Are your friends and family qualified investors? They will have to be or you will have to lie about where you got the money. You cannot manage a hedge fund and take money unless they are qualified investors.
'hedge fund docs are basically a limited partnership agreement and a disclosure document which are 90% boiler plate with a few adjustments to suit the clients.' very true, one senior complaince gal from a commodity firm once told me exactly the same and even if you hit few hurdles, you can get good advise from SEC or $100/hour retainer for help from some firm's compliance department legal advisor just to edit and sort out and complete your package.
Investor Qualification................ what if they lie to you and fill in wrong information in your 'qualification form'. HF cannot look into their tax returns or bank statements.
in the investment advisory agreement there is a section where the clients sign to attest that they are accredited investors (the agreement includes the qualifications to guide them). at least that's the way i did it. agree with a lot of the comments. i didn't this 12 years ago and paid way too much for a boiler plate agreement with my firm's name filled in. mine was unique though, as i had some variations to the 1 and 20, in that i could also get paid based upon a formula for outperforming the S&P500 to reward caution in a bad market (i was long only and didn't want the conflict of interest of trying to somehow achieve outsized returns in a bad market). anyway... they REALLY charged me for those 3 extra paragraphs! funny thing is, they forgot about that part in the first version i got- that's what made it so obvious that i'd just paid $10m for some summer intern to use the 'replace' function in MS Word to change from xyz firm to my name. once they remembered to add in my variations, the cost nearly doubled; well, til i raised a stink. the point about a bigger name law firm is valid for marketing IF you plan to go after bigger money- you need that credibility to get that $. as it is, i would go more budget now given the assets you're managing. if you've got $5mm, you have enough to focus on performance and get a track record. things go well, you will change a lot of things if you want to step up beyond F&F. you'd be looking to get your results audited and then you'd maybe look for a bigger name to help lend credibility when you try to market yourself. good luck.
find a prime broker to execute your trades, (there are miniprimes out there for $5MM accounts who clear at the big broker dealers, ie Goldman, BAC, Bear, ML etc..) use an affordable lawyer to do your operating and investment management agreements. you don't need to pay 50k with a big name law firm right now. you'll save yourself alot of money and headache, I went thru this, and it was totally pointless. hire someone to do your marketing. hire an administrator for your performance reporting and operations. i know a co. that does all of the above. PM me, I can suggest some names.
Friend, it is what it is. I hired Paul Hastings to form my registered investment advisor, along with my long/short equity fund in 1999. I paid $14k + a $5k retainer. My work ended up costing a abit more due the fact that I needed to register as a state registered RIA. This isn't always the case when someone launches a fund. I had separate ERISA accounts that I managed under my RIA thus the RIA necessity. Sold it to a broker dealer interested in acquiring my RIA in 4Q 2005. Then affiliated with a family office which launched and seeded 4 individual long/short equity fund and an options arb fund in 2003. I researched outside fund managers for the family office master feeder fund, part of the due diligence process was reviewing formation documents and the folks that prepared them. Again, speaking from my own personal experience.
I can tell you from experience that launching a fund is a daunting task that requires many experienced people (more admin and back office than you can ever imagine). Top tier legal is 40K+ and double that for a master/feeder structure with one onshore fund and one offshore. I would not even go with a top tier if I could do it again. I would use a mid tier legal or even a small firm that specializes in HF startups as no one in the business much cares for lawyers anyway and they will understand if you cut corners there. Auditors cost 25K+ per entity which means 75K min for master/feeder. Big name auditor is more important than legal and you better have at least a mid tier brand name if you want to raise money from anyone besides family and friends. Finally that takes us to the allmighty administrator and here you have to go with a top tier which means 3-5K per month min for each fund (6-10 for both which means 72 to 120K per annum). There are two reasons you need a top tier. First you will be using someone who your clients all know and most likely use but more importantly the administrator is responsible for all cash transfers into or out of the fund and all due diligence of clients. You see, an investor, even if he trusts you and loves your idea and track, etc, will not wire a 1M or larger check to you. He will feel comfortable wiring 1M+ to Fortis or Citco (because he does this every month). Fortis receives the cash and deposits it directly to your prime and there is an agreement drawn up that only allows your administrator to access your prime. This means that even if you personally want to withdraw money from your own account you will have to fill out the required paperwork and mail it to the admin. The admin calculates the books independently and seperately from your prime and also pays your bills and mgmt and incent fee, etc. You will also need a top tier prime broker...this matters much more than the law firm but less than the admin and audit. Now for the fun part. You will not get access to a top tier prime unless you have more than 40M or good industry contacts or a pedigree of some sort. Same goes for the administrator, same goes for the legal and audit to some extent (no one wants their name attached to a loser). Also, be prepared to find out just how little you are (speaking from first hand experience). Go ahead and go to some of those startup conferences in NY and listen to all the 3rd party marketers speak. A 3pm will not even speak to you until you are 25M...neither will seed capital...because 25M is the first little baby step. Once you hit 30 or 40M you can grow to 100M quickly (getting 5-10M tickets) if you get in tight with some top tier family offices and emerging manager FoF or sell out to a seed investor or 3pm (and even selling yourself to a seed capital or 3PM is like trying to sell IBM, a lot of work). You will quickly learn/earn your way accross europe at this point because the Europeans are the only ones dealing in small denominations like this (well they are more into it than the americans anyhow). For big money pensions, endowments, banks and big name FoF with more than 20M-50M tickets you will have to wait. 100M and 3yrs used to be standard mins for these guys but now, get this, i am sorry call us when you have 300M and 3 years. Truly there are some massive barriers to entry being erected in this business now. You can't even play with the big boys until 300M and this is no one man shop...to get anywhere (even at first) you need a head count of a half dozen hand assembled team members with the requisite experience to match their position withing your firm (investors don't like wiring their money to the control of a couple of cowboys with no client relations or back office support). I think you should use the cheapest firms you can get and start cheap and easy if you intend to raise a little money from F&F, or you will have to be commited (and capable through strategy and fund raising) to growing a 100M firm. Otherwise, you will quickly find your profits and your clients profits consumed by your expenses and you will spend all your time doing administrative bullshit and navigating red tape and marketing your firm and your strategy will suffer because you will just not have the time. So do you pick the red pill or the blue pill?
Thanks to all that have replied!!! I do have my series 66 and yes, all qualify as accredited investors. I can appreciate what Anvil has stated about not cutting cost as this will have the fund better positioned for growth. However, at this point i am just interested in getting started at the lowest possible cost. As Marketsurfer mentioned, i only have a few investors who are family members and its for a total of less than $5 mill. I have been managing their money and they have been very satisfied with the results. I am mostly interested in building a track record that i can use to grow my fund at a later date. I can always reorganize things at that time. Also, a few people mentioned starting a relationship with some of the larger broker dealers out there, but i am really interested in keeping my transaction cost down as the funds turnover is extremely high. Please keep the info coming and i will PM those of you who have offered to help. Thank you all very much!
This is why you start your own news letter service instead. Charge like 200 a month, get a 1000 investors and make 200k a month . It'd be easy to keep it "underground" too if need be.