, you need to make sure that everyone on the team has the appropriate skills you’re looking for to develop a successful hedge fund. Talent can come from anywhere, but Howard Eisen (co-founder and managing director of FletcherBennett) suggests, “Each successful job candidate’s skillset and prior experience must be a fit for the corporate culture you’re building and the strategies you’re pursuing.”

Get a Prime Broker

A prime broker facilitates large, active trading operations and can act as a central broker to coordinate extensive, complex trading. For hedge funds, prime brokers perform a wide variety of custodial and financial services that are key to their clients. They can act as an intermediary between clients and counterparties—such as institutional investors and commercial banks. Additionally, a prime broker simplifies reporting and operations, which streamlines the process and helps the hedge fund operate successfully.

Attract Investors

There are a plenty of ways to attract potential investors. The first and most effective way is creating a unique name for your hedge fund that’s not too strange. Your attorney or prime broker should be able to give you tips on an appropriate name. 

The second way to attract investors is contacting those you know that may be willing to become a shareholder. Be ready to pitch your hedge fund and your strategy in a way that may get people interested by explaining how your hedge fund will be successful. Attracting investors is the hardest part of the hedge fund, but once you’ve got people interested you can sit back and let your hedge fund grow.

Last Updated: September 07, 2016