Starting your own Hedge Fund: The sexy new investment of the new millennium frequently and simultaneously lauded and derided 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 asset management and investment professionals, Hedge Fund Managers make their wealth through fees that are a percentage of the profits- hence, a manager cannot make money without making his clients even more!
Recently, the SEC has been contemplating changing the archaic definition of "Accredited Investor" (Q4 2020?) to keep up with the times!
Some Operational Details:
- How to Start a Hedge Fund
- How to Create a Hedge Fund
- How to Manage a Hedge Fund
- How to Manage for Profit
- Offering Memorandum - Details
- Partnership Agreement - Details
- Subscription Agreement - Details
- Minimums, Lock-Ins, Pricing
- Seed & Investment Capital
- Hedge Fund Strategies
- Trading & Brokerage
- Legal & Accounting
- Marketing & Operations
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. In 2006, the SEC initiated idea of voluntary registration, specifically of funds with assets over $25MM. The Obama Jobs act notwithstanding, no real effective 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 us.
So What Do You Need To Get Started?
- Decide on what you will do in the fund
(trade stocks, options, long-short, etc..)
- Read the HF-Setup Primer below
- Get an experienced Consultant
- Discuss Your fund's Detailed Setup
- After Setup, Start Subscriptions
This is intended as an informative guide for those learning about managing private placements.
Its purpose is for reference only and should not be construed as legal advice. Federal and State
regulatory laws may change or be amended. It is our concerted view that there is no substitute
for expert legal and consultative professionals.
Please do NOT copy, download or distribute!
- Goals of this HF (Manager) Primer
- Requirements & Suitability
- Business Plan (Checklists)
- Private Placement Setup [Details]
- General Information
- Rules and Regulations
- Hedge Fund Setup
- HF Consultant- SPAR Mgmt., LLC
SPAR Mgmt: a wholly owned subsidiary
- Marketing & the Online Access
- Contacts, other Q & A, and HELP!
- SPAR Mgmt [MAST Partners]
I. Goals of this 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, An experienced expert professional Hedge Fund Consultant ( Email) 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 via Email.
II. Requirements & Suitability
What you need
A Strategy to manage money to have enough of an upside in performance to generate profits. An experienced expert Hedge Fund Professional Consultant ( Email) 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:
- Base Capital, to start the setup process and sustain expenses
- Marketing skills and/or Clients, Investors, Partners, Friends & Family to get you started
- An experienced expert professional HF Consultant ( Email) to assist in the Setup, and perhaps also Administrative, Legal, Accounting and Operational processes
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, an experienced expert professional Hedge Fund Consultant ( Email) 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 the Financial Services arena, 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 Professional Consultant ( Email) 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.
III. 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." An experienced expert professional Hedge Fund Consultant ( Email) is essential in creating a complete business plan for your particular circumstances and requirements.
Some analysis is required to ascertain whether or not this endeavor is feasible. An experienced expert professional Hedge Fund Consultant (Email) should be able to assist you in determining feasibility.
A feasibility study should include the following:
- Original seed capital
- Your own assets to be included in the investment portfolio
- Family, Friends, Investors, Others as Partners with assets
- A Strategy to trade and invest for performance and return
- Contingency plan for at least 18 months
- Focus and commitment on your part
- Administrative expenses like legal, accounting, consulting, brokerage fees
- Operational and Logistics Costs
- Setup/Startup Costs including printing memorandums, business cards, etc.,
- Office expenses (petty cash)
Legal & Admin
Administrative issues can make things complicated. Professional Accounting, Audit, Office administration, Operations, and the assistance of an experienced expert professional Hedge Fund Consultant (Email) 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 Consultant ( Email) will know and be able to provide you with all the exact details of each of these issues.
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 experienced expert professional Hedge Fund Consultant ( Email) 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.
Method or plan to run daily operations. Here an experienced expert professional Hedge Fund Consultant ( Email) is invaluable, because of the experience of current and changing regulatory and market requirements.
Operational focus includes:
- Daily net asset value for portfolio
- Each partners' apportioned value
- Gains & losses
- Daily cash tracking methodology
- Trade & Positions- daily/quarterly etc.
- Monthly reporting of transactions & cash
- Independently audited trails
- System for billing and fees
- Accounting (K1) filing
- Reallocation of profits
- Trade history
- Website integration
- Partner updates & reporting
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. An experienced Hedge Fund Consultant ( Email) can assist in setting up a site with all the basic information necessary.
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.
The pilot launch requires some timing of coordinating subscriptions and contributions of partner investors and starting of trading. An experienced expert professional Hedge Fund Consultant ( Email) 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.
IV. Private Placement (Details)
- Private Placement Setup (details)
- General Information
- Rules and Regulations
- Hedge Fund Setup
V. SPAR Mgmt - Consultants
SPAR Capital's Management Consulting division can assist you in setting up a private placement or HF 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.
Depending on your specific requirements a variety of structural forms of partnerships are available. An experienced expert professional Hedge Fund Consultant ( Email) can help you in deciding which structure would be the most beneficial to you.
Reporting is one of the issues of most concern. An experienced expert professional Hedge Fund Consultant ( Email) 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 Mgmt.- an online interface. An experienced expert professional Hedge Fund Consultant ( Email) can set up for you a web site with some basic reporting as well as some marketing initiatives.
VI. Marketing & the Web
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.
VII. Contacts · Q&A · Help!
VIII. MAST Partners
Flagship fund 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. Detailed information is available at more About MAST Partners.