Starting a Hedge Fund

Discussion in 'Professional Trading' started by cmitseff, Oct 26, 2009.

  1. cmitseff



    I soon will be starting a fund with a partner with AUM of $8 mil to start. I understand the basics of setting up a fund such as obtaining an attorney, accountant, administrator, etc. However, for those who have been in this line of business, what are some other pieces of advice you'd pass along? What roadbumps occurred for you that I could avoid? Thanks in advance.
  2. Bro, you had a similar thread over a year ago and you still haven't found your answer? You spamming for investors or what?
  3. cmitseff


    no we wisely waited, as many other funds kept seeing their high water mark drift further and further away. you just bitter cause you've missed the rally? lol
  4. sub0


    I helped someone with an investment bank startup years ago, you need to have a good compliance person obviously but also a great risk management person to oversea what's going on. One that can communicate effectively with your backoffice clearing (whoever you clear through) in regards to all the e-mails and reports they'll send you. Believe me, you don't want to do it. Compliance to focus more on paperwork and your risk analyst to focus on watching for market risk across all positions.

    Obviously clearing usually doesn't execute trades, so you need a person who stays in constant contact with clearing, getting their daily e-mail updates and reports on all open positions. If you can find a good quant to do it, even better depending on the types of trades you are doing you need someone that can handle the most complex trades and calculate risk.

    No lawyer, attorney, whatever is going to do this for you every single day. You don't want to overstretch your executive team or compliance team with this. I know smaller firms like to throw stuff on the executive team to save money by hiring less people but really your focus should be on trading and sales management (getting more assets). Plus you need someone to cross check what you do at every level, this is a typical compliance protocol anyways.

    Unless of course you go through a trading desk and they clear with someone else and handle all that for a cut on the share side. You'll then still need someone to manage risk with them so you aren't pushed out positions because they can't properly calculate complex option risk and think you are in a call.
  5. Make sure you know your partner REALLY, REALLY well...

    Good luck!
  6. Petro


    Get someone good to run the business side of things. Whether it's you, your partner or someone else. You can't split your time between running the fund's portfolio and everything else (back office, marketing, etc.) As someone who works for a Fund of Funds, we won't touch a manager who tries to do everything himself, it doesn't work.
  7. $8mil AUM is way too low. Whatever gains you will make, if any, will be eaten up by operating & administrative costs.

    If you think that you will quickly raise more funds, you are wrong. It will take years as it's obvious you are new to this and have no credibility in the space.

    I don't know what your strategy is or what you plan on trading, but I would suggest to not form a hedge fund yet.
  8. wave


    Not including commissions, see below.