Starting a small Hedge Fund??

Discussion in 'Professional Trading' started by SnookFishing, Aug 12, 2007.

  1. I would like to start a small hedge fund in Florida with about $5 million dollars. The investors will be friends and family, so i mostly want to keep the start up cost down as much as possible.

    If there is anybody out there that could provide any help, that would greatly appreciated.
  2. I appreciate the response. Do you know approximately how much it's going to cost me to get setup. I am mostly just looking to build a track record and the investors are just a few family members of whom i already manage their money. We now just want to change the structure to a hedge fund.

  3. according to Green, they will charge you around $4000 for the no frills incubator fund. they say that is sufficient to build a track record. if you want audits, tax returns, etc, it'll probably run you 15-30k to get started.
  4. Work with your clearing firm as much as possible so that they will set-up the proper type(s) of account(s) in exchange for your commission dollars. If your present firm can't do that, move the money to a firm that can.
  5. wenzi


    There are a lot of service providers for hedge funds. You can look at green or a number of other providers. My advice is take a few free consultations from service providers to get an idea of what you need and are looking for.

    There are free conferences where you can meet a bunch of service providers at the same time. If you PM me, I can send you into about a couple of conferences in NYC in the fall.

    Remember that you are the boss and it may be a little scary at first because regulations are confusing. Providers will try to sell you as much as they can as that is their job. It is your job to know what you need / want.

    You may want to look into studying for you series 65/66 in the meantime. Those classes will help you understand the law, and you will need them later anyway.
  6. Snook, Green isn't the way to go.

    $5mm gives you a critical mass to do it right. Even if you plan on staying small, you should shoot for 'best practices' from the get go. If you do well and begin receiving institutional interest the fact that you used hallmark firms will serve you well in the due diligence process.

    Fund organizational fees can be amortized over three years which reduces the impact on the expense ratio.

    Hire a solid top tier hallmark law firm, spend your money on a small retainer, these firms will draft an agreement whereby they will await the balance due when the fund launches and raises capital.

    You can decide to have the partnership itself bear the fees, you can decide to give the investors a break and bear the expenses on the management company level, or split them.

    Once the fund is up an running the legal fees tend to decline and the tax and audit fees become a larger item.

    The fund 's returns along with money in/money out are audited; the management company simply needs a CPA for return filings and K1s to limiteds.

    Form a limited liability company as the manager, sponsor, general partner.

    The management company then forms, organizes the partnership.

    Legal=Formation, organization, secretary of state filings for an LLC and a LP.

    The top tier firms get all this done between 10-15k.

    An audit runs around 7K and isn't necessary until the fund is running for 10 months or so.

    There are a half dozen firms that own the space. The money spent is well worth it, if you do well, your law firm will introduce you to fund of fund it represents. Dont underweight the networking benefits of having Sadis & Goldberg, Sullivan Cromwell, or a Paul Hastings.
  7. wenzi


    anvil993, I most certainly agree with you.

    I do think that SnookFishing was interested in getting started and he does not know where to look for advice.

    It is hard to go to a meeting un prepared , which is why I mentioned the series 65/66 which helps understand the law. For example, if Snook only has domestic investors, he can just start with the domestic feeder and then either go with a master feeder or a side by side structure. That is a question that the law firm should answer, but you need to know enough to ask the right questions.

    Don't be penny wise and pound foolish when it comes to selecting a law firm, so it is best to get informed and make an informed decision.

    Also, anvil993 is correct about the Cap intro of your service providers is something that you should take into consideration, not just for your law firm. Prime brokers and others will also help with cap into.
  8. whats the law say about managing money? long as its under x amt..its ok?.
  9. wenzi


    IANAL, so if you are about to manage someone else's money you should see a lawyer.

    And you are talking about SEC regs, there are also state regulations you have to consider.
    #10     Aug 13, 2007