hedge fund start up business plan

Hedge Fund Business Plan Template

Written by Dave Lavinsky

Hedge Fund Business Plan

You’ve come to the right place to create your Hedge Fund business plan.

We have helped over 1,000 entrepreneurs and business owners create business plans and many have used them to start or grow their Hedge Fund companies.

Below is a template to help you create each section of your Hedge Fund business plan.

Executive Summary

Business overview.

LeadingEdge Capital is a startup hedge fund company located in Boston, Massachusetts. The company was founded by Robert Wilkens and Stuart Rosenberg, proven strategists of high value investments in their former employment roles as hedge fund managers. Robert Wilkens was a hedge fund manager for fifteen years, building the portfolios of his clients to over 45M within that time. Stuart Rosenberg, a hedge fund manager for thirteen years, built his clients portfolios to over 25M within the years of his employment.

With the breakup of the ownership in their former employment, Robert and Stuart have determined this is the right and best time to open their own hedge fund company. Located in Boston, Massachusetts, a geographic area housing an abundance of serious investors, the new partners believe their former clients will support and invest in the new hedge fund. Toward that end, Robert and Stuart are starting to contract with those clients before the launch of LeadingEdge Capital.

Product Offering

The following are the services that LeadingEdge Capital will provide:

• Proven strategies for significant investment returns
• Deep and thorough market analysis using proprietary tech tools
• Unique client evaluation tools to assess risk appetite
• Thorough market analysis and reports
• Fund evaluation and administration
• Advanced technologies to monitor risk
• Data analysis to support profitable trading opportunities
• Day to day fund management

Customer Focus

LeadingEdge Capital will target all former clients of the prior employer. They will target investors from the Boston area and surrounding region. They will target risk-averse investors in the region. They will target clients at events, through networking opportunities, and industry associations. They will lead and speak at industry and investor events. They will educate potential investors via a unique set of educational video presentations at their website.

Management Team

LeadingEdge Capital will be co-owned and operated by Robert Wilkens and Stuart Rosenberg. They have recruited former associates from their prior employment to join their launch. This includes Mark Tompkins, who will act as the third-party fund administrator, Terry Camden, the independent certified public accountant, Tami Watson, the custodian, and Larry Lawson, the on-call attorney for LeadingEdge Capital.

Robert Wilkens holds a master’s degree in business administration from Harvard University. He is known as a brilliant strategic fund manager and has a wide circle of investors who rely on his capabilities to assess risk and manage the growth of their funds. Stuart Rosenberg is particularly gifted as a leader who can assist risk-averse investors with trust-building tools he built into a proprietary client app. The app helps investors see and track daily market activities and it ties global and national events to those activities to inform the client of a full-picture reason for the fund’s daily performance.

The remaining team members consist of: Mark Tompkins, who will act as the third-party fund administrator, Terry Camden, an independent certified public accountant, Tami Watson, the hedge fund custodian, and Larry Lawson, the on-call attorney for LeadingEdge Capital.

Success Factors

LeadingEdge Capital will be able to achieve success by offering the following competitive advantages:

• Friendly, knowledgeable, and highly-qualified team of LeadingEdge Capital
• Comprehensive menu of services, including educational webinars for new investors
• Proprietary app that assists managers and investors in making key decisions
• Compelling data analysis program to support profitable trading opportunities
• LeadingEdge Capital will offer discounted rates for “anchor investors” during the first six months of the establishment process. This is limited to 100 investors and includes on-going low percentage rates overall for the first-in investor pool.

Financial Highlights

LeadingEdge Capital is seeking $200,000 in debt financing to launch its LeadingEdge Capital. The funding will be dedicated toward securing the midtown Boston office space and purchasing office equipment and supplies. Funding will also be dedicated towards three months of overhead costs to include payroll of the staff, rent, and marketing costs for the marketing and networking fees and costs. The breakout of the funding is below:

• Office space build-out: $20,000
• Office equipment, supplies, and materials: $10,000
• Three months of overhead expenses (payroll, rent, utilities): $150,000
• Marketing costs: $10,000
• Working capital: $10,000

The following graph outlines the financial projections for LeadingEdge Capital.

Company Overview

Who is leadingedge capital.

LeadingEdge Capital is a newly established full-service hedge fund company in Boston, Massachusetts. LeadingEdge Capital will be the most reliable, cost-effective, and efficient choice for investors in Boston and the surrounding communities. LeadingEdge Capital will provide a comprehensive menu of educational, investing, managing and assessment services for any client to utilize. Their full-service approach includes a comprehensive proprietary app and unique tools that are exclusive to LeadingEdge Capital.

  LeadingEdge Capital is projecting at least one hundred clients within the first year of business. The team of professionals are highly qualified and experienced in hedge funds and all the permutations and regulations, and have strategic methods to find and evaluate new opportunities. LeadingEdge Capital provides an high-value investment process that will build their clients’ portfolios extensively through years of the best customer service from LeadingEdge Capital.

LeadingEdge Capital History

LeadingEdge Capital is a startup hedge fund company founded by Robert Wilkens and Stuart Rosenberg, proven strategists of high value investments in their former employment roles as hedge fund managers. Robert Wilkens was a hedge fund manager for fifteen years, building the portfolios of his clients to over 45M within that time. Stuart Rosenberg, a hedge fund manager for thirteen years, built his clients portfolios to over 25M within the years of his employment.

Since incorporation, LeadingEdge Capital has achieved the following milestones:

• Registered LeadingEdge Capital, LLC to transact business in the state of Massachusetts.
• Has a contract in place at a midtown Boston office building with 10,000 square foot space for offices and client waiting areas.
• Reached out to numerous former clients to engage them with the new LeadingEdge Capital hedge fund.
• Began recruiting a staff of managers, associated professionals and office personnel to work at LeadingEdge Capital.

LeadingEdge Capital Services

The following will be the services LeadingEdge Capital will provide:

Industry Analysis

The hedge fund investment industry is expected to grow during the next five years to over $123 billion. The growth will be driven by more investors seeking the resilient hedge fund market. The growth will also be driven by continued hedge fund interest driven by consumers who want to learn about the process and are eager for education. The growth will be driven by a greater use of technology to provide lower-risk options for investment that continually bring returns. Costs will likely be reduced as hedge fund managers lower fees to accommodate early entry investors. Costs will also likely be reduced as hedge fund managers continue to have increased access to retail investors.

Customer Analysis

Demographic profile of target market, customer segmentation.

LeadingEdge Capital will primarily target the following customer profiles:

• Former clients at prior employment
• Potential investors at networking events, industry relationships
• Potential Risk-averse investors who can rely on technology at LeadingEdge Capital
• Potential investors who are seeking self-education via webinars
• Potential investors who choose technology as a main driver for decision-making

Competitive Analysis

Direct and indirect competitors.

LeadingEdge Capital will face competition from other companies with similar business profiles. A description of each competitor company is below.

One Star Capital Partners

One Star Capital Partners has been in business in the Boston area for over seventy-five years. The current partners are the children and grandchildren of the original founders of the hedge fund business. The investor portfolio of One Star Capital Partners is a combined 210B, which has been produced via the past several years of wealth-building and wealth-creation for their clients. The company has experienced a loss of clients during the past five years, however, as the descendents of the original partners have been engaged in litigation regarding the ownership percentages of the privately-held company. This has led to some discouragement from clients and organizational changes that are difficult to understand or explain.

The promise of One Star Capital Partners is to build wealth through secure investor commitments that total as much or more than the previous years. The company has led investors toward a global macro investing environment which didn’t prove to be compatible with the event-driven model of prior years. This shift created a net loss of investors during the past five years, although forward-looking statements have recently been made during investor phone calls.

AlphaDrive & Company

With a golfer’s nomenclature and several clients directed into the golf, tennis and soccer investment categories, AlphaDrive & Company are becoming an established hedge fund after the introduction of the company in 2020. The hedge fund is fairly small, with a combined portfolio of all managers standing at 20M in 2023, the fund promises to expand and increase opportunities for investors to explore all sectors of the sports arena, finding attractive potential for earnings among their clientele. One of the unique aspects of this company is that it was founded by two famous golf celebrities and those relationships allow investors to enter the pro am golf tournaments throughout the world. Similar relationships and capabilities allow sports enthusiasts to meet their “favorite” athletes to join in activities as a result of investing with AlphaDrive & Company.

Howard & Howard Capital

Howard & Howard is a Boston-based hedge fund that was established in 2005. It is owned and operated by a father-son investment team. The company focuses on real estate conglomerates, REITS, distressed properties, and other lucrative real estate opportunities that are ripe for investment. The hedge fund represents those who believe their best returns will always come from land or the acquisition of real estate and are willing to invest significant sums of money in appropriate low-risk, high-return ventures. Robert Howard is the president of Howard & Howard Capital, while his son, Thomas Howard is the vice president of the company. Their office building is situated on the harborside of Boston, amid brick-lined walkways and older buildings indicative of early Boston. This feature attracts the potential investors who appreciate the heritage and value of land, especially land that is situated in the Massachusetts region. Investment opportunities include major retail outlets, farm and ranch land, undeveloped residential areas, and other land-based opportunities.

Competitive Advantage

LeadingEdge Capital will be able to offer the following advantages over their competition:

Marketing Plan

Brand & value proposition.

LeadingEdge Capital will offer the unique value proposition to its clientele:

• Highly-qualified team of skilled employees who are able to provide a comprehensive set of select investment opportunities to current and potential investors.
• Educational webinars via the website for “introductory” investors
• Discounted rates for “anchor investors” for first 6 months of business

Promotions Strategy

The promotions strategy for LeadingEdge Capital is as follows:

Word of Mouth/Referrals

LeadingEdge Capital has built up an extensive list of potential years from prior years of the former hedge fund that employed the founders of LeadingEdge. The former employer is now defunct, which indicates a wide swatch of investors who require a new, fresh set of opportunities to be garnered by the well-known and personable staff of LeadingEdge Capital. Having produced multiple opportunities and millions of dollars of profit with the former hedge fund managers, the former clients are eager to get in on the “anchor investor” program and start earning returns on investments once again.

Professional Associations and Networking

The owners of LeadingEdge Capital will continue extensively networking, attending and speaking at engagements that include current and potential investors. The company has plans to attend national conferences and exhibit at trade shows, where introductory materials can be offered to new investors just entering the market.

Website/SEO Marketing

LeadingEdge Capital will fully utilize their website. The website will be well-organized, informative, and list all the services that LeadingEdge Capital provides. The website will also list their contact information and testimonials from current and former clients. The website will have SEO marketing tactics embedded so that anytime someone types in the Google or Bing search engine “hedge fund company” or “hedge fund company near me”, LeadingEdge Capital will be listed at the top of the search results.

The pricing of LeadingEdge Capital will be moderate and on par with competitors so customers feel they receive excellent value when purchasing their services.

Operations Plan

The following will be the operations plan for LeadingEdge Capital. Operation Functions:

• Robert Wilkens will be the co-owner and President of the company. He will oversee and manage client relations, investor recruitments and forward-looking opportunities.
• Stuart Rosenberg will be the co-owner and Vice President of the company. He will oversee the technological research and development for the company.
• Mark Tompkins will be the third-party fund administrator.
• Terry Camden will be the independent certified public accountant assisting the company
• Tami Watson will be the Custodian of LeadingEdge Capital, assisting the company
• Larry Lawson will be the on-call Attorney for LeadingEdge Capital.

Milestones:

LeadingEdge Capital will have the following milestones completed in the next six months.

• 5/1/202X – Finalize contract to lease office space
• 5/15/202X – Finalize personnel and staff employment contracts for the LeadingEdge Capital
• 6/1/202X – Finalize contracts for LeadingEdge Capital clients
• 6/15/202X – Begin networking at industry events
• 6/22/202X – Begin moving into LeadingEdge Capital office
• 7/1/202X – LeadingEdge Capital opens its office for business

Financial Plan

Key revenue & costs.

The revenue drivers for LeadingEdge Capital are the investment fees they will charge to the investor clients for their services.

The cost drivers will be the overhead costs required in order to staff LeadingEdge Capital. The expenses will be the payroll cost, rent, utilities, office supplies, and marketing materials.

Funding Requirements and Use of Funds

LeadingEdge Capital is seeking $200,000 in debt financing to launch its hedge fund company. The funding will be dedicated toward securing the office space and purchasing office equipment and supplies. Funding will also be dedicated toward three months of overhead costs to include payroll of the staff, rent, and marketing costs for the events and association memberships. The breakout of the funding is below:

Key Assumptions

The following outlines the key assumptions required in order to achieve the revenue and cost numbers in the financials and in order to pay off the startup business loan.

• Number of Clients Per Month: 175
• Average Fees per Month: $125,000
• Office Lease per Year: $100,000

Financial Projections

Income statement, balance sheet, cash flow statement, hedge fund business plan faqs, what is a hedge fund business plan.

A hedge fund business plan is a plan to start and/or grow your hedge fund business. Among other things, it outlines your business concept, identifies your target customers, presents your marketing plan and details your financial projections.

You can easily complete your Hedge Fund business plan using our Hedge Fund Business Plan Template here .

What are the Main Types of Hedge Fund Businesses? 

There are a number of different kinds of hedge fund businesses , some examples include: Global Macro, Event-driven, Relative value, and Directional.

How Do You Get Funding for Your Hedge Fund Business Plan?

Hedge Fund businesses are often funded through small business loans. Personal savings, credit card financing and angel investors are also popular forms of funding.

What are the Steps To Start a Hedge Fund Business?

Starting a hedge fund business can be an exciting endeavor. Having a clear roadmap of the steps to start a business will help you stay focused on your goals and get started faster.

1. Develop A Hedge Fund Business Plan - The first step in starting a business is to create a detailed hedge fund business plan that outlines all aspects of the venture. This should include potential market size and target customers, the services or products you will offer, pricing strategies and a detailed financial forecast. 

2. Choose Your Legal Structure - It's important to select an appropriate legal entity for your hedge fund business. This could be a limited liability company (LLC), corporation, partnership, or sole proprietorship. Each type has its own benefits and drawbacks so it’s important to do research and choose wisely so that your hedge fund business is in compliance with local laws.

3. Register Your Hedge Fund Business - Once you have chosen a legal structure, the next step is to register your hedge fund business with the government or state where you’re operating from. This includes obtaining licenses and permits as required by federal, state, and local laws.

4. Identify Financing Options - It’s likely that you’ll need some capital to start your hedge fund business, so take some time to identify what financing options are available such as bank loans, investor funding, grants, or crowdfunding platforms.

5. Choose a Location - Whether you plan on operating out of a physical location or not, you should always have an idea of where you’ll be based should it become necessary in the future as well as what kind of space would be suitable for your operations.

6. Hire Employees - There are several ways to find qualified employees including job boards like LinkedIn or Indeed as well as hiring agencies if needed – depending on what type of employees you need it might also be more effective to reach out directly through networking events.

7. Acquire Necessary Hedge Fund Equipment & Supplies - In order to start your hedge fund business, you'll need to purchase all of the necessary equipment and supplies to run a successful operation.

8. Market & Promote Your Business - Once you have all the necessary pieces in place, it’s time to start promoting and marketing your hedge fund business. This includes creating a website, utilizing social media platforms like Facebook or Twitter, and having an effective Search Engine Optimization (SEO) strategy. You should also consider traditional marketing techniques such as radio or print advertising. 

