Starting a hedge fund is one of the most lucrative ways for any entrepreneur to make money. And it is becoming an increasingly popular form of investment. The hedge fund market in the United States is worth $103.1 billion and it is only going to grow from there.
As long as you have some startup capital, setting up a hedge fund is relatively simple and anyone can do it. But there are plenty of ongoing challenges a successful hedge fund manager will need to contend with. You’ll have to grow your assets, hire staff, implement risk controls, and handle the day-to-day running of your business operations. But if you know what you are doing and work hard at it, you stand to make a huge amount of money.
Here are a few handy tips and tricks to get your hedge fund startup off the ground.
Identify your competitive advantage
There are around 15,000 hedge funds operating globally, collectively managing around $4.3 trillion in assets. If you want yours to succeed, you will need to work out what your competitive advantage is. What is your unique selling point that pits you above your competitors? Perhaps you have an information advantage, or unique expertise when it comes to marketing or resources. You might have valuable close relationships with high net worth investors or connections who might invest heavily in your hedge fund.
Define your strategy
Every business needs a strategy that outlines how it positions itself in the market, its long and short term goals, and how it aims to achieve them. This is incredibly important for a hedge fund startup, as you need to be able to explain to potential investors how you intend to make your business profitable. To come up with your strategy you need to be clear about what it is you want from your hedge fund. It’s a good idea to look to your competitors for market research.
Obtain your seed capital
You will need some initial capital to get your hedge fund off the ground. The exact amount you will need depends on a huge range of factors, including the structure of your business, the team size, and your investment partners. There are so many sources from which hedge fund managers acquire their seed capital, including high net worth investors, corporations, pension funds, endowments, and foundations.
Create your technology infrastructure
Technology is an integral part of any hedge fund, and it’s essential you define and establish your tech infrastructure before you begin. Your trading systems are the most important consideration. Are you going to build them in-house or will you purchase them from a vendor? Purchasing them can be the most convenient option that guarantees efficacy and quality, but building them in-house gives you more flexibility and discretion over your trading strategy.
It’s also worth considering additional technological solutions that can help you build your business and define your goals. For example, there are software packages that facilitate workflow management for hedge funds. These tools allow you to improve organizational efficiency, integrate third-party applications, and provide full transparency to regulators and clients.
Establish a sales and marketing plan
A robust sales and marketing strategy will enable you to grow your business, raise seed, capital, and make sales. This is essential for ensuring you promote your hedge fund and can gather the necessary assets to get it off the ground. Read this guide to create a sales and marketing plan for hedge fund managers.
Lawyer up
No hedge fund manager should be without a good legal team. The world of finance is full of regulations and it is easy to make mistakes and put your business under scrutiny. Legal counsel will enable you to avoid the most common pitfalls and ensure your hedge fund is operating above board at all times. A lawyer can also help you build relationships within the industry and grow your professional network. Having legal counsel sends a message to your investors and your competitors that you mean business, as you are investing in your future and plan to stick around for the long haul.
Be patient
It can take some time to get your hedge off the ground and start recouping your investments, but it pays to be patient. Start off slow, keep at it, and eventually all your hard work will pay off. Don’t be afraid to take calculated risks and learn from your mistakes. Eventually, success will come, and the profits will come flooding in. Good luck!