There are many ways to start up a hedge fund. In this thread I will share my experience with the process in the hopes that it may help someone in a similar situation. As a bit of background, I have been trading about 18 years. I presently trade equities and their options, but I have also traded futures and currencies in the past. About 4 years ago I first developed a trading methodology that was extremely robust and consistently profitable. Its average position time was 45 days, had a max drawdown of 14%, and generated a 32% annual return. I was pretty impressed with myself so I tried to raise $5-10 million to start a hedge fund (attempt #1). Why not? Well, I soon learned why not...I was told I did not have a long enough track record, what was there occurred during a bull market when everyone makes money, so it didn't count, and even if it did, there wasn't enough money being traded. (Sound familiar?) I ended up raising nothing...zero...zilch. I explored every option of raising capital in which to trade and stumbled upon Proprietary trading firms. I did my research and decided to join a firm. The catch was that due to my limited capital (from which I liquidated my successful trading account to raise) I was restricted to trading only equities (no options) which meant I could not use my trading methodology. I was also expected to day trade. No problem I thought. If I could profitably trade the markets in one way, how hard could it be to trade it another? Even worse, I started out really well and doubled my money in the first couple of months! That just confirmed my really high opinion of my trading prowess! Fortunately, after losing all of my money twice, I was humble again and able to think clearly. (I also learned I am NOT a daytrader!) Armed with a new knowledge of risk management gained from my prop trading and a healthy respect of the crushing power of the markets, I went back to developing my original trading system and "robustifying" it against black swan and angry pelican events. I was flat broke at this point and actively seeking a job in the real world so I posted the system on a site that tracks the performance and permits people to subscribe to it for trading signals. All funds on this site are virtual so performance can be established, but no capital is required. I posted all of my trades for over a year and the excellent performance continued despite a very turbulent market. I thought it was perfect until I went looking to raise capital again (attempt #2). Investors do not like virtual performance results and such results have zero credibility. Also, about this time, all the equity dried up and no one had anything to invest (sound familiar?) anyways. In frustration I gave up trading the system through the virtual site, and began trading it again with a very small amount of my own capital. I figured it was better to trade it with real capital than no capital. As always, I continued to fine tune it. I had given up on my dream that I could ever start a hedge fund. A few months later, I was talking to my friend and he was catching me up about a man we both knew. This man is very wealthy, having sold his company for a LOT of money, and my friend told me that this man was looking for places to invest his money. I had known this man for years, but never approached him. The more I thought about it, the more I was tempted to do so. However, my gut told me to wait and so I did (I have learned to listen to my gut and it doesn't steer me wrong-unless I am driving and then I need to do the opposite of whatever it suggests). Eventually, my gut told me the timing was right and I requested a meeting with this man and we met. For the first hour I did not say much, I just listened as he talked about things going on in his life. When the opportunity was presented, I showed him the spreadsheets and told him how I trade and some of the key aspects of my system. Apparently, he liked what he saw and agreed to invest US$100K. He told me that it didn't matter if he lost such a small amount and he was willing to risk it. I still laugh about that. Einstein was right when he said everything is relative! There are several key points to understand about this meeting and this man's decision: 1. In my first two attempts, I was trying to start the hedge fund with US$5-10 million. That is a big commitment for investors to make for a guy with no formal experience or pedigree. I may have a degree in Finance, but that doesn't count for much. 2. By attempt #3 I had modified my game plan to beginning with an incubator hedge fund and seeking to establish an audited track record first. My minimum to start this was only US$100k which is much more attainable for poor, unestablished people like me. 3. The man decided to invest ultimately, not because of what he saw from my spreadsheets, but because he had known me for several years and my character was well spoken of by third parties. As Christians, we also share the same faith, and I think that had something to do with it as well. For that I give thanks to the Lord. 4. He liked the fact that I have a full time job which means that I have a source of income. This allows me to be careful with the money and not take crazy chances because I need to expedite the process. So after three years and three attempts (third time is the the charm apparently), I was able to raise almost $125k. I shopped around for an attorney who specialized in hedge funds that I liked and paid about US$4k to get an incubator hedge fund established. An incubator fund does not permit me to charge any kind of fees nor agressivelly pursue investment capital. In fact, I am limited to raising capital from friends and family. However, it does permit me to establish a track record that I can pay to have audited. This is what I think of as stage 1. After several years of hopefully successful trading, it is quite possible that the investors I currently have may wish to add to their capital and possibly even refer me to their friends (wealthy people tend to know other wealthy people). If I can get assurances for a minimum of US$5 million, I will be at a breakeven point for conversion into a fully operational hedge fund. This is what I think of as stage 2. I will not consider conversion until the funds are lined up due to the costs once this transition is made. Once initiated, and assuming continued successful performance, I anticipate spending another 5-10 years in stage 2 building up assets to US$100 million. (Its like they say, a million here and a million there and it begins to amount to something). I currently work a full time job, and my trading style allows me to work around my work schedule. As much as I would like to quit my job so I can trade and manage the fund full time, I will not do so until it is in stage 2 and I have fees equivalent to 2-4x my annual salary already in reserve. My philosophy is that this fund has to earn my attention, time and energy. I also think it is important to have my own money invested in the fund. I am currently in the process of liquidating my 401K so that I can transfer it into the fund. If I don't belive in what I am doing, why should I expect my investors to? I go into this with a patient, long term perspective. I place risk management BEFORE profits. I use a system that I have used for years and know very well. I accept the fact that I don't know everything, and that I need to be careful, prudent and continue to learn as much as I can. I have one shot to establish a reputation and I don't want to squander it. This has been my experience in a nutshell and I know I have left many things out. As you can see I have had my ups and downs, as will you. Ultimately, I am glad it was so difficult to get started, because I probably wouldn't have been ready had it happened earlier. But once trading gets in your blood, and you start to feel like the casino rather than the player, it is really hard to leave behind. I'll continue to post to this thread as I progress. I wish you all the best of luck!