Learn more about how to start a successful hedge fund business:

• How to Start a Hedge Fund Business

Upmetrics AI Assistant: Simplifying Business Planning through AI-Powered Insights. Learn How

• Sample Business Plans

Hedge Fund Business Plan

Any investment manager that launches and manages a hedge fund bears enormous responsibility and must provide their investors with a lot of monitoring.

As a hedge fund manager, it is crucial to have a clear understanding of your target market, investment strategies, and risk management approach. A well-constructed business plan can help to guide your decision-making and set your hedge fund up for long-term success.

Need help writing a business plan for your hedge fund business? You’re at the right place. Our hedge fund business plan template will help you get started.

Free Business Plan Template

Download our free business plan template now and pave the way to success. Let’s turn your vision into an actionable strategy!

• Fill in the blanks – Outline
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How to Write a Hedge Fund Business Plan?

Writing a hedge fund business plan is a crucial step toward the success of your business. Here are the key steps to consider when writing a business plan:

1. Executive Summary

An executive summary is the first section planned to offer an overview of the entire business plan. However, it is written after the entire business plan is ready and summarizes each section of your plan.

Here are a few key components to include in your executive summary:

Introduce your business:

• This section may include the name of your hedge fund business, its location, when it was founded, the type of hedge fund business (E.g., multi-strategy hedge funds, macro hedge funds, long/short equity hedge funds), etc.

Market opportunity:

Product and services:.

• For instance, you may include investment management & portfolio diversification as services.

Marketing & sales strategies:

Financial highlights:, call to action:.

Ensure your executive summary is clear, concise, easy to understand, and jargon-free.

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2. Business Overview

The business overview section of your business plan offers detailed information about your company. The details you add will depend on how important they are to your business. Yet, business name, location, business history, and future goals are some of the foundational elements you must consider adding to this section

Business description:

• Long/short-term hedge fund
• Event-driven hedge funds
• Macro hedge funds
• Multi-strategy hedge funds
• Global macro hedge funds
• Distressed hedge funds
• Describe the legal structure of your hedge fund company, whether it is a sole proprietorship, LLC, partnership, or others.
• Explain where your business is located and why you selected the place.

Mission statement:

Business history:.

• Additionally, If you have received any awards or recognition for excellent work, describe them.

Future goal:

This section should provide a thorough understanding of your business, its history, and its future plans. Keep this section engaging, precise, and to the point.

3. Market Analysis

The market analysis section of your business plan should offer a thorough understanding of the industry with the target market, competitors, and growth opportunities. You should include the following components in this section.

Target market:

• For instance, business owners, individuals interested in investment, institutional investors, etc would be an ideal target audience for a hedge fund business.

Market size and growth potential:

Competitive analysis:, market trends:.

• For instance, the rise of quantitative strategies is there; explain how you plan on dealing with this potential growth opportunity.

Regulatory environment:

Here are a few tips for writing the market analysis section of your hedge fund business plan:

• Conduct market research, industry reports, and surveys to gather data.
• Provide specific and detailed information whenever possible.
• Illustrate your points with charts and graphs.
• Write your business plan keeping your target audience in mind.

4. Products And Services

The product and services section should describe the specific services and products that will be offered to customers. To write this section should include the following:

Investment services:

Give a brief description of the investment services the hedge fund provides to its clients. It may include:

• Individual or institutional accounts,
• Specialized portfolio management,
• Risk management.

Investment philosphy:

Risk management:.

In short, this section of your hedge fund plan must be informative, precise, and client-focused. By providing a clear and compelling description of your offerings, you can help potential investors and readers understand the value of your business.

5. Sales And Marketing Strategies

Writing the sales and marketing strategies section means a list of strategies you will use to attract and retain your clients. Here are some key elements to include in your sales & marketing plan:

Unique selling proposition (USP):

• For example, track record, expert team, and description of your investment strategy could be some of the great USPs for a hedge fund company.

Pricing strategy:

Marketing strategies:, sales strategies:, customer retention:.

Overall, this section of your hedge fund business plan should focus on customer acquisition and retention.

Have a specific, realistic, and data-driven approach while planning sales and marketing strategies for your hedge fund business, and be prepared to adapt or make strategic changes in your strategies based on feedback and results.

6. Operations Plan

The operations plan section of your business plan should outline the processes and procedures involved in your business operations, such as staffing requirements and operational processes. Here are a few components to add to your operations plan:

Staffing & training:

Operational process:, equipment & software:.

• Explain how these technologies help you maintain quality standards and improve the efficiency of your business operations.

Adding these components to your operations plan will help you lay out your business operations, which will eventually help you manage your business effectively.

7. Management Team

The management team section provides an overview of your hedge fund business’s management team. This section should provide a detailed description of each manager’s experience and qualifications, as well as their responsibilities and roles.

Founder/CEO:

Key managers:.

• It should include, key executives(e.g. COO, CMO.), senior management, and other department managers (e.g. operations manager, customer services manager.) involved in the hedge fund business operations, including their education, professional background, and any relevant experience in the industry.

Organizational structure:

Compensation plan:, advisors/consultants:.

• So, if you have any advisors or consultants, include them with their names and brief information consisting of roles and years of experience.

This section should describe the key personnel for your hedge fund services, highlighting how you have the perfect team to succeed.

8. Financial Plan

Your financial plan section should provide a summary of your business’s financial projections for the first few years. Here are some key elements to include in your financial plan:

Profit & loss statement:

Cash flow statement:, balance sheet:, break-even point:.

• This exercise will help you understand how much revenue you need to generate to sustain or be profitable.

Financing needs:

Be realistic with your financial projections, and make sure you offer relevant information and evidence to support your estimates.

9. Appendix

The appendix section of your plan should include any additional information supporting your business plan’s main content, such as market research, legal documentation, financial statements, and other relevant information.

• Add a table of contents for the appendix section to help readers easily find specific information or sections.
• In addition to your financial statements, provide additional financial documents like tax returns, a list of assets within the business, credit history, and more. These statements must be the latest and offer financial projections for at least the first three or five years of business operations.
• Provide data derived from market research, including stats about the industry, user demographics, and industry trends.
• Include any legal documents such as permits, licenses, and contracts.
• Include any additional documentation related to your business plan, such as product brochures, marketing materials, operational procedures, etc.

Use clear headings and labels for each section of the appendix so that readers can easily find the necessary information.

Remember, the appendix section of your hedge fund business plan should only include relevant and important information supporting your plan’s main content.

The Quickest Way to turn a Business Idea into a Business Plan

Fill-in-the-blanks and automatic financials make it easy.

This sample hedge fund business plan will provide an idea for writing a successful hedge fund plan, including all the essential components of your business.

After this, if you still need clarification about writing an investment-ready business plan to impress your audience, download our hedge fund business plan pdf .

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Frequently asked questions, why do you need a hedge fund business plan.

A business plan is an essential tool for anyone looking to start or run a successful hedge fund business. It helps to get clarity in your business, secures funding, and identifies potential challenges while starting and growing your business.

Overall, a well-written plan can help you make informed decisions, which can contribute to the long-term success of your hedge fund company.

How to get funding for your hedge fund business?

There are several ways to get funding for your hedge fund business, but self-funding is one of the most efficient and speedy funding options. Other options for funding are:

Small Business Administration (SBA) loan

Crowdfunding, angel investors.

Apart from all these options, there are small business grants available, check for the same in your location and you can apply for it.

Where to find business plan writers for your hedge fund business?

There are many business plan writers available, but no one knows your business and ideas better than you, so we recommend you write your hedge fund business plan and outline your vision as you have in your mind.

What is the easiest way to write your hedge fund business plan?

A lot of research is necessary for writing a business plan, but you can write your plan most efficiently with the help of any hedge fund business plan example and edit it as per your need. You can also quickly finish your plan in just a few hours or less with the help of our business plan software.

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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How to Start a Hedge Fund

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How To Start a Hedge Fund

How to start a hedge fund faqs.

• Helpful Slideshows, Videos & Images
• Additional Resources in the Hedge Fund Industry

Starting a hedge fund can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn how to start a hedge fund successfully.

Importantly, a crucial step in starting a software company is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.

Download our Ultimate Business Plan Template here

16 Steps To Start a Software Company

• Choose the Name for Your Hedge Fund
• Develop Your Hedge Fund Business Plan
• Choose the Legal Structure for Your Hedge Fund
• Secure Startup Funding for Your Hedge Fund (If Needed)
• Write Your Investment Agreement
• Secure a Location for Your Business
• Register Your Hedge Fund With the IRS
• Open a Business Bank Account
• Get a Business Credit Card
• Get the Required Business Licenses and Permits
• Get Business Insurance for Your Hedge Fund
• Buy or Lease the Right Hedge Fund Business Equipment
• Develop Your Hedge Fund Marketing Materials
• Purchase and Setup the Software Needed to Run Your Hedge Fund
• Hire a Team
• Open for Business

1. Choose the Name for Your Hedge Fund

The first step to starting a hedge fund is to choose your business’ name.

This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your hedge fund:

• Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
• Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
• Think about marketing. Come up with a name that reflects the desired brand and/or focus of your hedge fund.

2. Develop Your Hedge Fund Business Plan

One of the most important steps in starting your own hedge fund is to develop your hedge fund business plan . The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

Your business plan should include the following sections:

• Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your hedge fund
• Company Overview – this section tells the reader about the history of your hedge fund and what type of hedge fund you operate. For example, you might explain your specific hedge fund strategy here.
• Industry Analysis – here you will document key information about the hedge fund industry. Conduct market research and document how big the industry is and what trends are affecting it.
• Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how much money do they have to invest? What do they look for in investment opportunities?
• Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
• Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
• Product : Determine and document what products/services you will offer
• Prices : Document the prices of your products/services
• Place : Where will your business be located and how will that location help you increase sales?
• Promotions : What promotional methods will you use to attract customers to your hedge fund? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
• Operations Plan – here you will determine the key processes you will need to run your business operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
• Management Team – this section details the background of your company’s management team.
• Financial Plan – finally, the financial plan answers questions including the following:
• What startup costs will you incur?
• How will your hedge fund make money?
• What are your projected sales and expenses for the next five years?
• Do you need to raise funding to launch your business?

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3. choose the legal structure for your hedge fund.

Next you need to choose a legal structure for your hedge fund and register it and your business name with the Secretary of State in each state where you operate your business. When in doubt, it is best to consult with a professional.

Below are the five most common legal structures:

1) Sole Proprietorship

A sole proprietorship is a business entity in which the owner of the hedge fund and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a hedge fund together. The partners share in the profits and losses of the business.

The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a hedge fund include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a hedge fund is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.

Once you register your hedge fund, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

4. Secure Startup Funding for Your Hedge Fund (If Needed)

In developing your hedge fund plan, you might have determined that you need to raise funding to launch your business.

If so, the main sources of funding for a hedge fund to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a hedge fund that they believe has high potential for growth.

5. Write Your Investment Agreement

Your investment agreement is a crucial document for your hedge fund and can be shown to prospective investors to persuade them to invest. Your investment agreement should define your fees, the commitment required to join the hedge fund, and how investors can receive distributions. You should plan to work with an attorney to create a solid investment agreement.

6. Secure a Location for Your Business

Having the right space can be important for your new hedge fund, particularly if you’d like to meet with hedge fund investors there.

To find the right space, consider:

If you choose to buy or rent a physical location, consider:

• Driving around to find the right areas while looking for “for lease” signs
• Contacting a commercial real estate agent
• Doing commercial real estate searches online
• Telling others about your needs and seeing if someone in your network has a connection that can help you find the right space

7. Register Your Hedge Fund With the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.

8. Open a Business Bank Account

It is important to establish a bank account in your hedge fund’s name. This process is fairly simple and involves the following steps:

• Identify and contact the bank you want to use
• Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
• Complete the bank’s application form and provide all relevant information
• Meet with a banker to discuss your business needs and establish a relationship with them

9. Get a Business Credit Card

You should get a business credit card for your hedge fund to help you separate personal and business expenses.

You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.

10. Get the Required Business Licenses and Permits

Generally speaking, a hedge fund only needs a business license to operate. However, depending on the type of hedge fund you start and the amount of money being managed, you may be required to complete additional registrations. You should also plan to register any type of hedgefund with your state’s Securities and Exchange Commission (SEC) office and may need to pass an exam for investment advisors.

Key licenses and registration to keep in mind include:

• General Business License – Most businesses will need to get a business license from their local government in order to operate. This is usually a one-time fee and is required regardless of they type of business you operate.
• SEC Registration – Hedge funds with more than $ 100 million in assets under management will be required to register with the SEC.
• Series 65 Exam – If your hedge fund will be giving investment advice, you and any other investment advisor on your team may need to pass the Series 65 exam.

Depending on the type of hedge fund you operate, you will need to do more research and obtain the necessary licenses and registrations.

10. Get Business Insurance for Your Hedge Fund

Business insurance policies that you should consider for your hedge fund include:

• General Liability Insurance – This insurance protects the hedge fund from third-party claims arising from bodily injury, property damage, personal injury, and advertising injury.
• Commercial Property Insurance – Commercial property insurance protects your business if something bad happens to the property. This could be a fire, natural disaster, or someone breaking in and stealing things.
• Directors and Officers (D&O) Liability Insurance – D&O liability insurance protects the directors and officers of the hedge fund from third-party claims arising from wrongful acts.
• Professional Indemnity Insurance – PI insurance protects the hedge fund from third-party claims arising from professional negligence.
• Workers’ Compensation Insurance – This insurance protects the hedge fund’s employees from injuries sustained while working.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.

12. Buy or Lease the Right Hedge Fund Business Equipment

A hedge fund needs computers, printers, and phones. If you have a large team, you will also need to provide basic office supplies and equipment. You might also consider purchasing reception furniture and other office furniture, depending on the size of your physical location.

13. Develop Your Hedge Fund Marketing Materials

Marketing materials will be required to attract and retain customers to your hedge fund.

The key marketing materials you will need are as follows:

• Logo – Spend some time developing a good logo for your hedge fund. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
• Website – Likewise, a professional hedge fund website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
• Social Media Accounts – Establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your hedge fund.

14. Purchase and Setup the Software Needed to Run Your Hedge Fund

A hedge fund needs software to track its investments and performance. It also needs software to help with accounting and compliance. There are many different types of software that a hedge fund might need, depending on its size and investment strategy.

Some of the most common software programs used by hedge funds include investment tracking software such as Bloomberg and Reuters, accounting software such as QuickBooks or Sage, and compliance software such as ComplianceGuardian.

15. Hire a Team

A hedge fund typically has four types of employees: traders, analysts, back office staff and managers.

Traders are responsible for buying and selling securities. They need to be able to make quick decisions based on market conditions.

Analysts study financial statements and conduct research to find investment opportunities.

Back office staff handle the fund’s financial operations, such as reconciling accounts and preparing financial reports.

Managers are responsible for the overall operation of the fund. They make strategic decisions about which investments to make and how much risk to take on.

To find or recruit good candidates, look for people who have experience working in the financial industry. You can also look for people who have degrees in finance or economics.

16. Open for Business

You are now ready to open your hedge fund. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.

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Is It Hard To Start a Hedge Fund?

The short answer is no. But the longer answer is that it depends on how you define "hard." If by "hard" you mean "costly," then the answer is yes-starting a hedge fund can be very expensive. If, on the other hand, you define "hard" as "challenging," then the answer is a resounding no.

