As we look forward to 2014, we can expect that the hedge fund and investment management industry will continue to evolve and experience change as in years past. As more and more new funds launch, the competition for investors will increase and firms will be hard-pressed to live up to the successes of the top performing funds in the industry.
Earlier this week, we gathered several panels of experts in Boston to share their insights into the hedge fund landscape for startups in 2014 and the tips and advice for firms looking to compete in the changing marketplace. Following is a brief recap of the event.
Building a Hedge Fund is Like Building Any Successful Business
When starting a new firm, it’s critical to think about all aspects or forming a new business. Yes, your investment strategy is important, but if the foundation of your business is not critically thought out, it will wreak havoc for your firm. Following are a few areas you shouldn’t overlook as you go through the launch process:
Talent identification: As you build your business, choose employees who complement you and your vision for the firm. Be sure to spend time with people on your team from the start to avoid clashes down the road.
Planning for growth: It’s critical to think beyond your initial startup. Investors want to see growth plans, and you should expect to develop one that details your goals for the next 3 to 5 years.
Story-telling. Speaking of investors, you only get so many opportunities to impress them. Be sure to tell your story (and make it interesting!). Keep the lines of communication open as you secure an investor base.
Maintaining privacy: In Massachusetts, there are strict regulations about keeping client and investor personal information confidential and private, in other words, encrypted. MA 201 CMR 17 should be taken seriously and not overlooked as Boston-area firms look to launch. Keep in mind, the regulation applies to firms who have clients/investors in MA – so even if your firm isn’t based there, you may be subject to compliance.
Achieving Institutional-Grade Technology
One way to set yourself apart from your competition is by ensuring your technology is up-to-snuff. As you look to implement a technology solution (either in-house or with an outsourced provider), remember that investors are more tech-savvy than ever and expect to see robust systems and practices in place to protect their investments.
One of the biggest technology priorities for 2014 is security. With threats and ‘hactivism’ at an all-time-high, it’s more important than ever that firms implement sound security best practices to thwart attacks and protect critical infrastructure. Adding various layers of security will help ensure your firm doesn’t succumb to an attack or breach. At a baseline, firms should implement secure firewalls, anti-virus protection and spam and web filtering solutions, plus ensuring strong passwords are maintained and changed often. If you want to add additional layers of redundancy, you should consider real-time monitoring and intrusion detection. Malicious virus attacks such as the Cryptolocker virus have circulated recently and are important reminders to employ security best practices throughout your firm.
Other technology priorities for 2014 include maintaining comprehensive DR and BCP plans. Investors expect to see that your firm is prepared for an outage or disaster – whether it be an office power outage or a regional disaster. Educating and training employees on proper procedures is also essential to ensuring your business remains operational regardless of the situation.
Capital-Raising in a New Era
As the investment industry continues to evolve, capital raising becomes more of a strategic effort for hedge fund firms. And with the recent implementation of the JOBS Act – allowing firms to openly market and advertise to investors – firms need to get serious about their fundraising strategies.
It’s important to understand what investors are looking for. Here are a few qualities:
- High positive returns
- An experienced portfolio manager with the ability to raise assets
- Proven track record
- Insight into the non-investment side of the business (e.g. operations, technology, etc.)
- Follow up and communication
- Better terms and less complexity
Once you have a firm understanding of what your potential investors are looking for, it’s time to pull yourself together and begin preparing. Follow these simple tips outlined by our speakers:
- Define your story. Formulate your vision and tell investors who you are. Seize the opportunity and make sure you get it right.
- Identify your audience. Does your target have an appetite for your product? Highlight the importance of having a targeted marketing plan.
- Do your research. Know who you are meeting with.
- Make yourself available. Maintain regular communication with investors and give them access to other members of your firm to speak with.
That’s it, folks! Our speakers had a lot to say. If you have any questions about tips and best practices for starting a hedge fund, please reach out to speak to one of our experts.
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Categorized under: Business Continuity Planning Cloud Computing Hedge Fund Due Diligence Hedge Fund Operations Hedge Fund Regulation Infrastructure Launching A Hedge Fund Outsourcing Security Trends We're Seeing