How to Start a Hedge Fund
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$ How to Start a Hedge Fund $ How to Create a Hedge Fund $ How to Manage a Hedge Fund $ How to Manage for Profit $ Confidential Offering Memorandum $ Partnership Agreement Details $ Subscription Agreement Details $ Minimums, Lock-In, Hurdle | Pricing $ Seed Capital & Investment Capital $ Hedge Fund Strategies $ Trading & Brokerage $ Legal & Accounting $ Marketing & Operations |
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WE HAVE IT ALL RIGHT HERE!
The sexy new investment of the new millennium frequently
touted by the financial news media seems to be the financially
mature, age-old Alternative Investment- the Hedge Fund!
Since its inception in 1949, it has always been an unregulated
domain exclusively for the wealthy. While there a few star
managers with impressive successes and earnings, it is
worthwhile to note that unlike Mutual Fund Managers or other
investment professionals, Hedge Fund Managers make the bulk of
their wealth through fees that are a percentage of the profits-
hence, a manager cannot make money without making his clients
even more!
A Hedge Fund is a pool of private capital used to leverage an
investment portfolio and is structured as a Limited Partnership.
The General Partner, though not required, generally should have
the sophisticated portfolio management practices of a seasoned
and disciplined trading professional. The Limited Partners
(capital contributors) are generally high net-worth individuals
and institutions, and function only as silent partners.
Since the General Partner's compensation is largely incentive-based depending upon performance, productivity & fund returns, it is necessary to have a winning strategy and eschew most of the losing emotional and day trading patterns. Most General Partners usually have their own money invested in the fund.
Hedge Funds are generally unencumbered by
regulatory (Securities Act of 1933, Investment Company Act of
1940, etc.) requirements but cannot advertise to the general
public. Hedge Funds managers are generally not required to hold any
particular license or pass any securities exams or tests, as it is
considered a private enterprise, and relies on certain SEC
guidelines for remaining exempt from regulation. As recently as
2006, the
SEC has been toying with the idea of a voluntary registration,
specifically of funds with assets over $25MM. Since early 2007, no
decision has yet been made, other than to leave this area
unaffected. Thus, track-record, marketing and disciplined strategies
are key ingredients in a successful campaign to manage and
operate a profitable Hedge Fund.
For specific information about how you can start and manage a Hedge Fund, we can assist you particularly: email .
So What Do You Need To Get Started?
0. Decide on what you will do in the fund
(trade stocks, options, currencies, real estate, long-short,
etc.)
1. Read this
Primer on Getting Started
2. Get an experienced, inexpensive
Consultant
3. Discuss
Setup of your Fund
4. Start receiving subscriptions
This is intended as an informative guide for new managers of Hedge Funds.
Please note its purpose is reference only and should not be construed as
legal advice. Federal and State regulatory laws may change or be
amended, so it is our concerted view that there is no substitute
for experienced and expert consultative services.
Please do NOT copy, download, reproduce or distribute!
CONTENTS:
Get STARTED - Important Setup Information!
More about Hedge Funds
Other FAQs
Overview Brochure
Contact MAST
Back to the Home Page
Goals of this Hedge Manager Primer
What you will learn
After going through this primer on managing Hedge Funds, you
should be able to create a checklist of the details you need as
well as the next steps to successfully starting a Hedge Fund.
You will learn about the regulatory requirements, capital
requirements and marketing and contact lists needed. Armed
with this information a Hedge Fund Consultant like
can assist you in setting up the fund and all functional and
operational details.
Q & A, and Suggestions
If you have any unanswered questions or comments and feedback,
after perusing this briefing, you may contact us, the General
Partners at MAST Partners at SPAR Capital, LLC, Investment
Consultants, by eMail at
.