The fact is, starting a hedge fund is not nearly as difficult as most people think. In fact, it's really not that different from starting any other type of business. The key is to have a clear understanding of the steps involved and to be prepared to execute them in a professional and efficient manner. Following the steps outlined above will help you get started.

How Can I Start a Hedge Fund With No Experience?

The answer is you can't-at least not legally. In order to start a hedge fund, you must have a certain level of experience in the industry. This experience can come in the form of working for another hedge fund, working in investment banking or private equity, or having a background in accounting or financial analysis.

In addition to experience, you'll also need to have a sound investment strategy. This doesn't mean that your strategy needs to be perfect, but it does need to be well-thought-out and defensible. You'll also need to have a good understanding of the markets you intend to trade in and the risks involved.

Last but not least, you'll need to raise capital. This can be the most difficult part of starting a hedge fund, but it's also the most important. Without capital, you won't be able to trade and you won't be able to make money for your investors.

What Type of Hedge Fund Is Most Profitable?

There is no one-size-fits-all answer to this question. The type of hedge fund that is most profitable will depend on your investment strategy, your level of experience, and the markets you trade in.

That said, there are certain types of hedge funds that tend to be more profitable than others. For example, hedge funds that use leverage (borrowed money) to make investments tend to be more profitable than those that don't. Similarly, hedge funds that focus on a specific market or asset class tend to be more profitable than those that invest in a wide range of assets.

How Much Does It Cost To Start a Hedge Fund?

Hedge fund startup costs include investment for website development, tax and annual audit, marketing and fund administration.

• Tax and Audit Fee - $25,000 (small hedge funds) and 100,000 (large or complex funds)
• Operational Costs : $150,000 (small hedge funds) and $ 75,000 to $120,000 (offshore)
• Legal Fees : $20,000 to $150,000
• Annual Fund Administration : $24,000 (for emerging funds) and $110,000 (for complex funds)

What Are the Ongoing Expenses for a Hedge Fund?

• Wages – Hedge fund market’s average wage is $347,216. It is anticipated to increase in the next years due to the demand for more skilled employees in the industry.
• Compliance Costs and Other Expenses – Compliance costs range from $700,000 to $14.0 million for hedge funds. Other expenses are administrative costs, legal costs, accounting fees, marketing costs, rent expenses, and depreciation.

How Does a Hedge Fund Make Money?

Hedge funds make money by charging a performance fee, which is typically a percentage of the profits earned on investments. In addition, most hedge funds also charge an annual management fee, which is used to cover the costs of running the fund.

Is Owning a Hedge Fund Profitable?

In general, hedge funds are profitable. However, there is a great deal of variation in the profitability of individual hedge funds. Some hedge funds make very little money, while others make billions of dollars in profits.

Why Do Hedge Funds Fail?

Hedge funds fail for a variety of reasons. Some hedge funds fail because they make bad investments. Others fail because they charge high fees or take on too much risk. And still others fail due to poor decisions from hedge fund managers.

How Big Is the Hedge Fund Industry?

There are 4,519 hedge fund businesses in the U.S. that generated $70.7 billion in revenue last year which represents an annual growth rate of 7.9% over the past five years.

What Are the Key Segments of the Hedge Fund Industry?

Hedge funds are segmented by its investment strategies. The largest segments for the industry is Equity focus. This is followed by a myriad of other products and services including:Fixed Income Focus, Event-driven, Multi-Strategy, Emerging Markets, Global Macro and Distressed Securities.

What External Factors Affect the Hedge Fund Industry?

The external factors that affect the performance of the hedge fund industry include:

• Demand From Retirement and Pension Plans - When retirement and pension plans increase, the hedge fund industry gains higher assets under management revenue, thus increasing the industry’s potential.
• S&P 500 - S&P 500 measures the stock market’s performance. An increase in S&P 500 causes the assets under management to increase as well as its revenue from flat fee. A faster rate of increase in S&P 500 compared with hedge fund returns threatens investor satisfaction.
• Investor Uncertainty - An increase in investor uncertainty harms the hedge fund industry as it inclines investors to withdraw their investments.
• Access to credit: Investing with borrowed money multiplies potential gains for hedge funds so an increase in access to credit also improves the hedge fund’s performance.
• OD – Regulation - As compliance cost for hedge funds increases, the profit margin decreases.

Who Are the Key Competitors in the Hedge Fund Industry?

The four largest hedge funds (Bridgewater, Blackrock, J.P. Morgan and Och-Ziff Capital) are estimated to account for 13.5% of the industry’s total assets under management. The remaining 86% of the industry consists of smaller firms.

What Are the Key Customer Segments in the Hedge Fund Industry?

The key customer segments in the hedge fund market are Pension Funds and Wealth Managers. This is followed by Insura

How Can I Make a Hedge Fund Successful?

Have a marketing plan.

Determine the type of hedge fund that you want to start. Identify your edge and communicate it with prospect investors through your print ads, websites, social media accounts, or email marketing. Find out how you can best reach your audience and invest in a reliable Customer Relationship Management tool to help you determine the progress of your communication with investors.

Choose Reliable Service Providers

Choose partners that will help you make decisions as you start your hedge fund as you cannot handle all operations at once. Find service providers that you can grow with so that you will not need to change providers from time to time, and make sure to work with providers that are fully equipped in their field to assure your investors that they are in good hands.

Develop an IT Budget

Technology plays a significant role in the hedge fund industry since the workflows and systems that are used in this business rely hugely on technology. Have an IT budget that will be able to provide the functionality that your systems need and that will be able to keep up with your business’ growth, so think long-term.

Study Hedge Fund Regulations

Know the agencies and regulatory bodies that you have to comply to and submit all the requirements needed before you start your hedge fund to avoid charges or prosecutions. Make sure to be able to pass the standards required for the registration of your business such as data protection, infrastructure practices, risk assessments, and email archiving.

Keep Your Firm and Investor Assets Safe

Investors make sure that the hedge funds they invest in are taking good care of their investments, so make your security measures compliant not just to the requirements of the monitoring firms but also to your investors’ standards. Identify risks and fill in the gaps with your technology safeguards. Make security a priority in starting up your business.

Document Everything

Make sure to keep a copy of your paper works, security measures, technology safeguards and documents or agreements with your investors. A lot of investors demand full disclosure from their fund managers. Proper documentation will save you from hassle and will also increase investors’ trust and confidence, which positively affects their tendency to invest more.

Continually Raise Capital

Market your hedge fund consistently. Your marketing efforts should not cease after you launch your business. Work hard to keep your firm different from the others and aim to be known by more investors.

How Much Do Hedge Fund Operators Make?

Hedge fund manager salaries range from $70,000 plus performance bonuses to over $1 billion dollars in compensation.

For additional information on the hedge fund market, consider these industry resources:

• Preqin: www.preqin.com
• BarclayHedge, LLC: www.barclayhedge.com
• Hedge Fund Research, Inc.: www.hedgefundresearch.com
• Hedge Fund Mavericks: www.hedgefundmavericks.com

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Need a business plan writer ? Click to see how Growthink’s business plan consulting services can help you create a great business plan.  

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• Hedge Fund Business Plan
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A hedge fund business plan is a different from writing a typical business plan, mostly due to the fact the hedge fund business model is different from a typical business.

When you create a hedge fund, you are actually creating two businesses: the management company and the fund itself. There are different styles of writing a hedge fund business plan but it should include the following four components: vision, company overview, product strategy, and market analysis.

• How many funds will the management company manage?
• Are there any plans to develop new products for investor?
• How will non-investment-related services be handled? Will they be outsourced?
• What are the factors that will contribute to the success of the business? For example, how dependent is the business on marketing vs. performance?
• Description of how each fund will be managed.
• Description of the different strategies used for each fund.
• What are the investment philosophies and strategies and how will this affect each fund?
• Discussion of expected leverage, turnover rate, characteristics.
• What are the benchmarks for each fund?

Company Overview

• Description of how the management company and fund are structured.
• A list of owners and how profits will be allocated.
• Detail the payments and expenses.
• How are the managers managed?
• What are the strategic alliances that the companies might have, if any?
• How will the management company be staffed?
• Where are the funds domiciled?
• Description of investment process for each fund and how this will impact results.
• Discussion of fee structure(s) and incentives.

Product Strategy

• Describe the products that the management company sells. In most cases, these products are investment management services.
• Describe in detail the investment strategy and philosophy for each fund.
• Discuss sources of risk and returns.
• What analytical tools are used?
• How will investment decisions be made? Who makes them?
• Discuss past fund performance or hypothetical fund performance if these strategies are implemented.

Market Analysis

• Discuss the demand for the services provided by the hedge fund.
• Analyze relevant sector growth and trend.
• Discuss the potential size of the fund.
• Discuss market factors that would impact the fund.
• Discuss the recent experience of investors in the relevant sector.

The Business Plan

Preparing a business plan, whether it’s for a start-up or an existing business, is one of the most important tools used in business management. We have over 27 years of experience in creating business plans for a variety of purposes from starting a business to seeking funding.

Using the Business Plan

A business plan is a tool with three basic purposes: communication, management, and planning. As a communication tool, it is used to attract investment capital, secure loans, convince workers to come on board, and assist in attracting strategic business partners.

The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows you to show that you have worked out all the problems and decided on potential alternatives before actually launching your business.

As a management tool, the business plan helps you track, monitor, and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments.

As a planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. Many business owners share their business plans with their employees to foster a broader understanding of where the business is going.

Business Plan Basics

A solid business plan precisely defines your business, identifies your goals, and serves as your company’s resume. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. It provides specific and organized information about your company and how you will repay borrowed money which is a crucial part of any loan application.

Every successful business plan should include some discussion about each of the following areas, since these are what make up the essentials of a good business plan:

› Executive summary › Market analysis › Company description › Organization & management › Marketing & sales management › Service or product line › Funding request › Financials › Appendix

A business plan should be a work-in-progress. Even successful, growing businesses should maintain a current business plan.

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Hedge Fund Business Plan Sample

Published Nov.11, 2016

Updated Apr.23, 2024

By: Shawn Jensen

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Table of Content

A hedge fund is a form of investment that pools capital from accredited investors and institutions and invest it in assets. The companies involved in this type of business use risk management and portfolio construction techniques to ensure that they make the right investment decisions.

Though risky, this kind of business is very lucrative if well managed. A hedge fund business plan can help you carry out the right decisions once the firm is up and running. OGS capital has helped hundreds of investors to venture into this form of business and succeed successfully. The determination and the skills that the team uses to write the hedge fund business plan are the two most important aspects that give us a higher cutting edge.

Importance of a Hedge Fund Business Plan

It is impossible to get funding from any bank without a well-detailed hedge funds business plan at hand. This document is used by investors to determine an entrepreneurs understanding of the industry and ability to put to good use the money that they get. Here are some of the additional benefits that you will enjoy by having a well thought-out hedge fund business plan .

• Increased ability to convince investors to trust you with their money
• Ability to make intelligent decisions
• Cushion yourself from legal tussles that could arise as a result of discrepancies

To get a clear understanding of the importance of having a hedge funds business plan, let us look at the main sections of the plan and how they influence the growth and success of the company.

Narrows Down on the Investment Opportunities

In any form of business, you need to identify the target audience. The same case applies to a hedge fund investment company; you should be able to come up with a list of assets or industries that you can invest in and get returns. Remember you will need to repay the investors after a given period the agreed amount, and so it is important to make sure that the investments you intend to make are capable of generating maximum returns.

Identify Risks and Growth Opportunities

As mentioned earlier, investment companies that rely on hedge funds to make money are risky. There are some challenges that you need to be aware to avoid pitfalls along the way. Before writing the plan, we will help you carry out a study that will give you a clear perspective of the industry. Using this information, we will be able to identify the risks that you should be aware of as well as growth opportunities that you can use to scale up the company and make maximum returns. All this information will be presented in the plan to convince investors that channeling their hard-earned money to your investment company will help them generate recurring income.

Details of the Recruiting Process

A robust recruiting process will help you to get staff who have the skills and expertise needed to carry out various tasks in the company professionally. Ideally, the recruiting process should not only be chained on the academic qualifications of the job applicants but also the experience and social skills that one possesses. We have a team of business professionals who recently headed human resource departments. They will help come up with a robust strategy to guide you through the hiring process.

Finally, the hedge fund business plan will give details of how the investment company will be registered with the relevant regulatory authorities. We will also go an extra mile and provide a comprehensive list of all hedge fund operational due diligence code of ethics that will give you an added advantage. To find out more information about our business plan writing services , fill the form. Once you submit it, one of our staff members will furnish you with all the information you need to place an order.

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The Groundwork

Initial costs, raising capital, 3 ways to get the legal work done.

• Fund Trading
• Hedge Funds

How to Form a Hedge Fund

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

• What Is a Hedge Fund?
• Hedge Fund Manager
• Investing in Hedge Funds
• How a Hedge Fund is Funded
• A Closer Look at Hedge Funds
• Publicly Traded Hedge Funds
• Books About Hedge Funds
• Hedge Funds vs. Private Equity Funds
• Hedge Funds vs. Mutual Funds
• Hedge Funds Performance in the Market
• Quantitative Analysis of Hedge Funds
• Hedge Fund Risk
• Hedge Fund Balance Sheet
• Hedge Fund Due Diligence
• How Hedge Funds Use Leverage
• Two and Twenty
• Hedge Fund Strategies
• Hedge Funds and Taxes
• Relative Value Fund
• Hedge Funds and Distressed Debt
• Returns and Fees
• Life of the Hedge Fund
• Hedge Fund Failures
• Will Hedge Funds Last?
• Massive Hedge Fund Disasters
• Exodus of Hedge Funds
• Hedge Funds and the Financial Crisis
• What to Study in College
• Career Path to a Hedge Fund
• A Day in the Life of a Hedge Fund Manager
• Top Hedge Fund Job Skills
• Step to a Hedge Fund Job
• Licenses for Hedge Fund Managers
• How to Form a Hedge Fund CURRENT ARTICLE
• Legally Establishing a Hedge Fund in the USA
• Hedge Funds and the SEC
• How to Start a Hedge Fund in Canada
• How to Start a Hedge Fund in the UK
• Startup Tips

So you want to start a hedge fund . These alternative investments use pooled funds and a variety of strategies to achieve returns for investors. They are generally formed to identify and take advantage of specific investment opportunities, many of which come with a great deal of risk. But how do you go about setting yourself up to become a hedge fund mogul?

Getting a hedge fund up and running is a bit more challenging than forming a corporation or a limited liability company (LLC) for a private business. It involves navigating investment compliance laws, and you'll need professional legal help at some point along the way.

The laws governing the business are different for every country and state in which you do business. They may also differ—sometimes drastically—based on where your potential investors are located, how you may contact new investor leads, what you are investing in, and how many investors in total your fund attracts. 

Wherever you're doing business, these are the basics of getting a hedge fund up and running.

Key Takeaways

• Starting a hedge fund can be time-consuming and expensive due to the many regulatory and legal hurdles you'll encounter, along with the need to raise capital from investors.
• You can hire an experienced hedge fund attorney to handle the cumbersome paperwork involved.
• A hedge fund incubation platform can get you started cheaper and more quickly.
• A legal template service is a less expensive, do-it-yourself option.

Before you put your hard-earned money into the venture, do some hedge fund due diligence . This is a costly and time-consuming process, so you want to make sure you've thought it through thoroughly.

