Do you want to be a hedge fund manager? After working as a successful trader or analyst with a fund manager or broker for several years, you want to start a hedge fund yourself, so how do you start? First of all, to create a hedge fund, you need to have goals, skills and patience to find your own employees and corresponding service providers to support your investment strategy. These service providers include professional law firms in fund information and continuous legal support. The next step is to choose a major broker who can provide excellent trading technology, global trading products, custody services, trading reports, operational support, capital introduction, soft dollars and low fees. Finally, you need a fund manager to manage fund investors, provide supplementary reports and calculate the net asset value of the fund every month. Usually the last service provider hired is an audit company, which is usually needed at the end of the operation.
Legal aspect
After completing the research on finding legal representatives, you need to make a decision to hire a law firm. For most new managers, the first meeting is to start preparing your consultation on investment products and company documents. As a new hedge fund manager, you need to be fully prepared to answer questions about your fund structure, such as single fund or major fund, onshore or offshore investment, investment strategy types and products traded, fee structure, resumes of major managers and so on. Because the sales documents need to be revised repeatedly, the company registration documents need to be submitted, which takes about 4 weeks. The initial cost of fund information documents may be higher, but in the long run, the money is worth spending because it is the main document submitted to potential investors and service providers.
Principal broker
Choosing the right prime broker is an important issue that the new hedge fund manager must consider. You must conduct due diligence to ensure that the products, services, infrastructure and support provided by your main broker will be suitable for your strategy; Will be able to provide any service you need for success. As a new manager, your primary task is to improve the performance of the fund and raise funds for the fund, instead of spending time on daily operations. Remember, you are a new fund manager, and it is necessary to keep the lowest cost in the early stage of your fund.
When evaluating a primary broker, you must be clear about the demand, cost structure, operational capacity, continuous support, etc. Is there a minimum monthly fee or AUM requirement? If yes, what are the requirements? Secondly, if applicable, it should discuss the trading products offered and the global operation ability of brokers. Some major brokers do not support all asset types. If your investment strategy doesn't match the products provided by the primary broker, you need to continue to look for another primary broker.
Because trading ability is an important factor to consider, you need to have a detailed argument in this regard. Discuss your needs and available options, such as electronic trading, order desk or whether to provide transactions for institutional customers. Understand the commission structure of your primary broker's self-transaction and "entrusted transaction", and record and disclose the miscellaneous fees. Before deciding to establish a relationship with your primary broker, you need to deeply analyze the trading platform, guarantee ability, margin and risk requirements and continuous support provided by your primary broker.
Some leading brokerage firms provide capital introduction projects for hedge fund clients. Some new managers may succeed in obtaining capital, while others may not. Remember, establishing a good investment performance record in the first year is the key to obtaining investor capital, which is your focus. At the same time, it is always a good strategy to seek initial investment capital from family and friends at the beginning of your fund.
fund management
The role of the fund manager is to assist the new manager to serve his investors, and handle the calculation of monthly net asset value and performance expenses like the outsourcing department. When evaluating fund managers, you should consider their technical ability, sense of responsibility, reporting ability and experience in handling your specific investment strategy. When interviewing managers, it is very important to understand their requirements and their ability to implement your strategy. Is there a minimum monthly requirement for using their services? If so, when your AUM (total assets under management) increases, do these minimum requirements also increase? What types of reports can be provided and what is the overall capacity? These are the questions you need to ask to ensure that your cost structure and services are better managed in the initial stage of the fund.
accounting
Accounting and auditing play an important role in providing audit services for your fund and preparing K- 1 for fund partners. Auditing also plays an important role in checking your financial reports and your investors' capital accounts. Their inspection will ensure the accuracy of accounting control and follow the operation and transaction procedures.
Other service providers
For most new hedge fund managers, it is enough for the newly established core team of hedge funds to include lawyers, prime brokers, fund managers and accounting auditors. Prime brokers and custodians can provide many infrastructure services needed by new fund managers. However, after a certain period of time, with the increase of fund assets and investors, your fund itself will need more services. It may include further development of technical infrastructure, trading capacity, office expansion, liability insurance, medical care and retirement plan, etc.
There are enough companies to help hedge funds implement expansion plans, but when you start a new hedge fund as a new manager, you should pay attention to the following three specific goals: 1) Seek experienced employees and the best service providers; 2) Establish and consolidate the performance record with good performance; 3) Work hard, work hard, and then try to recruit new investors for your hedge fund.
This article has been translated into Chinese. If there is any inconsistency between the English version and the Chinese version, the English version shall prevail.
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