Requirements & Suitability
What you need
A Strategy to manage money to have enough of an upside in
performance to generate profits. A
will be able to assist you with all the details- though it is
possible that a large part may be done by you with some degree
of success. So what you need is:
Capital, to start the
process and sustain expenses
Marketing skills and/or
Clients/Investors/Partners to get started
to assist in the Setup and perhaps
Administrative/Legal/Accounting/Operations
Fund Strategies &
Trading Experience
Though not necessary- it is tremendously useful, if you have
some trading experience and a solid strategy. This does
not include, managing your 401(K) or a strategy of
following-the-herd mentality. However, if you have some of
the other requirements, a decent
would be able to jumpstart the process for you. The
primary aim of most hedge funds is to reduce volatility and risk
while attempting to preserve capital and deliver positive
(absolute) returns under all market conditions.
Is this really for
you?
Suitability is an important factor. Unlike a job within
Financial Services, success here is entirely a matter of being
able to generate performance, irrespective of the market
conditions. This is where you need to be most honest about
whether or not the stress and pressure are suitable for you.
While a Hedge Fund
can help to a great degree, deciding if this is right for you,
is still up to you.
Pros vs. Cons: Self Appraisal
This primer has enough material, if reviewed comprehensively,
will allow a realistic self-appraisal of whether the pros
out-weigh the cons of starting, managing, sustaining and growing
a successful Hedge Fund.
Business Plan (Checklists)
While these checklists are VERY important, they should not be the only assessments used, nor should they be tackled in an academic fashion. What is important here is that each of these items represents something that should be thought about carefully. Equally important is the avoidance of "paralysis of analysis." A is essential in creating a complete business plan for you, based on your particular circumstances and requirements.
Feasibility
Some analysis is required to ascertain whether or not this
endeavor is feasible. A
should be able to assist you in determining feasibility. A
feasibility study should include the following:
Original seed capital
Your own assets to be
managed/invested
Some Investors/Partners
with assets
A Strategy to trade and
invest for performance
Contingency plan for at
least 18 months
Focus and commitment on
your part
Budget
A simple comprehensive budget to assist in planning and
executing the plan of action for starting a hedge fund.
Budget items should include:
Administrative expenses
like legal, accounting, consulting, brokerage fees
Operations costs
Setup/startup costs
including printing memorandums,
business cards, etc.,
Website
Reporting
Marketing
Office expenses.
Here a Hedge Fund
is very able to help, not just with a template but also a
critical evaluations and realistic expectations for a successful
result.
Legal & Admin
Administrative issues can make things complicated.
Professional Accounting, Audit, Office administration,
Operations, and
assistance is absolutely required. Legal services for
setting up you Offering, Partnership Agreement and Subscription
Agreement are essential to setting up a clean, Legal, private
placement. Your hedge fund
will know and be able to provide you with all the exact details
of each of these issues.
Trading Strategies
Volumes have been written about the multitude of diverse trading
strategies, each with its own pros and cons. It is more
important to have some system or strategy in place and a process
of execution, measurement, feedback and fine-tuning, than which
strategy yields the highest returns! Currently there are
more than ten distinct investment strategies used by hedge
funds, each offering different degrees of risk and return.
If necessary, your
may be able to help you decide which would be best for you.
Some of the more common strategies are:
Risk Arbitrage- Simultaneously buying stock in a company
whose assets are being acquired and selling stock in the company
or companies doing the acquiring.
Distressed- Investing in the equity or debt of companies
undergoing reorganization or bankruptcy in the hopes that those
securities will appreciate.
Diversified- Capital is invested in a variety of fund
types.
Niche- Capital is invested in a specific type of fund.
Regional- Focuses on opportunities in established
markets. Specifically U.S., Europe and Japan.
Emerging- Focuses on opportunities in less mature
emerging markets. Specifically Asia, Australia, China, Eastern
Europe, Hong Kong, India, Latin America, Middle East, Pakistan,
Pacific Rim, Russia and Singapore.
Opportunistic- Focuses on and hopes to realize profits
from significant global macroeconomic changes.