First things first: Do your research and become an expert. This isn't like jumping into the stock or bond market. It's much more complicated with very nuanced steps that you'll have to take. And there are, of course, a number of risks that hedge fund managers need to understand .

Read up on hedge funds and how they operate and talk to experts in the field so you become an expert, too.

Names Are Important

You'll want to choose a name for your fund—one that best describes your investment style and your strategy. This is more difficult than it seems. You want to attract investors, and your name may help draw them to you.

Then determine how you're going to do business. Are you going to set yourself up as an LLC, a trust, or a limited liability partnership (LLP)? The LLP is generally the most popular option.

Hedge funds are expensive ventures with burdensome startup costs that can reach well over the six-figure range. Startup costs for a standard equity fund can run approximately one million dollars in the first year. Start-up costs for more complex credit and systematic funds can run around two million dollars.  

Most hedge fund managers will spend the majority of their money the first year on costs related to salaries and for fees for third-party services, such as lawyers and consultants. The chief operating officer (COO) will be a key hire the hedge fund will need right away. The annual salary range for a COO is $130,000 to $190,000.  

Get your strategy in place and raise some startup cash before you take the legal steps.

You’ll want to secure a significant amount of capital to manage and make running a hedge fund worthwhile. Raising capital is one of the biggest challenges for hedge fund startups, as potential investors will want to see that you have a significant amount of assets under management (AUM) before entrusting you with their money.

There's no real prescribed target, but you should aim to have at least $5 million in AUM to be successful, while $20 million will make you noticeable to investors. Having $100 million will get you noticed by institutional investors . In general, hedge funds can only operate successfully with large amounts of assets under management due to the powers of leverage and economies of scale .

You may find one or all of the following good sources to go to first for initial investment capital:

• Your own savings
• Family and friends
• Hedge fund seeders
• Endowments or foundations

Eventually, you'll need to attract sophisticated investors who have larger sums of money at their disposal. You'll need to convince them to become investors by touting a track record of repeated success with your initial funding, a clear and understandable investment strategy that has a specific mandate, and a highly-skilled and experienced team on the front and back ends.

Hiring a professional marketing team to sell your fund to outside investors is a common strategy. This team will hone your pitch by crafting the right narrative, explaining the investment process used, and highlighting the fund's successes.

Create a Website

Hedge fund managers are hampered in their efforts to raise funds by regulations that prevent them from publicly advertising a specific fund. They can, however, set up informational websites that explain their investment strategies and experience. Fund managers often seek a wider audience by offering specific trading ideas on these websites.

Hedge funds are often marketed by the fund manager, who networks with friends and business acquaintances or through third-party  placement agents . The agents are individuals or firms that act as intermediaries for pension fund  managers and similar professional and institutional investors.

Sometimes fund managers offer  seed investment arrangements  to initial investors. In exchange for a substantial investment in the fund, the investor receives a discount on fund management fees or partial ownership interest in the fund. These initial investors often do their own networking to solicit other investors.

Hedge fund managers generally produce brief marketing materials to give to prospective investors. Known as a " pitch book " or "tear sheet," this covers the basic information on the fund's strategy and manager, and its terms for investing.

Once you've secured the capital, you have to work through the legalities of setting up the fund.

If you're going to give out investment advice, first pass a test and register with the Securities and Exchange Commission (SEC). This is legally required under certain circumstances and it's a good idea in any case as future investors will see this as a positive sign.   You'll also need to set yourself up with the Internal Revenue Service (IRS) to get an employer identification number.

There are three possible ways to take it from there, depending on your budget and your need for professional hand-holding.

Hire a Lawyer

You may consider hiring an experienced hedge fund attorney to help you sort through the paperwork, which can be cumbersome. It will also save you from making any costly mistakes like misfiling a form or forgetting one.

Granted, this is the most expensive option. An experienced hedge fund attorney will charge between $20,000 and $150,000 just for the legal formation of your fund .  

Experienced attorneys come with a long list of client recommendations and good reputations. Still, you'll be paying top dollar for work that is mostly completed on document templates by junior staff.

Use an Incubation Platform

Another option is to try to find a hedge fund incubation or emerging manager platform solution instead of fully forming your own hedge fund.

The emerging manager platform's business model allows you to start trading in your hedge fund and seeking investors while building an audited track record within its larger legal structure.

If you decide this is the way to go, network with people in the field to identify which platform to use. They seem to come and go and you want a stable and competent place.

This method significantly cuts down your startup expenses and allows you to spend more money on talent, systems, and other service providers such as fund administrators, prime brokers , auditors, and third-party marketers.

Use a Template Service

The final option is to use a hedge fund formation template service, which could cut costs and reduce your startup expenses by 60% to 90%. These services give you access to the same legal templates the high-end attorneys use. Hedge fund formation templates give you the freedom—and responsibility—to establish your fund hands-on.

Don't discount the fact that you may need legal representation down the road. You still have the option of retaining a full-blown, high-end attorney as your ongoing compliance and legal counsel. But you may be able to put it off until a later date.

This option is growing in popularity. As long as the fund is formed correctly, there is often a better payback by investing more of the startup money in operations and advisors rather than lawyers.

Bloomberg in Partnership With Alternative Investment Management Association (AIMA). " Hedge Fund Start-Up Guide ," Page 10.

Electronic Code of Federal Regulations. " Title 17: Commodity and Security Exchanges; Part 275 — Rules and Regulations, Investment Advisers Act of 1940 ."

Grant Thornton and Stonegate Capital Partners. " How do you start a hedge fund? " Page 10.

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Hedge Fund Business Plan [Sample Template]

By: Author Tony Martins Ajaero

Home » Business ideas » Financial Service Industry » Hedge Fund Business

Are you about starting a hedge fund business ? If YES, here is a complete sample hedge fund business plan template & feasibility study you can use for FREE .

If you are a big time investor looking for ways to expand your investment portfolio, then you should consider starting a hedge fund firm. You may want to ask ‘what is a hedge fund? ’

What is a Hedge Fund?

Hedge fund can be simply defined as is a regulated investment fund ( a much wider range of investment and trading activities ) that is typically open to a limited range of investors who pay a performance fee to the fund’s investment manager who invest the funds and bring returns. The investment could either be a long term investment or a short term investment.

Hedge funds manager are known to invest in a broader range of assets, which includes long term and short term investment in equity, bonds, commodities, and derivatives et alit you run a hedge fund firm, the easiest ways for you to make money is to help your clients make more money.

The income you generate is based on your performance which is why most hedge fund managers employ different investment strategies to generate good returns for their clients. In other words, the performance fee is indeed the defining characteristic of a hedge fund.

What It Take to Start a Hedge Fund Business Successfully?

If you are looking towards starting your own hedge fund, then should be ready to manage a small highly professional workforce. This is so because on the average, hedge fund firms are known to manage huge assets with relatively few employees. Hence the stiffer competition in the hedge fund industry amongst those seeking for job openings in the industry.

Saying that Hedge funds investment is a risky venture is just stating the obvious because hedge funds aren’t regulated by the government or any financial regulatory body because it is limited to friends, business partners and families and not open to the general public.

The risk involved in hedge funds is what makes it open to only few accredited investors. Here below is a sample hedge fund business plan;

A Sample Hedge Fund Business Plan Template

1. industry overview.

Hedge funds is simply an investment medium that enables big time accredited investors or well established institutions pool cash or capital together to be able to invest in securities and any other form of investment opportunity that requires large initial capital to invest in.

The fact that hedge funds requires large capital makes it easier for only the rich and accredited investors to cash in on it. Hedge funds are only open to limited partners with the required cash for investing in capital intensive business portfolios.

The concept and term ‘ Hedge Fund’ was created by Alfred Jones in 1949. He founded A.W. Jones, which is a partnership with four friends, and through this investment vehicle, they were able to invest one hundred thousand U.S. dollars ($100,000) in the stock market.

They employ both long and short positions. The bottom line is that, they were able to generate 17.3 percent returns during the first year of investment and that was enough to set the ball rolling for hedge fund investment et al. In the united states of America, the hedge fund industry is estimated to be a $1.2 trillion industry with approximately 9,000 active hedge funds and funds of funds.

Statistics has it that in December 2009, the largest – top 25 hedge fund managers had an estimate of $520 billion in assets under management. Amongst the list are Bridgewater Associates, Paulson & Co., and Soros Fund Management.

History has it that hedging out unwanted risk has been a common business activity in the financial markets for centuries.

Which is why as far back as the 18 th centuries, commodity manufacturers and merchants have started using forward contracts to protect themselves against futures changes in commodity prices— they do it in order to hedge out the risk of adverse market fluctuations beyond their control.

Forward contracts are still pretty much traded to this day in the futures / commodities market. Hedge Funds Investment is not open for all and sundry basically because it requires large capital to invest in it. The amount required to invest in hedge funds could range from 1 Million US Dollars to even multiple Millions of Dollars.

Each Hedge fund managers have their requirements, so just ensure that you save up large amount of cash that can meet the investment requirement of the average hedge funds you can find. Hedge fund firms are known to generate income by charging both a management fee and a performance fee from their clients.

On the average, hedge fund firms charges between 1 percent and 2 percent of assets under their management annually and the performance fees is about 20% of gross profits returned by the fund which is usually based on certain constraints.

There are several hedge fund firms in the United States of America but that does not in any way place a cap on the industry. If you know you have studied the industry and you have vast and unique investment strategies, then you can come into the industry and make profits.

Despite the high volatility of the market, investors still choose to invest in hedge funds because of the huge returns on their investment they stand to gain if they get it right. Hedge funds are known to provide access to a wide range of investment styles, strategies and hedge fund managers for one easy-to-administer investment.

Hedge fund provides more predictable returns (depending on the objectives of the fund of funds), than traditional investment funds and it provides effective diversification for investment portfolios.

2. Executive Summary

JB Moses & Associates, LLP is a registered, licensed and accredited hedge fund management firm that will be based in New York City – New York.

The company will handle all aspect of hedge fund management and related services such as offering equity long bias, equity long-only, equity long/short and equity market neutral funds, offering fixed income funds, offering emerging market funds, offering event-driven funds, offering multi-strategy funds, offering macro funds, offering distressed securities funds and other related.

We are aware that to run a standard hedge fund management firm can be demanding which is why we are well trained, certified and equipped to perform excellently well.

JB Moses & Associates, LLP is a client – focused and result driven hedge funds managers that provides broad- based services i.e. pool investments, securities or other assets on behalf of shareholders, unit holders or other beneficiaries at an affordable fee that won’t in any way put a hole in the pocket of our clients.

We will offer trusted and profitable hedge funds management services to all to our individual clients, and corporate clients at local, state, national, and international level. We will ensure that we work hard to meet and surpass our clients’ expectations whenever they invest their funds with us.

At JB Moses & Associates, LLP, our client’s best interest would always come first, and everything we do is guided by our values and professional ethics. We will ensure that we hire professionals who are well experienced in managing hedge funds and other investment portfolios with good track record of return on investments.

JB Moses & Associates, LLP will at all times demonstrate her commitment to sustainability, both individually and as a firm, by actively participating in our communities and integrating sustainable business practices wherever possible.

We will ensure that we hold ourselves accountable to the highest standards by meeting our client’s needs precisely and completely. We will cultivate a working environment that provides a human, sustainable approach to earning a living, and living in our world, for our partners, employees and for our clients.

Our plan is to position the business to become one of the leading brands in hedge funds management line of business in the whole of New York City, and also to be amongst the top 20 hedge funds management firms in the United States of America within the first 10 years of operations.

This might look too tall a dream but we are optimistic that this will surely be realized because we have done our research and feasibility studies and we are enthusiastic and confident that New York is the right place to launch our hedge fund management business before sourcing for clients from other cities in The United States of America.

JB Moses & Associates, LLP is founded by Johnbull Moses and his business partners for many years. The organization will be managed by both of them since they have adequate working experience to manage such business.

Johnbull Moses has well over 15 years of experience working at various capacities as hedge fund manager, mutual fund manager and other investment portfolio management in the United States of America. Mr. Johnbull Moses graduated from both University of California – Berkley with a Degree in Accounting, and University of Harvard (MSc.) and he is an accredited and certified hedge fund manager.

3. Our Products and Services

JB Moses & Associates, LLP is going to offer varieties of services within the scope of the financial investment services industry in the United States of America. Our intention of starting our hedge fund management firm is to work with big time investors who can afford to invest their funds with hedge funds managers.

We are well prepared to make profits from the industry and we will do all that is permitted by the law in the United States to achieve our business goals, aim and ambition. Our business offering are listed below;

• Offering equity long bias, equity long-only, equity long/short and equity market neutral funds
• Offering fixed income funds
• Offering emerging market funds
• Offering event-driven funds
• Offering multi-strategy funds
• Offering macro funds
• Offering distressed securities funds

4. Our Mission and Vision Statement

• Our vision is to build a hedge fund management brand that will become one of the top choices for investors in the whole of New York City – New York. Our vision reflects our values: integrity, service, excellence and teamwork.
• Our mission is to position the business to become one of the leading brands in hedge funds management line of business in the whole of New York City, and also to be amongst the top 20 hedge funds management firms in the United States of America within the first 10 years of operations.

Our Business Structure

Ordinarily we would have settled for two or three employees, but as part of our plan to build a standard hedge funds management business in New York City – New York, we have perfected plans to get it right from the beginning which is why we are going the extra mile to ensure that we have qualified, competent, honest and hardworking employees to occupy all the available positions in our firm.

The picture of the kind of hedge fund management business we intend building and the business goals we want to achieve is what informed the amount we are ready to pay for the best hands available in and around New York and environs as long as they are willing and ready to work with us to achieve our business goals and objectives.

Below is the business structure that we will build JB Moses & Associates, LLP;

• Chief Executive Officer

Hedge Fund Manager / Portfolio Manager

Admin and HR Manager

Risk Manager

• Marketing and Sales Executive
• Chief Financial Officer (CFO) / Chief Accounting Officer (CAO).
• Customer Care Executive / Front Desk Officer

5. Job Roles and Responsibilities

Chief Executive Office:

• Increases management’s effectiveness by recruiting, selecting, orienting, training, coaching, counseling, and disciplining managers; communicating values, strategies, and objectives; assigning accountabilities; planning, monitoring, and appraising job results; developing incentives; developing a climate for offering information and opinions; providing educational opportunities.
• Creating, communicating, and implementing the organization’s vision, mission, and overall direction – i.e. leading the development and implementation of the overall organization’s strategy.
• Responsible for fixing prices and signing business deals
• Responsible for providing direction for the business
• Creates, communicates, and implements the organization’s vision, mission, and overall direction – i.e. leading the development and implementation of the overall organization’s strategy.
• Responsible for signing checks and documents on behalf of the company
• Evaluates the success of the organization
• Providing market research and implementing new investment product and strategies
• Create research and review platforms for new, existing and potential investment products
• Exceed client expectations with returns on investments
• Work closely with analysts and traders to ensure trading strategy is carried out correctly
• Construct and review performance reports to show to investors
• Work directly with marketer to relay investment strategy and risk measures for website and other forms of marketing for your hedge fund
• Performing due diligence visits and assessing investment management firms and quantitatively analyzing investment pools
• Having extensive knowledge of industry policies and regulations set in place by the SEC
• Focusing on capital introductions and networking to sign up new investors to your fund
• Planning, designing and implementing an overall risk management process for the organization;
• Risk assessment, which involves analyzing risks as well as identifying, describing and estimating the risks affecting the business;
• Risk evaluation, which involves comparing estimated risks with criteria established by the organization such as costs, legal requirements and environmental factors, and evaluating the organization’s previous handling of risks;
• Establishing and quantifying the organization’s ‘risk appetite’, i.e. the level of risk they are prepared to accept;
• Risk reporting in an appropriate way for different audiences, for example, to the board of directors so they understand the most significant risks, to business heads to ensure they are aware of risks relevant to their parts of the business and to individuals to understand their accountability for individual risks;
• Corporate governance involving external risk reporting to stakeholders;
• Carries out processes such as purchasing insurance, implementing health and safety measures and making business continuity plans to limit risks and prepare for if things go wrong;
• Conducts audits of policy and compliance to standards, including liaison with internal and external auditors;
• Provides support, education and training to staff to build risk awareness within the organization.
• Responsible for overseeing the smooth running of HR and administrative tasks for the organization
• Design job descriptions with KPI to drive performance management for clients
• Regularly hold meetings with key stakeholders to review the effectiveness of HR Policies, Procedures and Processes
• Maintains office supplies by checking stocks; placing and expediting orders; evaluating new products.
• Ensures operation of equipment by completing preventive maintenance requirements; calling for repairs.
• Defines job positions for recruitment and managing interviewing process
• Carrying out staff induction for new team members
• Responsible for training, evaluation and assessment of employees
• Responsible for arranging travel, meetings and appointments
• Updates job knowledge by participating in educational opportunities; reading professional publications; maintaining personal networks; participating in professional organizations.
• Oversee the smooth running of the daily office activities.

