Today we will learn how to start a hedge fund in a manner easier than you might have imagined. But first, let’s see a brief definition of this concept. A hedge fund refers to an offshore investment fund. Usually, it is formed as being a private limited partnership that speculates with the help of borrowed capital or credit.
How to Start a Hedge Fund
1. Create a Hedge Fund Team
To get things started properly, you need to have a good and cohesive team on your side. These are the essential people you need for creating the hedge fund:
- 2 junior analysts;
- 1 junior trader;
- 1 chief financial officer.
2. Name the Fund
The name is quite a difficult choice when thinking on how to start a hedge fund. Your aim should be to inspire sturdiness. For this reason, you can choose a tree name that suggests roots and strength. Don’t use your own name. The trendiest names nowadays are arboreal and gentle.
3. Hire a Law Firm
One thing you will surely need is a good firm that would incorporate your fund. The goal is to incorporate it first locally and then move to offshores in other countries. However, don’t go for the huge, high-toned firms. They may be rather expensive and may not be in the know.
4. Get an Anchor Capital
If you want to boost your fund off the ground, you will use your first assets under management (A.U.M.). The best solution here is to find your own “seeder” that would provide you with the anchor capital. Basically, you have to convince people to give you money. The downside is that they may want to own your company or a certain percentage of the profits.
5. Get a Prime Broker
Whenever you want to buy a stock, you have to record your transaction somewhere. Because of this, you should get a prime broker. He is going to be some sort of custodian for you: clearing your trades and going to the banks. Goldman is still one of the best options when it comes to this.
6. Check into the Hedge-Fund Hotel
A “hedge-fund hotel” is an unused office suite owned by the investment houses that also work as prime brokers. Often times, they agree to a monthly lease for people who are new into business. Besides, you would still need an office to make your business look legit and respectable. The best thing is that you may even get a low price on it.
7. Get a Good P.R.
An important part on how to start a hedge fund is to hire a good PR. It may not be useful right now, but in the future, it can be essential. The thing is that as soon as your business starts to flourish, people will start shooting at you and you have to be prepared.
This guide on how to start a hedge fund is extremely basic. There are, of course, plenty of other information, tips and tricks and useful hints, but if you are a beginner, it’s an excellent starting point.
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