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A Checklist for Launching a Hedge Fund in 2015

By Anna Wendt | Thursday, May 21st, 2015

Yesterday, we hosted a hedge fund launch webinar called “A Checklist for Starting a Hedge Fund in 2015,” which focused on structure and strategy considerations for hedge fund startups as well as focus areas for your technology infrastructure and cybersecurity systems. Marni Pankin, partner at Marcum LLP, and Vinod Paul, managing director at Eze Castle Integration, shared their expert knowledge on what they consider to be the top priorities for hedge fund startups in 2015.

Marni-Pankin, Marcum on hedge fund launch kitPankin started with a checklist of her own, including what an emerging manager should look for when launching a new hedge fund. Below is a brief summary of her checklist and be sure to read our second article, "Starting a Hedge Fund: Your IT and Cybersecurity Checklist" here.  

  1. Clarify your investment strategy: Having the ability to describe your niche or edge is extremely important.

    • What is your trading style?

      • Global Macro

      • Directional

      • Event-Driven

      • Relative Value

      • Other

  2. Develop a strategic business plan with a budget and cash flow projections.

    • Tallying the costs and determining who will pay is vital to survival of the new fund. Will you have seed investors to help with the initial costs or are they coming out of the investment manager’s pocket?

    • This is also under the focus of the SEC, who as of late, have been sanctioning managers for passing undisclosed expenses through the fund that should actually be paid by the manager. The fund offering documents should clearly define the nature of expenses that will be borne by the fund.

  3. Selecting the proper service providers is crucial for long term success as well as credibility with investors.

    • There are a couple of things to consider when selecting a service provider:

      hedge fund launch kit, Hedge Fund Launch Checklist; Launching a hedge fund

      • Expertise with hedge funds

      • Reputation in the industry

      • Ability to grow and adapt with the business

      • Costs of the provider

      • Level of service you expect and how important you are to them

    • Be Aware: Just because the firm you left used a certain service provider does not mean that you should. Emerging managers tend to need a bit more handholding and have limited funds, so employing the same provider as a large firm may be a risky business move for the future.

    • Common leveraged service providers:

      • Attorney

      • Information Technology Consultant

      • Independent Valuation Consultant

      • Regulatory Consultant

      • Fund Administrator

      • Independent Accountant

  4. Set up shop by purchasing office space and business equipment, create banking relationships and hire employees.

    • The fund will need to fill HR roles like payroll and identify practices for structuring compensation, profit sharing, retirement plans, and health insurance and benefits.

    • There will need to be some sort of IT support for the network and computer systems, disaster recovery plans, cybersecurity and knowledge of the cloud environment.

    • Trading and accounting systems are also important to the firm, whether you leverage a prime broker or fund administrator.

  5. Evaluate registration options and costs to assure compliance.

  6. Determine the provisions to be included in your offering documents.

    • Portfolio valuation is important as well as understanding the fair value methodology. The policy should be in accordance with GAAP and there should be a supporting document available on request for specific descriptions of your processes and policies.

  7. Set up your marketing budget and fundraising plan.

  • In 2013, the SEC removed the ban on general solicitation and advertising related to private offerings in Regulation D of the Securities Act of 1933, so as long as all the purchasers are accredited investors, you can solicit investors but still be mindful of the rules before making any decisions.

To watch the full replay of our complete Hedge Fund Launch Webinar, see below or click here. And don't forget to read Part 2 of our recap, focused on Your IT and Cybersecurity Checklist.

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