Marketing / Investor Relations Officer

• Identify, prioritize, and reach out to new partners, and business opportunities et al
• Identifies development opportunities; follows up on development leads and contacts; participates in the structuring and financing of projects; assures the completion of relevant projects.
• Writing winning proposal documents, negotiate fees and rates in line with company policy
• Responsible for handling business research, marker surveys and feasibility studies for clients
• Responsible for supervising implementation, advocate for the customer’s needs, and communicate with clients
• Develops, executes and evaluates new plans for expanding increase sales
• Documents all customer contact and information
• Represents the company in strategic meetings
• Helps to increase sales and growth for the company

Chief Financial Officer (CFO) / Chief Accounting Officer (CAO)

• Responsible for preparing financial reports, budgets, and financial statements for the organization
• create reports from the information concerning the financial transactions recorded by the bookkeeper
• Prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.
• Provides managements with financial analyses, development budgets, and accounting reports; analyzes financial feasibility for the most complex proposed projects; conducts market research to forecast trends and business conditions.
• Responsible for financial forecasting and risks analysis.
• Performs cash management, general ledger accounting, and financial reporting for one or more properties.
• Responsible for developing and managing financial systems and policies
• Responsible for administering payrolls
• Ensuring compliance with taxation legislation
• Handles all financial transactions for the company
• Serves as internal auditor for the company

Client Service Executive / Front Desk Officer

• Welcomes guests and clients by greeting them in person or on the telephone; answering or directing inquiries.
• Ensures that all contacts with clients (e-mail, walk-In center, SMS or phone) provides the client with a personalized customer service experience of the highest level
• Through interaction with clients on the phone, uses every opportunity to build client’s interest in the company’s products and services
• Manages administrative duties assigned by the manager in an effective and timely manner
• Consistently stays abreast of any new information on the company’s products, promotional campaigns etc. to ensure accurate and helpful information is supplied to clients
• Receives parcels / documents for the company
• Distribute mails in the organization
• Handles any other duties as assigned my the line manager

6. SWOT Analysis

JB Moses & Associates, LLP engaged the services of a core professional in the area of business structuring to assist our organization in building a well – structured hedge fund management business that can favorably compete in the highly competitive fund management and investment services industry.

Part of what the team of business consultant did was to work with the management of our organization in conducting a SWOT analysis for JB Moses & Associates, LLP. Here is a summary from the result of the SWOT analysis that was conducted on behalf of JB Moses & Associates, LLP;

Our core strength lies in the power of our team; our workforce. We have a team that can go all the way to give our clients value for their money (good returns on their investment); a team that are trained and equipped to pay attention to details and to deliver excellent jobs. We are well positioned and we know we will attract loads of clients from the first day we open our doors for business.

As a new hedge fund management firm, it might take some time for our organization to break into the market and gain acceptance especially from corporate clients in the already saturated funds management and investment services industry; that is perhaps our major weakness. So also we may not have the required cash to give our business the kind of publicity we would have loved to.

• Opportunities:

The opportunities in the fund management and investment services industry is massive considering the number of investors who would want to increase their investment portfolio. As a standard and accredited hedge fund manager, we are ready to take advantage of any opportunity that comes our way.

Hedge fund involves large amount of cash and it is known to be a very high risk venture. Hence, whoever chooses to manage it must not just have solid investment background, but must also know how to handle risks. The truth is that if you are not grounded in risks management as a hedge fund manager, you may likely throw away peoples’ monies and investment.

That is why it’s often said that you don’t learn the ropes with hedge funds; rookies hardly survive managing hedging funds without first cutting their teeth elsewhere. Just as in any other business and investment vehicles, economic downturn, unstable financial market and unfavorable government economic policies can hamper the growth and profitability of hedge funds.

7. MARKET ANALYSIS

• Market Trends

If you look through some of the top hedge fund firms, you will realize that most of them have their headquarters in New York City. This is so because New York is one of the world’s business headquarters; key business decisions that shape the world of business are taken in New York.

The nature of hedge fund investment requires the services of core investment professionals. As a matter of fact, before any investor can commit their hard earned money under you’re the care of a hedge fund manager; they usually would want to know the profile of the hedge fund manager.

On the average, hedge fund firms employ strategies that can help them reduce market risk specifically by shorting equities or through the use of derivatives. Which is why many hedge fund strategies, mostly arbitrage strategies, are limited as to how much capital they can successfully employ before returns starts diminishing. Little wonder most successful hedge fund managers place limit on the amount of capital they will accept per time.

8. Our Target Market

As a standard, accredited and licensed hedge fund management firm, JB Moses & Associates, LLP offers a wide range of investment portfolio management services hence we are well trained and equipped to services a wide range of clientele base.

Our target market cuts across businesses and investors that have the required capital to invest in hedge fund. We are coming into the industry with a business concept and investment strategies that will enable us produce good returns on investment for our clients.

Below is a list of the individual and organizations that we have specifically design our products and services for;

• Accredited Investors
• Wealthy People in the Society
• Investment Clubs
• Top corporate executives
• Corporate Organizations / Blue Chip Companies

Our Competitive Advantage

Despite the fact that hedge funds give huge returns on investment, it is indeed risky venture. If you drive through the street of New York City, you will come across several hedge fund firms; that goes to show you that there are competitions in the industry.

For you to survival as a hedge fund firm, you should be able to come up with workable investment strategies; strategies that will help you attract the required cash / capital and above all you should be a good risks manager.

We are quite aware that to be highly competitive in the fund managers and investment services industry means that we should be able to give good returns on investments to our clients, deliver consistent quality service, our clients should be satisfied with our investment strategies and we should be able to meet the expectations of clients.

JB Moses & Associates, LLP might be a new entrant into the hedge fund management services industry in the United States of America, but the management staffs and owners of the business are considered gurus. They are people who are core professionals and licensed and highly qualified portfolio management experts in the United States. These are part of what will count as a competitive advantage for us.

Lastly, our employees will be well taken care of, and their welfare package will be among the best within our category (start – ups hedge fund management businesses) in the industry meaning that they will be more than willing to build the business with us and help deliver our set goals and achieve all our aims and objectives.

9. SALES AND MARKETING STRATEGY

• Sources of Income

JB Moses & Associates, LLP is established with the aim of maximizing profits in the hedge funds and investment services industry and we are going to go all the way to ensure that we do all it takes to attract clients on a regular basis. JB Moses & Associates, LLP will generate income by offering the following investment related services;

10. Sales Forecast

One thing is certain, there would always be accredited investors, top corporate executives and wealthy individuals who would need the services of tested and trusted hedge fund managers.

We are well positioned to take on the available market in New York City and other key cities in the United States of America and we are quite optimistic that we will meet our set target of generating enough income / profits from the first six month of operations and grow the business and our clientele base beyond New York City to other cities in the United States of America.

We have been able to critically examine the hedge fund management market and we have analyzed our chances in the industry and we have been able to come up with the following sales forecast. The sales projection is based on information gathered on the field and some assumptions that are peculiar to similar startups in New York City.

Below is the sales projection for JB Moses & Associates, LLP, it is based on the location of our business and the wide range of investment management services that we will be offering;

• First Year-: $250,000
• Second Year-: $550,000
• Third Year-: $1,500,000

N.B : This projection is done based on what is obtainable in the industry and with the assumption that there won’t be any major economic meltdown and there won’t be any major competitor offering same additional services as we do within same location. Please note that the above projection might be lower and at the same time it might be higher.

• Marketing Strategy and Sales Strategy

We are mindful of the fact that there is stiffer competition amongst hedge fund managers and other related financial consulting service providers in the United States of America; hence we have been able to hire some of the best business developer to handle our sales and marketing.

Our sales and marketing team will be recruited base on their vast experience in the industry and they will be trained on a regular basis so as to be well equipped to meet their targets and the overall goal of the organization.

We will also ensure that our return on investment and excellent job deliveries speaks for us in the market place; we want to build a standard hedge fund management business that will leverage on word of mouth advertisement from satisfied clients (both individuals and corporate organizations).

Our goal is to grow our hedge fund management firm to become one of the top 20 hedge fund management firms in the United States of America which is why we have mapped out strategy that will help us take advantage of the available market and grow to become a major force to reckon with not only in the New York City but also in other cities in the United States of America.

JB Moses & Associates, LLP is set to make use of the following marketing and sales strategies to attract clients;

• Introduce our business by sending introductory letters alongside our brochure to corporate organizations, accredited investors, top corporate executives and key stake holders in New York City and other cities in The United States
• Advertise our business in relevant financial and business related magazines, newspapers, TV stations, and radio station.
• List our business on yellow pages ads (local directories)
• Attend relevant international and local finance and business expos, seminars, and business fairs et al
• Create different packages for different category of clients (start – ups and established corporate organizations) in order to work with their budgets and still deliver good returns on investment
• Leverage on the internet to promote our business
• Engage direct marketing approach
• Encourage word of mouth marketing from loyal and satisfied clients

11. Publicity and Advertising Strategy

The uniqueness of hedge fund firms is such that it is the result they produce that helps boost their brand awareness. Hedge fund firms do not go out there to source any investors that they can come across but they are strategic when it comes to inviting investors to invest in their hedge funds.

It will be out of place to boost your hedge fund brand if you have not proven your worth in the industry. If you have successfully proven that you have what it takes to operate a hedge fund firm, then you next port of call is to strategically engage the media to help you promote your brand and also to create a positive corporate identity.

We have been able to work with our brand and publicity consultants to help us map out publicity and advertising strategies that will help us walk our way into the heart of our target market. We are set to take the hedge fund management services industry by storm which is why we have made provisions for effective publicity and advertisement of our travels and tours agencies.

Below are the platforms we intend to leverage on to promote and advertise JB Moses & Associates, LLP;

• Place adverts on both print (community based newspapers and magazines) and electronic media platforms
• Sponsor relevant community based events / programs
• Leverage on the internet and social media platforms like; Instagram, Facebook , twitter, YouTube, Google + et al to promote our brand
• Install our Bill Boards on strategic locations all around New York City.
• Engage in road show from time to time
• Distribute our fliers and handbills in target areas
• Ensure that all our workers wear our branded shirts and all our vehicles are well branded with our company’s logo et al.

12. Our Pricing Strategy

Hedge fund managers make their money on commission; they charge their client some percentage of the capital invested and service charges et al.

At JB Moses & Associates, LLP we will keep our fees below the average market rate for all of our clients by keeping our overhead low and by collecting payment in advance. In addition, we will also offer special discounted rates to our loyal and repeated customers.

• Payment Options

At JB Moses & Associates, LLP our payment policy will be all inclusive because we are quite aware that different people prefer different payment options as it suits them. Here are the payment options that we will make available to our clients;

• Payment by via bank transfer
• Payment via online bank transfer
• Payment via check
• Payment via bank draft
• Payment with cash

In view of the above, we have chosen banking platforms that will help us achieve our plans with little or no itches.

13. Startup Expenditure (Budget)

The cost of starting a hedge fund is in the two fold; the cost of setting up the office structure and of course the capital meant for investment. The amount required to invest in hedge funds could range from 1 Million US Dollars to even multiple Millions of Dollars. So you must employ aggressive strategies to pool such cash together.

As regard the cost of setting up the office structure, your concern should be to secure a good office facility in a busy business district; it can be expensive though, but that is one of the factors that will help you position your hedge fund firm to attract the kind of investors you would need.

This is the financial projection and costing for starting JB Moses & Associates, LLP;

• The Total Fee for incorporating the Business – $750.
• The budget for basic insurance policy covers, permits and business license – $2,500
• The Amount needed to acquire a suitable Office facility in a business district 6 months (Re – Construction of the facility inclusive) – $40,000.
• The Cost for equipping the office (computers, software applications, printers, fax machines, furniture, telephones, filing cabins, safety gadgets and electronics et al) – $5,000
• The cost for purchase of the required software applications (CRM software, Accounting and Bookkeeping software and Payroll software et al) – $10,500
• The Cost of Launching your official Website – $600
• Budget for paying at least three employees for 3 months plus utility bills – $10,000
• Additional Expenditure (Business cards, Signage, Adverts and Promotions et al) – $2,500
• Investment fund – 1Million Dollars
• Miscellaneous: $1,000

Going by the report from the market research and feasibility studies conducted, we will need $150,000 excluding $1M investment capital to successfully set – up a medium scale but standard hedge fund management firm in the United States of America.

Generating Funding / Startup Capital for JB Moses & Associates, LLP

JB Moses & Associates, LLP is a business that will be owned and managed by Johnbull Moses and his business associates. They are the sole financial of the firm, but may likely welcome other partners later which is why they decided to restrict the sourcing of the start – up capital for the business to just three major sources.

These are the areas we intend generating our start – up capital;

• Generate part of the start – up capital from personal savings
• Source for soft loans from family members and friends
• Apply for loan from my Bank

N.B: We have been able to generate about $50,000 (Personal savings $40,000 and soft loan from family members $10,000) and we are at the final stages of obtaining a loan facility of $100,000 from our bank. All the papers and document has been duly signed and submitted, the loan has been approved and any moment from now our account will be credited.

14. Sustainability and Expansion Strategy

The future of a business lies in the numbers of loyal customers that they have the capacity and competence of the employees, their investment strategy and the business structure. If all of these factors are missing from a business (company), then it won’t be too long before the business close shop.

One of our major goals of starting JB Moses & Associates, LLP is to build a business that will survive off its own cash flow without the need for injecting finance from external sources once the business is officially running. We know that one of the ways of gaining approval and winning customers over is to give investors good returns on their investment.

We will make sure that the right foundation, structures and processes are put in place to ensure that our staff welfare is well taken of. Our company’s corporate culture is designed to drive our business to greater heights and training and re – training of our workforce is at the top burner of our business strategy.