Leveraged- Traditional equity funds that are structured
as hedge funds, using a high ratio of bonds and preferred stock.
Long/Short- Net exposure to market risks is reduced by
having equal allocations on both the long and short sides of the
market.
Convertible- Long convertible security. Short underlying
equity. Profit comes from disparity in pricing of the two.
Industry- Focuses on companies within a particular
economic or industry sector. Specifically Health Care, Financial
Services, Food & Beverage, Media & Communications, Natural
Resources, Oil & Gas, Real Estate, Technology, Transportation,
Utilities, etc.
Short Seller- Based on finding overvalued companies,
selling borrowed stock in them hoping to buy them back at a
lower price.
Short-biased- Manager prefers the short side but also
takes long positions.
Operations
Method or plan to run daily operations. Here a hedge fund
is invaluable, because of their experience and because of
current regulatory and market knowledge. Operations
include:
Calculating the net asset
value of the fund
Apportioning of each of the
partners/investors
Gains & losses
A tracking method for cash
daily/monthly, etc.
Trade & Positions-
daily/quarterly etc.
Independently audited
trails
System for billing and fees
Accounting (K1) filing
Reallocation of profits
Trade history
Website integration
Updates.
While some of these are minor operational issues, some can be
major systems that may have well accounted for the failure
of a few funds even with successful trading strategies.
Web Initiative
A large number of the expense items may be reduced drastically
by using the web/internet for information dissemination,
reporting, etc. While not essential, a web strategy for
your new fund could prove to be a advantage if you have some
experience with internet related sites. Some of the newer hedge fund
,
including
can assist in setting up a site with all the basic information necessary.
Marketing
Marketing is a very delicate and risky issue, as the SEC forbids
direct advertising to the public for hedge funds. More
information is covered in the Private Placement details of
Advertising and Marketing.
Launch
The pilot launch requires some timing of coordinating
subscriptions and contributions of partner investors and
starting of trading. A Hedge Fund
will guide you through all the nuances and issues to reach this
stage. Part of the business plan's purpose is to reach
this stage with all other structures in place.
Private Placement (Details)
Go Directly to HF Setup Details!
SPAR - Investment Management Consultants
SPAR Capital can assist you in setting up your own Hedge Fund
in its entirety. From Feasibility to Launch SPAR will take
care of your individualized needs. SPAR has low overheads
and hence a very reasonable fee and cost structure, especially
when comparing against most Hedge Fund consultants. For
specific details, please contact us using our
Contact Form or via email at
.
Specific Details About Our Hedge Fund Setup Services
Partnership
setup
Depending on your specific requirements a variety of structural
forms of partnerships are available.
can help you in deciding which structure would be the most
beneficial to you.
Attorney,
Accountant relationships
can recommend reasonable, expertly qualified professionals for
each of your specific needs.
Consolidated Reporting
Reporting is one of the issues of most concern.
can assist in setting up your consolidated reporting structure,
including web reporting and annual audits.
Marketing & Web
Initiatives
One of the more recent developments is an area of particular
expertise of SPAR- the Internet.
can set up for you a web site with some basic reporting as well
as some marketing initiatives.
Marketing & the Web presence
Marketing is an important part of managing and operating a Hedge Fund. There are many SEC regulated issues about advertising, that are essential prior to any marketing campaign. While there are a few Hedge Fund information and Hedge Fund websites, a web presence is an essential component for any new Hedge Fund in this new millennium.
Links to some important sites
See out Links page for Hedge Fund and Other Links or see our specific HF Setup information.
Contacts, other Q & A, and HELP!
If you have suggestions or questions you may use our Contact Form or see our specific HF Setup Services.
MAST Partners
MAST Partners has lowered the entry point significantly for setting-up Hedge Funds. Web-based Reporting, trading, and Research can significantly reduce the general overhead of running a Hedge Fund, thereby putting more of the partnership's money to work for the Partners/Subscribers. Please see our H/F Setup Overview.