As a matter of fact, profit-sharing arrangement will be made available to all our management staff and it will be based on their performance for a period of three years or more as determined by the board of the organization. We know that if that is put in place, we will be able to successfully hire and retain the best hands we can get in the industry; they will be more committed to help us build the business of our dreams.

Check List / Milestone

• Business Name Availability Check:>Completed
• Business Incorporation: Completed
• Opening of Corporate Bank Accounts various banks in the United States: Completed
• Opening Online Payment Platforms: Completed
• Application and Obtaining Tax Payer’s ID: In Progress
• Application for business license and permit: Completed
• Purchase of All form of Insurance for the Business: Completed
• Conducting Feasibility Studies: Completed
• Generating part of the start – up capital from the founder: Completed
• Applications for Loan from our Bankers: In Progress
• Writing of Business Plan: Completed
• Drafting of Employee’s Handbook: Completed
• Drafting of Contract Documents: In Progress
• Design of The Company’s Logo: Completed
• Graphic Designs and Printing of Packaging Marketing / Promotional Materials: Completed
• Recruitment of employees: In Progress
• Purchase of the Needed software applications, furniture, office equipment, electronic appliances and facility facelift: In progress
• Creating Official Website for the Company: In progress
• Creating Awareness for the business (Business PR): In progress
• Health and Safety and Fire Safety Arrangement: In progress
• Establishing business relationship with vendors and key players in the industry: In progress

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How to Start a Hedge Fund – and Why You Probably Shouldn’t

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Other Process Points

Hedge fund hiring: what qualities do new hires need.

You can find plenty of articles about “how to start a hedge fund,” but they all tend to make the same glaring mistakes:

• They fail to explain that only very specific types of people even have a chance of starting a hedge fund;
• They fail to explain that “beating the S&P in your personal account” won’t be taken seriously by anyone and that it is not at all sufficient for starting a fund ; and
• They fail to disclose starting a hedge fund is probably a bad idea .

If you want to start a hedge fund, as of 2019, I’d say you’re somewhere in between “a bit crazy” and “total reality distortion field.”

Not only has the industry performed poorly for the past decade, but fewer funds are forming each year, and management and performance fees have been falling for a long time.

So, here’s why it’s probably a bad idea – but how to do it anyway if you insist:

The Blunt Truth About Starting a Hedge Fund

You might have a personal trading account with $100K, $200K, or even $1-5 million+.

Your average annualized returns over the past 5 years were 15%, beating the S&P 500 , which only produced 9%.

As a result, you believe that you’re a good candidate to start a hedge fund.

First of all, high returns on small amounts of capital (i.e., millions of dollars or less) do not mean that much.

Second, results from “personal accounts,” no matter the account size, are not taken seriously.

Third, you need to be part of an existing team at a hedge fund, asset management firm, or prop trading firm to have a good chance at starting a new fund.

To start a true, institutional-quality hedge fund that uses the LP / GP (Limited Partner / General Partner) structure and has large external investors, such as endowments, pension funds , and funds of funds , you’ll need to raise hundreds of millions of USD.

The bare minimum to get noticed is $100 million, but realistically it’s more like $250 million+, and ideally more like $500 million – $1 billion.

You have no chance of accomplishing that unless you have deep connections to potential Limited Partners and a great track record over many years at an existing fund.

Yes, you could start with much less capital, or go through a hedge fund incubator, or use a “friends and family” approach, or target only high-net-worth individuals.

But if you start with, say, $5 million, you will not have enough to pay yourself anything, hire others, or even cover administrative costs.

It will also be extremely tough to re-invest, grow, and attract new investors with that amount of capital.

For more on the economics of hedge funds, please see the hedge fund overview and hedge fund career path articles.

Not only has the industry has performed poorly ever since the 2008-2009 financial crisis, but compliance and legal costs have increased substantially, the traditional “2 and 20” fee structure is now much lower, and strategies such as global macro and long/short equity have fared poorly.

There are some bright spots, such as quant funds , but they’re a few specks of light in a bloody field of corpses and rubble.

But if you believe that “ignorance is bliss,” and you have a solid track record and team at an established firm, here are the steps to start a hedge fund:

How to Start a Hedge Fund, Part 1: Raising Capital

First, note that even if you do have a solid track record at an established firm, you may not be able to use your results for marketing purposes .

You need to review your employment agreement and see what it allows because firms have different policies.

Also, even if you can use these results for marketing purposes, you won’t necessarily have 100% ownership of the results since you were in a team.

As a result, the “new fund marketing process” is often more about your process , your story , and you as a person than it is about historical results.

Potential investors in your new fund, such as funds of funds, endowments, pensions, family offices , and high-net-worth individuals, want to see three characteristics in your investment process and story:

• Specific – You need to do much better than “find and invest in undervalued companies.”
• Repeatable – Your hedge fund strategy can’t depend on specific economic conditions or government policies or a key individual.
• Understandable – Institutional investors want strategies they understand 100% rather than potentially-higher-return-but-complex-and-unclear strategies.

Good Pitches vs. Bad Pitches

To make this concrete, let’s look at two quick examples.

A “bad pitch” would go something like this:

• Story: New healthcare regulations have created undervalued medical device companies and overvalued health insurance companies. The market hasn’t yet priced in the impact of these regulations, which has created investment and M&A opportunities.
• Process: You’ll focus on specific geographies and verticals and pore through companies’ filings, call suppliers and medical professionals, do patient interviews, and complete fundamental analysis to find the best long and short candidates.
• Returns: You’ve been using this strategy for 2 years in your personal account of $100K, and you’ve averaged 20% returns each year, verified by a Big 4 audit.

This strategy might seem reasonable, but there are several problems.

First, it’s far too dependent on current government policies – what if something changes, or the regulation gets rolled back?

Second, the process is not scalable because it’s extremely labor-intensive.

Finally, your track record is linked to your personal account, and strategies that work with $100K might not work so well with $100 million (oh, and 2 years of results might not be enough – 3-5 is better).

A better pitch might go like this:

• Story: You’ve identified 15 key signals in “mergers of equals” scenarios that correlate strongly with the probability of the M&A deal going through. The market has continuously mispriced companies’ stock prices in these situations, creating opportunities to earn market returns but with significantly less risk.
• Process: You track M&A activity in a sector and apply these rules of thumb about the exchange ratio, stock price volatility, and others, and then you confirm your findings with a review of corporate filings and additional due diligence.
• Returns: Working in a team of 3 with $20 million in capital at a generalist hedge fund over the past 5 years, you’ve averaged 11% annual returns, always in a relatively narrow band from 8% to 15% in any given year.

This strategy is specific, not tied to a fad or trend, and the process is more repeatable and scalable.

It’s also less dependent on you, and your returns have been more consistent with a much larger amount of capital over several years.

In addition to honing your pitch, you need to be personable because institutional investors often place just as much weight in your character as they do in your strategies and returns.

The Capital Raising Process from Beginning to End

Once you’ve refined your pitch, the process of raising capital differs depending on the types of investors you target.

For example, if you pitch to a $10 billion endowment that only invests in funds with over $500 million AUM, it will be slower and more bureaucratic than pitching to a small family office.

With large institutional investors, you can expect the following:

• Introduction – Get an introduction via other fund managers, trustees, your prime brokerage provider, or anyone else you know.
• Phone Interview – Answer questions about your strategy, how you make decisions, and qualitative aspects of your fund.
• Informal Background Check – They’ll ask about you in the community to figure out your reputation. “No search results” can be worse than negative findings!
• In-Person Pitch Day – If they like your story and reputation, they’ll invite you in to present for an entire day. You’ll go through your slides, your story, your process, your risk management, your team, your performance, and more.

When you’re presenting your past investments, you might use a structure like the following for each one:

• The Idea: “This healthcare company was undervalued because one division was dragging down earnings, and we thought there was a significant chance of a divestiture because of new competitors entering the market and increased pricing pressure, so we invested and expected to realize a gain within 12 months.”
• How You Developed the Idea: You witnessed a similar event in a different industry, and then realized that undervalued companies with underperforming divisions might exist elsewhere – and that certain industries were more likely to come under pricing pressure than others.
• The Work You Did on the Idea: You went back 5 years and analyzed the financials, valuation multiples, and market conditions of all similar cases; based on that, you found 10 rules of thumb you could use to identify cases where there was an 80% likelihood of a company’s stock price appreciating upon announcement of a divestiture.
• The Result: You invested in the company, and, as expected, it announced a divestiture within the next 12 months. However, its stock price rose by only 5% rather than the 10-15% that your analysis had predicted, and you sold off your position for a modest gain.
• How You Applied the Results and What You Learned: Your thinking was not entirely wrong, but you had underestimated the impact of new regulations in the sector, which accounted for the difference. As a result, the company’s earnings growth was dampened, and the divestiture resulted in less uplift than you expected. You decided to focus on sectors with lighter regulations, such as  [Name Examples] .

The #1 mistake in day-long presentations is focusing too much on your successes and not enough on your mistakes.

You might be tempted to walk in and give them 10 case studies of investments where you earned 50%, 70%, or 100% within 12 months.

But no investor is perfect, and everyone loses money sometimes.

If you want a higher chance of closing the deal, throw in a few stories about mistakes and what you learned from them as well.

After you present, you might have to wait up to a year to receive a definitive “yes/no” answer.

You might also have to pitch to different groups, and they might visit your office and speak with other team members.

If all of that goes well, they might submit a proposal on your fund to the ultimate decision-makers, such as the Board of Trustees for an endowment, and then you’ll have to come in and deliver the “final pitch” to them.

The process is quicker if you focus on smaller family offices and HNW individuals – you might get an introduction, speak on the phone, and then visit in-person for a day or two to answer more questions and complete the paperwork.

But it will also take more meetings and individual investors to reach a critical mass of capital if you do it that way, so there is a clear trade-off.

However, if you have less than $100 million in AUM, you pretty much have to start with these smaller offices and individuals because large institutions have a minimum check size and concentration limits (i.e., they don’t want to be 40% of AUM in a $75 million fund).

The success rate with investor meetings of all types is very low unless you have a great reputation at a top firm and you’re starting a new one with the same team.

You might have to contact hundreds of LPs before you start to see success, so the odds are much worse than those in investment banking networking .

Also, endowments and pension funds are extremely conservative and almost always avoid brand-new funds unless they already know the manager(s).

Consultants (i.e., placement agents ) play a big role in the fundraising process as well, but there is a “size bias” there, and it’s tough to get their attention if you’re under a few hundred million AUM.

If you manage to raise enough capital to get started, you’ll then have to send out monthly or quarterly updates and an annual letter to your LPs.

Investors will also call you randomly to ask how things are going or to explain the strategies you’re currently using.

Large firms will scrutinize you closely, often devoting entire departments to fund monitoring, while HNW individuals and small family offices will be more hands-off.

Having skin in the game is quite important, and many investors won’t commit unless you also put a significant portion of your net worth into the fund.

So, the “capital raising process” is also about putting your own capital into play.

How to Start a Hedge Fund, Part 2: Setting Up the Paperwork and Legal/Corporate Structure

So, let’s say you’ve been meeting with investors, you’ve presented a solid pitch, and you’ve managed to win commitments for $100 million in AUM.

You need to think about logistical issues next.

You’ll have to tackle some of these issues before you even raise capital – but we’re labeling it as “Part 2” here because without capital, nothing else happens.

First, you’ll need office space , which is expensive in places like in NY and London.

To save money, you can start from your home at first, use a “hedge fund hotel,” or share space with other managers.

Until your management fees are enough to cover office rent and your other administrative expenses, frugality is the name of the game.

You’ll also need service providers , such as lawyers, auditors, administrators, marketers, prime brokers, compliance officers, and IT.

You might be tempted to save money by using cheaper, lower-quality providers, but that would be a big mistake because incorrect legal or compliance procedures could kill your fund.

Also, potential investors will look at the quality of these providers to judge your fund.

The legal requirements to start a hedge fund vary widely by state and country, so we’re not going to attempt to address them here.

At a high level, nearly all hedge funds are structured as Limited Partnerships because of the LP and GP split in the hedge fund structure.

A good attorney should be your first call when starting a hedge fund, and your investment agreement should include these terms at the bare minimum:

• Fee Structure: As a new fund, you’ll most likely have to settle for lower management fees (~1%) and performance fees (under 20%). The industry-wide trend is toward lower fees, with more weight given to performance fees.
• Lockup Term: This is the length of time that investors’ money has to remain in the fund before it can be withdrawn, and it should match your strategy (e.g., longer for an activist fund that acquires large stakes in companies, but shorter for a global macro fund with high liquidity).
• Redemption Terms: How much notice do investors need to give when they want to take their money out?
• Performance Targets: Are you trying to outperform a particular index? Is there a rate of return you have to beat before collecting performance fees? Is it based on the fund’s “high water mark” NAV instead?

You may have to register as an investment adviser and complete a literal ton of other paperwork and licensing, depending on where you set up.

Altogether, you can expect to spend tens of thousands of dollars , up to the hundreds of thousands , just for the legal fees.

Beyond lawyers, you’ll need auditors to monitor your performance, administrators to handle trade reconciliations and allocations, marketers to find more investors, prime brokers to manage the brokers and dealers you trade through, and compliance staff to manage reporting requirements.

IT costs vary based on your fund type – expect higher costs for quant funds and ones using algorithmic trading, and lower costs for fundamental-oriented ones.

The bottom line is that because of all these expenses, you will not earn much for the first few years of your fund.

Until your AUM grows enough for management fees to cover overhead with some breathing room, you will be in “frugality mode.”

Supplemental income sources and high savings are highly recommended because it could take years to reach the AUM required for long-term success.

How to Start a Hedge Fund, Part 3: Hiring a Team

So, let’s say you’ve made it through everything above, you’ve set up your fund, and you have around $100 million in AUM.

Now you need to think about your team because even with external service providers, you can’t do everything by yourself.

We label this “Part 3,” but you’ll have to build your team from the start because you’ll get questions about it in your pitches.

And you don’t even have a great shot of starting a fund unless you have an existing team that has worked together for years.

First, note that $100 million in AUM is barely enough to support a “team”: you might earn $1.0 – $1.5 million in management fees from that, and infrastructure, overhead, and compliance expenses will eat up a good portion of those fees.

You might have a few investment professionals at that level, a few support staff, and many outsourced service providers.

Once you move closer to $1 billion in AUM, you might hire several more investment professionals, a few more support staff, and even more outsourced services.

Quant funds have more IT needs and tend to have bigger teams, but many value-oriented funds start with just the Founder, one person on the investing side, and someone else in support.

If you only have the funds to hire one person, make it someone on the administrative/operational/marketing side .

That may sound crazy, but you will spend an unbelievable amount of time on non-investment-related tasks, such as talking to lawyers and accountants, reviewing legal documents, and answering questions from potential investors.

Without someone else to handle these tasks, you might spend 50% or more of your time on them, which limits your ability to create and implement investment strategies.

But let’s say that you have grown your AUM, and now you can afford to hire more full-timers and interns.

You might be tempted to read our hedge fund recruiting article and then ask candidates to complete case studies, stock pitches , or other modeling/technical tests…

…but at a startup hedge fund, that’s the wrong approach.

Yes, investment staff need to understand all of that, but the most important quality is that they MUST be willing to get any task done no matter how random or ridiculous it is.

Having a degree from Harvard or Oxford or 3 years of experience at Goldman Sachs are extremely poor indicators of this quality – in fact, they’re often negative indicators!

Your best bet is to tap your network and reach out to co-workers from previous jobs, and if you need to go beyond that, start asking those co-workers for referrals.

As your fund grows beyond the “startup” phase, the hiring process will become more traditional, with decisions based more heavily on discussions of investment ideas.

As your AUM grows, your headcount won’t necessarily grow linearly with it, especially if you’re running a quant fund; there are multi-billion-dollar funds with only a few investment staff.

Your headcount is more likely to scale up linearly if you’re running a value-oriented fund that requires more people for research and due diligence.

As you grow, the non-investment headcount might increase more rapidly because your compliance and reporting requirements will increase – but you won’t necessarily need to come up with more investment ideas.

Many large hedge funds have a 1:1 ratio of investment personnel to non-investment personnel, and sometimes it’s closer to 1:2.

How to Start a Hedge Fund, Part 4: Surviving the Job and a Day in the Life

Despite all these obstacles, you’ve managed to raise capital for your fund, hire a small team, and start investing.

Your average day will be quite chaotic because you will be doing much more than investing – you will be managing an entire business.

Here’s what you might expect if you start a small value-oriented fund:

6 AM – 7 AM: Wake up, get ready, check email, and head into the office while reading the news or listening to a podcast.

7 AM – 9:30 AM: Arrive at the office, read news about your current positions, and call your prime broker to sell one of your positions that’s vulnerable to a big overnight move in the GBP/EUR exchange rate.

Then, you meet the team, listen to everyone pitch new ideas, and decide to look at some declining companies with underfunded pensions as potential Short candidates.

9:30 AM – 11 AM: U.S. markets open, things are stable, and you spend a few hours reading through a merger agreement for a newly announced M&A deal involving one of your Longs.

11 AM – 12 PM: A trader stops in to tell you that one of your companies has been penalized by the EPA and is awaiting news of the exact fine. You scramble to figure out how bad it might be, but the company has more than enough cash to pay the highest possible fine.

12 PM – 1 PM: Go back to reading the merger agreement while eating at your desk.

1 PM – 2 PM: Do a call with a potential investor and answer questions about your fund’s strategy, risk management, and ability to take in new money.

2 PM – 4 PM: The stock of the company penalized by the EPA is down 15%, and now it’s also under investigation by the Department of Justice .

You pull the team together to start looking through old EPA cases to get a sense of expected vs. actual fines, and the stock falls another 5% while you’re doing this.

But you decide the market has overreacted, and you decide to buy more shares.

4 PM – 7 PM: U.S. markets close, so you round up everyone and go over research and work tasks for the day and decide which names you’ll focus on for tomorrow.

Then, you go back to your desk and do some uninterrupted research for two hours, focusing on SEC filings, court documents, and bankruptcy proceedings for a potential distressed idea.

7 PM – 9 PM: Go to a dinner party for new funds, hosted by a hedge fund service provider.

Everyone seems to be doing poorly this quarter, and you wonder what percentage of funds will die within the next 2-3 years (50%? 75%?).

9 PM – 11 PM: Go home, pay the bills for service providers, update the books, and start outlining your quarterly investor letter.

You take 5 minutes to respond to non-work emails from friends and then go to sleep.

You may not be working the hours of an investment banking analyst , but you are still going to have a bad-to-non-existent personal life when your fund is brand new.

The biggest difference is that there’s almost no “downtime,” and you are 100% responsible for everything that happens.

It is incredibly common for hedge fund managers to develop chronic illnesses, including autoimmune and stress-related disorders.

You deal with the stress from making investment and hiring decisions, the market moving against you, investors being upset with you, and keeping the lights.

Also, the job can become more stressful the more senior you are because you’ll gain even more responsibilities outside of investing.

The bottom line is that you must get your personal life in order before starting a hedge fund.

Significant outside commitments, dysfunctional relationships, a pending divorce, sick parents, or a brother who always needs to be bailed out of jail will make you go insane.

How to Start a Hedge Fund, Part 5: Exit Opportunities If It Doesn’t Work Out

So, you’ve raised capital, started your fund, hired a team, and had a few good years without having a heart attack…

…but then investors sour on your strategy, or you have one bad year, or you have a major disagreement with your Partners, and now you have to shut down or leave the fund.

This outcome is very likely because around 80% of all new hedge funds fail – not necessarily in the first year, but within the first few years before they can raise enough AUM to survive.

If this happens, your options depend on why it failed .

For example, was it because of bad performance (i.e., you consistently underperformed the S&P by 5% per year?), or was it because of business reasons such as a disagreement with your Partners or not being able to raise enough capital?

If you failed because of bad performance, you’re unlikely to get a second chance .

The culture of investment funds is 100% different from the Silicon Valley tech culture, where VCs can look past multiple failures and still fund your company if they think it has even a small chance of succeeding .

In the investment industry, you only have one shot at establishing a track record that’s 100% yours and proving that you can run a fund successfully.

If your startup fund doesn’t perform well, you’ll most likely leave the finance industry and do something else: go back to school, get into technology or join a fin-tech startup, start or buy a traditional small business, or go into teaching or a completely different career.

This is why it’s a bad idea to start a hedge fund when you’re very young: if something goes wrong, you’ve eliminated one career option.

If you had decent-to-good results, but your fund failed because of the “business side,” a viable strategy in the past might have been to join another, larger fund using a similar strategy.

For example, a small single-manager fund could have rolled up into a larger, multi-manager fund .

But I use the past tense here because this strategy is increasingly difficult due to the oversupply of failed hedge funds in the market.

It’s still possible, but it’s no longer quite as easy as interviewing at a few larger funds or joining a mutual fund – especially with the rise of passive and automated investing.

Hedge funds and mutual funds everywhere are suffering from fee compression, so hiring new employees with failed hedge funds on their track records is not a top priority.

As a result, your exit opportunities might not be that much different than if your fund failed due to poor returns.

Should You Ever Want to Start a Hedge Fund?

If you have a spectacular team, a great, repeatable, scalable strategy, and you understand exactly what a startup hedge fund entails, sure, go ahead.

However, if you’re a smart, ambitious person who’s willing to put in long hours, there are dozens of easier ways to become financially successful:

• It’s never been easier to start an online business – and even if your team is all remote, you can still achieve significant scale (e.g., Automattic ). You can potentially even reach the millions or tens of millions in revenue without raising outside capital.
• You could invest your own funds in a personal account or take the “family office” approach and not make it a true hedge fund with outside investors.
• You could invest in real estate and rent out properties long-term or flip them for quick profits.
• You could launch your own freelance consulting or coaching services and eventually turn them into products or subscription services.
• You could join a promising startup as an early employee and cash out if the startup gets acquired or goes public.
• Or you could take the tried-and-true route of joining an established bank, PE firm, or hedge fund, and rising through the ranks from Hedge Fund Analyst to Portfolio Manager .

None of these offers guaranteed success, but the probability of success is much higher than it is in starting a hedge fund.

The downsides of starting a hedge fund are so massive that they outweigh the potential upside in ~95% of cases:

• It’s extremely difficult to raise enough capital to scale and become institutional quality.
• Management and performance fees are falling.
• You are not just investing, but also running a business – and you may not even get that much time to invest.
• Most non-quant strategies have been out of favor.
• If you fail, unlike with tech startups, there are no second chances.
• Starting the fund will place an unbelievable amount of stress on your body and personal life.
• Oh, and since you must commit a significant portion of your net worth, you could lose not just time and health, but also money.

In light of these points, you really have to ask yourself if it’s worth it.

My answer is a clear “no” – but if you feel like torturing yourself, enjoy the ride!

If you liked this article, you might be interested in:

• How to Get a Job at a Hedge Fund: Hedge Fund Recruiting
• Hedge Fund Strategies: What’s the Fastest Path to $1 Billion? or Commodity Hedge Funds: The Most Lucrative “Hidden Gem” in Finance?
• The Hedge Fund Portfolio Manager Job: A Day in the Life, Salaries, and Trade-Offs .
• From Investment Banking to Freelance Financial Modeling: The Undiscovered Exit Opportunity

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

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41 thoughts on “ How to Start a Hedge Fund – and Why You Probably Shouldn’t ”

I’ve run my own fund for nearly 3 years now, and it has been very rewarding. Obviously, everyone has their own experience, but IMO this article is *way* too negative on the subject, though I realize it was written a few years ago. Many investors are now attracted to smaller startup funds that have a strategic edge and good risk management principles, so success can come without raising millions and millions of $$$. That is exactly what has helped me grow. Also, the draw on personal time has not been substantial at all vs what it would be working at a larger institution. I can largely make my own work schedule.

It is definitely not for everyone, but for anyone reading this article, don’t be overly deterred by what’s written here. Do your research. It could turn out to be a good option for you just as easily as not.

Thanks for adding that. This article is meant to dissuade people who think they can start their own hedge fund because they did well managing their $100K personal accounts or got a 400% return during covid or something like that.

If you actually have real experience working at a larger fund, a real track record based on a large capital base, and institutional connections, sure, starting a hedge fund can work out well for you.

That said, even if you perform well, it’s still quite different from simply working at a large fund because you’re also managing a business and all the people/responsibilities that come with it. I’ve never heard someone say that starting their own fund was comparable to staying at a larger fund in terms of stress/hours. But sure, each situation is different, so maybe this has been true for you.

This was a good article. Really talked some sense into me. However, it’s a shame there are capital and educational barriers to entering the hedge fund space when there are probably plenty of individuals who consistently beat the SPY by a long shot with their meager capital. Dan Zanger is a good example – he parlayed 10k into 18M in a year and previously built pools for a living. He is an anomaly I will admit. It surprises me somewhat that investors expect to gain insight into your high-performing trading strategy as a condition for investing in your fund, while most algorithmic trading firms are extremely protective of that information and have even come after ex-employees for sharing knowledge with their next employer. Anyway, good food for thought.

Yes, well, the point is that there is a massive difference in strategies based on your capital. A strategy that works for trading $10K will not work at the institutional level when trading $100 million or more. Something like turning $10K into $18M is amazing for an individual, but most LPs would question the result or at least question whether it can be replicated at a greater scale. Quant funds do have to disclose something about their strategies if they have outside investors.

Successful businessman, and also a successful trader at the personal level(100%+ returns every year-I know unimpressive compared to others). Yup, everything you stated rings 100% true. Yup, I think I will stick to what I am already doing(all my trades and research are done on a smart phone from anywhere), the starting a hedge fund idea sounds like a bad one. Your alternative suggestions are good ones.

I know a person who traded his own personal account and did almost 40% a year for 14 years, turning it into a little less than $100M own money.

Will this person be taken seriously if he starts a hedge fund, if he even wants to?

It depends on how big a fund he wants to start and which strategies he wants to use. If he plans to keep it in a similar size range and use the same strategies, sure. If he wants to raise $1 billion or $10 billion to start the fund, that would be a lot more difficult because he has no track record in that AUM range, and trading a personal account, even up to $100 million, is still very different from a multi-billion-dollar account.

With your permission, I have a question to ask, which is not exactly related to your topic. I recently met a hedge fund manager (family and friends partnership) who happened to live in my neighborhood. I’m retired as a prior Federal employee with an active TSP account. He claimed that his HF return was 18% since its inception in 2019. I’m a bit interested of becoming a partner with a $10K investment to put in. What good questions should I ask before deciding to invest?

The answer to this question is “Do not invest in hedge funds unless you are an experienced, high-net-worth investor who is comfortable potentially losing everything you put in.” If that is not you, put the money in an index fund instead.

I have managed 3 hedge funds, 2 for companies and one which I started on my own. The last one was in 2010, and I can say that everything you write is completely true. I would add one more huge hurdle in actually running the fund and trying to raise AUM, and that is investor meetings. As a small HF, you have no choice, the “potential” investors will want to meet with you. 99 out of 100 of these meetings will be a total waste of time. They are either on fishing expeditions trying to find out about positions, or just filling up a time slot to show their boss at some large institution that they are doing something. If you are in your 40’s, get ready for a lot of 20 and 30 somethings to judge your abilities as a manager! One year I had over 300 investor meetings and most all were a waste of time, and we were already over $100mm. And for anyone who thinks running $100mm is enough, think again! You will get nothing. Rent, fees, salaries, audits, legal, etc….. will run well in excess of your management fees on a yearly basis. And here’s the kicker, the investors obviously know this too, so they just watch and wait and waste your time to see if you can actually make it to $500 or $1B or fold up shop because you need to keep funding your expenses from your own pocket. Unless you have connections with a company or other entity that wants to stump a big sum as seed money, don’t even try to start your own fund. Waste of time and energy.

Thanks for adding that. Yeah, kind of sounds like the wastes of time that most VC meetings are for startups…

And I was rude – I should have started saying – thanks Brian for an excellent kick in the reality mirror. …;-)

You touched on the “family office” reason in the very end. If this is a totally closed fund (family members only) looking mostly to trade with tax advantages we’re loosing from the new IRA tax rules that may go into effect next year if legislation passes, do you still think this is a bad path? is there a better vehicle to trade tax free before gain withdraws? is the administrative/compliance overhead still prohibitive in this scenario? (think 20-30M sized family fund…)

I don’t know, it still seems like a lot of effort just to reduce your tax burden, and you’re assuming that the rules around carried interest won’t change. And who knows if any of that will pass. I am not a tax lawyer or specialist so cannot comment on tax-free trading strategies for large accounts here, but there are probably better options than starting a hedge fund.

Brian. I am unable register to the breaking into investment banking. Also could you share a general email I could use to ask question thanks

You can contact [email protected]

Hey Brian, really great article. You seem pretty knowledgeable and realistic so Im hoping you can answer my question. Do individuals who are starting a hedge fund need a corporate brokerage account? Or is it legal to run one from a private account?

If you want to start an actual, legitimate, professional hedge fund, you will need a corporate account. But that is the least of the challenges compared with the investing track record, team, fundraising, etc.

It seems like the days of starting a new and successful hedge fund are pretty much over

You can still do it, but it is certainly more difficult than it was in 1990 or 2000 or 2010.

Thanks, Brian. I have a rather philosophical question – if someone is confident about his/her fund management capabilities (assuming it’s healthy enough with high chance for positive gains) why would he/she need to start a fund? Starting a fund means you want to make money out of sharing (“passing”?) the risk with investors (actually you take on lower risk since you make money for sure).

If someone is really capable, even given that nothing in the world is 100% guaranteed, wouldn’t it be better to scale by debt? I’m sure the next question is about how much the leverage can be with debt, but it’s the same question as how well you can pitch to the investors or your reputation.

In short, I’m just trying to be blunt that perhaps hedge fund managers are just bogeymen. (except jim simmons). Really like to hear strong views on why I miss the point.

Well, you don’t “need” to start a fund if you have capital and just want to invest it. The main advantage of starting a fund is that you get a lot more capital to deploy, which makes a big difference for certain strategies.

Using leverage is not necessarily the answer to getting more capital because leverage amplifies returns in both directions. If you have a bad year, you will lose a lot of money, and it may be difficult to borrow again. Whereas if your own fund is down for the year, it’s not necessarily the end of the world.

Thanks, Brian. Very insightful article from the ground.

this was real informative and put across clearly for me. glad that you decided to share your insights from your personal industry experience. :)

Hi Brian, thank you for this great article and for clarifying things up. I appreciate it very much. These days I read a lot about hedge funds dying and how hard it is to start a new one due to all the problems you have explained above. A question arises though what is the next big thing for investment management? Is it private equity considering its growth and funds inflow? Or is there some other form of managing other’s people money that is on the rise? What I’m trying to ask is, for an ambitious future investor who wants to manage other people’s money, what investment structure has the most potential in the next decade, what are the trends?

Thank you for all the great information you provide on this siti, have been following your site for some time now and learnt a lot.

Most people right now seem to think it’s private equity, but I don’t really know. PE has been helped by very low interest rates and rising debt levels, but those are unlikely to last forever, especially if inflation picks up or there’s more political instability, populism, etc.

I would place an outside bet on crypto or something crypto-related eventually disrupting existing investment management practices, but that could take a very long time to develop.

Thanks for your detailed article. I have a question which isn’t related to starting a hedge fund but started a firm that would verify the NAV of the hedge funds. This is usually done by fund administrators but someone usually has to verify that. Usually this would be a second administrator or an independent person. For smaller start up hedge funds, do you think there’s demand for this low cost verification approach or do funds rather go to bigger firms for this particular service?

I don’t know enough about that service to say with any certainty, but sure, it sounds like there could be demand for it. But it might be difficult to figure out who the end customer is and what they want. It’s the standard problem in any B2B company where the users and buyers are often different.

Have known a few people who have worked at a successful hedge fund for 5 to 10 years and started out on their own by raising $20-$50MM initially.

Once they had a well developed process, they were able to communicate to investors their strategies and investment thesis’ going forward.

The key is to try to raise locked-up capital, private equity style vehicles so you do not have to worry about redemptions. Set up the fund so it is structured with a hurdle rate before the GP ever gets paid. You want to pay your investors first before you ever receive a dime. That is the right way to do it these days.

Hello! Thanks for the article! Really is a great and insightful article. For me though, unlike you, after reading this article it has made me more driven o start and run a hedge fund more than before. I was wondering though if you had any advice on the “before the hedge fund years” i.e. college years. Is getting a degree necessary? Including to not only start a fund down the road but to get my foot in the door someplace to build connections and experience at existing funds. Thanks again for the awesome article!

You should start by winning internships that are related to hedge funds in university. Yes, you need a degree or you don’t have much of a chance of getting into anything in high finance. Start here:

https://mergersandinquisitions.com/how-to-get-a-job-at-a-hedge-fund/

Thanks for the reply! Appretiate it greatly!

How would you recommend going about starting an online business? Would it be something like selling on amazon, dropshipping or something different? I currently work in IB and am constrained time-wise in starting a side venture.

To have long-term success, you’ll need your own product or service, even if it’s something simple, because you don’t want to be at the mercy of some 3rd party over commissions, supplies, terms/conditions, etc.

But to start with, I recommend something easier and less time-consuming, such as coaching/freelancing, drop-shipping, or affiliate marketing (promoting other peoples’ products and earning a commission).

Take a look at Ramit Sethi, Pat Flynn, Yaro Starak, etc. for various free tutorials and paid courses/coaching on these topics. Not sure about drop-shipping resources, as these people mostly focus on digital products and services.

Thanks for the reply. I already do some affiliate marketing (driving paid traffic to landing pages for lead gen offers), though it has been difficult to scale given high CPCs and time spent on crafting banners/landers (also hard to float $10k+ on personal credit cards for ad spend). Physical products would definitely see better economies of scale – but I’m not sure where to source products.

Yes, it’s difficult to scale affiliate marketing, and even if you do, it may not be sustainable (I played around with it a bit in my early days 10-12 years ago, but stopped when I realized the downsides). But it’s still useful for learning the basics of online marketing. I know almost nothing about physical products, but I’ve seen friends have success with high-priced specialty/luxury items like jewelry.

This was a great piece of advice. “If you have to ask for the price, it’s not for you”, could be reiterated into “If you have to ask how to do it, you shouldn’t”. The people who actually have a chance of starting a proper hedgefund do not have to ask how to do it as they already have the knowledge and resources available to get it done.

I agree with you, but there’s still a lot of content on sites like Investopedia that makes it seem like anyone can start a hedge fund just by registering for an LLC. Part of the mission of this site is to cut through the junk and give people a sense of whether or not certain certain career goals are realistic, which means explaining why other sources are wrong or misleading.

I want to start hedge/ mutual fund. I have novel investment idea that makes 35% in up , down, flat markets. My book is forthcoming. I expect people to commit millions at least to my management. I do not want any help in management but need everything else. I manage many millions of my own money but want to add much more. I want to do everything legally. I am not a bernie madly or ponzi. ken fisher has 225 Billion under management. his 10 year record is 8.5 %. Why should not they all switch

I’m not sure I understand your question. If your investment strategy is that good, though, I don’t know why you’d write a book about it. Go raise capital and make even more rather than sharing your secrets.

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A hedge fund business plan : investment theory, operations, and capital raising for Broadgates Capital Management

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Other contributors, terms of use, description, date issued, collections.

Hedge Fund Business Plan

A hedge fund business plan is a different from writing a typical business plan, mostly due to the fact the hedge fund business model is different from a typical business..

When you create a hedge fund, you are actually creating two businesses: the management company and the fund itself. There are different styles of writing a hedge fund business plan but it should include the following four components: vision, company overview, product strategy, and market analysis.

• How many funds will the management company manage?
• Are there any plans to develop new products for investor?
• How will non-investment-related services be handled? Will they be outsourced?
• What are the factors that will contribute to the success of the business? For example, how dependent is the business on marketing vs. performance?
• Description of how each fund will be managed.
• Description of the different strategies used for each fund.
• What are the investment philosophies and strategies and how will this affect each fund?
• Discussion of expected leverage, turnover rate, characteristics.
• What are the benchmarks for each fund?

Company Overview

• Description of how the management company and fund are structured.
• A list of owners and how profits will be allocated.
• Detail the payments and expenses.
• How are the managers managed?
• What are the strategic alliances that the companies might have, if any?
• How will the management company be staffed?
• Where are the funds domiciled?
• Description of investment process for each fund and how this will impact results.
• Discussion of fee structure(s) and incentives.

Product Strategy

• Describe the products that the management company sells. In most cases, these products are investment management services.
• Describe in detail the investment strategy and philosophy for each fund.
• Discuss sources of risk and returns.
• What analytical tools are used?
• How will investment decisions be made? Who makes them?
• Discuss past fund performance or hypothetical fund performance if these strategies are implemented.

Market Analysis

• Discuss the demand for the services provided by the hedge fund.
• Analyze relevant sector growth and trend.
• Discuss the potential size of the fund.
• Discuss market factors that would impact the fund.
• Discuss the recent experience of investors in the relevant sector.

The Business Plan

Preparing a business plan, whether it’s for a start-up or an existing business, is one of the most important tools used in business management. We have over 27 years of experience in creating business plans for a variety of purposes from starting a business to seeking funding.

Using the Business Plan

A business plan is a tool with three basic purposes: communication, management, and planning. As a communication tool, it is used to attract investment capital, secure loans, convince workers to come on board, and assist in attracting strategic business partners.

The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows you to show that you have worked out all the problems and decided on potential alternatives before actually launching your business.

As a management tool, the business plan helps you track, monitor, and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments.

As a planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. Many business owners share their business plans with their employees to foster a broader understanding of where the business is going.

Business Plan Basics

A solid business plan precisely defines your business, identifies your goals, and serves as your company’s resume. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. It provides specific and organized information about your company and how you will repay borrowed money which is a crucial part of any loan application.

Every successful business plan should include some discussion about each of the following areas, since these are what make up the essentials of a good business plan:

› Executive summary › Market analysis › Company description › Organization & management › Marketing & sales management › Service or product line › Funding request › Financials › Appendix

A business plan should be a work-in-progress. Even successful, growing businesses should maintain a current business plan.

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Business Structure Options For a Hedge Fund

To run a successful business, especially when starting a hedge fund business , a company needs to establish the right legal entity. In the hedge fund business, as in most other businesses, there are four basic business structures from which to choose — LLC, a C Corp, and an S Corp.

Each structure has its advantages and disadvantages that need to be considered before choosing one for your hedge fund.

Pros and Cons of a Sole Proprietorship

A sole proprietorship is a type of business that has no distinctions between the owner and the company itself. In other words, you are the sole owner, and all profits from this structure flow directly to you as an individual. This also means that you will be responsible for all of the debts and liabilities that may arise from your business.

Advantages of Sole Proprietorships:

• A sole proprietor is taxed as a regular taxpayer along with any other income they make from their hedge fund (you don’t need to pay corporate taxes).
• With this business structure, the owner is self-employed, so you don’t have to worry about formation or paperwork. This can be beneficial at the start of a business when there’s little need for funding. There are also no requirements for filing annual reports or paying fees to the state, which saves time and money during the initial stages of a business.

Disadvantages of Sole Proprietorships:

• Liability is the biggest issue associated with a sole proprietorship. The owner of this business structure is personally liable for any debt or legal consequences incurred by the company.
• Securing business loans can be difficult because there’s no collateral or separation between the business owner’s personal assets separate from those of the business.
• The lack of an established record-keeping system and the absence of a legal distinction between the business and its owner can make it challenging for a sole proprietorship to expand.

This is a great option for small start-ups because it doesn’t require much paperwork. But, there are risks with this option as if someone sues your business and wins, you will most likely have to pay for it personally. 

Pros and Cons of an LLC (Limited Liability Company)

This is a business structure that provides limited liability to its owners and requires the filing of an LLC application with the state. You can even have a single-member LLC. The business owner or owners of LLCs are not held personally liable for the business debt and the business has a legal distinction from its owners.

Advantages of Forming an LLC:

• LLC owners do not have to pay taxes on their company’s losses and can choose how they want to be taxed, whether it’s as a sole proprietorship or partnership. 
• LLC owners have access to a wider pool of resources and financing opportunities because the business is registered with the state. This type of legal entity also makes the company’s growth and expansion easier.

Disadvantages of Forming an LLC:

• It is necessary for hedge fund business owners to regularly file documents with the state to maintain their LLC status.
• LLCs can grow more complicated and expensive to maintain over time due to other fees that are required by the state.
• As your company grows, it may need more legal counseling which can become costly.

In most cases, an LLC is a good business structure for a hedge fund company that is looking to expand and grow into a larger venture with more employees.

Pros and Cons of a C Corp (C Corporation)

A C corporation is a type of corporation that is taxed separately from its owners. This means that the business pays income taxes on its profits and the shareholders also pay taxes on their dividends, even if those profits were taxed at the corporate level.

Advantages of a C Corporation:

• Have the ability to raise money through selling stock, which can be helpful for some growing businesses.
• Offer the opportunity for tax deductions that are not available to other types of organizations. For example, a C corporation can deduct the cost of health insurance premiums for its employees.

This type of corporation is ideal for businesses that plan to have a large number of shareholders.

Hedge fund businesses that are looking to go public or partner with a larger company should consider a C corporation.

Disadvantages of a C Corporation:

• More expensive and complex to set up than other business structures.
• Subject to “double taxation” on profits, which means the business and its shareholders are taxed on profits twice.
• Subject to greater government regulation than other business structures.

In general, a C corporation is a good fit for hedge fund companies that want to raise money from outside sources and have a large number of shareholders.

Pros and Cons of an S Corp (S Corporation)

An S corporation is a type of C Corporation that was designed by the IRS to help small corporations minimize their paperwork while still gaining many of the tax benefits of incorporating.

Advantages of an S Corporation:

• S corporations can take advantage of the reduced liability benefits typically associated with a C corporation, while still enjoying the tax benefits of being a sole proprietorship or partnership.
• Allow for pass-through taxation, which means there is no need to pay corporate taxes on company profits. The so-called “double taxation” issue of a regular corporation is solved with an S corporation because profits and losses are passed directly to the shareholders.
• Hedge fund business owners can reduce their risk of liabilities by limiting their personal financial responsibility for company debt and litigation.

Disadvantages of an S Corporation:

• Stricter requirements for shareholders and minimum distributions, which means a smaller pool of potential investors.
• Limit of 100 shareholders. As a result, it can’t go public without first converting to a C corporation, and is somewhat limited in its ability to raise capital from investors (particularly individual investors, each of whom would be considered a shareholder). 

In general, an S corporation is a great fit for hedge fund companies. You avoid double taxation, can raise money from outside sources, and enjoy limited liability protection.

How To Choose the Right Structure for Your Hedge Fund Business

When it comes to choosing a structure for your hedge fund, the best option is often determined by how quickly and ambitiously you want to grow.

LLC and S corporations are better options for small businesses that hope to expand and grow into larger ventures with more employees. These structures help protect owners from personal liability issues while still allowing access to outside funding.

Sole proprietorships are good options for small hedge fund businesses because they are quick and easy to establish, however, they offer limited liability protection

Overall, entrepreneurs should choose their business structure based on the type of work they do and their growth plans.

How to Legally File an LLC or Corporation for Your Hedge Fund

If you have made the decision to form an LLC or corporation for your hedge fund, it is important to understand the legal process and requirements for doing so.

In order to form an LLC, you must file Articles of Organization with your state’s Secretary of State. This document will outline the business name and purpose of your LLC, as well as the names and addresses of its members.

In order to form a corporation, you must file Articles of Incorporation with your state’s Secretary of State. This document will outline the name and purpose of your corporation, as well as the names and addresses of its directors and officers.

Both the LLC and corporate filing processes typically require fees, which vary by state.

It is important to note that both LLCs and corporations are separate legal entities from their owners, meaning that owners are not personally liable for company debts or lawsuits.

If you need help filing an LLC or corporation for your hedge fund business, it is best to consult with a tax adviser or an attorney who specializes in business law.

Hedge Fund Business Entities FAQs

What is the best business structure for a hedge fund.

The best business structure for a hedge fund depends on the type of work they do and their growth plans. An LLC or corporation is a good option for small businesses that hope to expand and grow into larger ventures, while a sole proprietorship may be a good option for small businesses that don't expect to expand beyond a handful of employees.

Is a Sole Proprietorship or LLC Better for a Hedge Fund?

Being a sole proprietor means that you are self-employed and own your business outright, so you are held responsible for all its debts and liabilities. All business income is also taxed as income on your personal tax return, including self-employment taxes.

On the other hand, an LLC offers limited personal liability protection for its members, and all income from the LLC is typically taxed at a lower rate than personal income.

Is a Hedge Fund Business LLC or S Corp Better?

Both LLCs and S corporations are good options for hedge funds that want the limited liability protection of a corporation, with favorable tax treatment, and while still having access to outside funding. 

Does My Hedge Fund Business Need an EIN?

An EIN, or Employer Identification Number, is a unique nine-digit number that is assigned to businesses by the Internal Revenue Service (IRS). It is used to identify businesses for tax purposes.

A hedge fund does not need an EIN unless they have employees. In that case, the EIN would be used to file employment taxes. This applies to both LLCs and corporations. 

Do You Need a Business Bank Account as a Sole Proprietor?

A sole proprietor does not need to have a separate business bank account, as all business income and expenses are considered part of the owner's personal assets. However, it is a good idea to segregate business and personal assets to make tracking and bookkeeping easier.

An LLC or corporation must have its own bank account, and all income and expenses should be tracked and filed separately.

Start Your Hedge Fund

If you are starting a hedge fund, it is important to understand the different business structures and their benefits. An LLC or corporation can provide limited liability protection for owners and offers favorable tax treatment. It is important to consult with a tax adviser or an attorney who specializes in business law to determine which structure is best for your hedge fund.

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