The Key to a Successful Hedge Fund Launch? Building a Real Business
Take the time to build a real business.
Investment firms often place too much emphasis on managing portfolios and not enough on managing the business as a whole. Particularly for startups entering a competitive marketplace, expectations are high. That means you have to demonstrate to investors that you take your business seriously and that you’ve made investments in your operations, technology, etc. that will fortify your firm and provide a solid foundation for investment success.
The decisions you make from the outset will define how your firm is regarded within the industry, by both investors and competitors. By taking into account all aspects of your firm and relying on trusted service providers to support operations, you prove to the greater investment industry that you should be taken seriously and can operate successfully in a challenging environment.
Transparency is of critical importance.
Since the 2008 economic collapse and scandals caused by the likes of Madoff, transparency has become a key requirement for investors. Nothing less than full disclosure is expected of firms from the newest launches to the most established investment firms. As such, fund managers should take this to heart and make strong efforts to comply with increasing investor expectations.
The simplest reminder? Document everything. From your legal paperwork to security practices and technology safeguards, the importance of documentation cannot be understated in today’s environment. Tools such as risk management or document management systems can give extra peace of mind to demanding investors with high expectations.
Remember that raising capital is a non-stop process.
The ultimate goal for your new hedge fund is to raise capital and launch successfully. And while that goal is certainly reachable, the process does not stop on your go-live date. Marketing your hedge fund cannot be merely a step in your launch process. It must be a step in your overall business process. With competition for investor allocations at an all-time high, you’ll have to work to determine what sets your firm apart from the others. If you don’t learn how to differentiate yourself, your chances of getting lost in the crowd are much higher.
By investing upfront in operational and technology systems that can support your business and propel operations, you provide your firm with marketing tools that will far surpass the capabilities of a presentation or pitch book. These decisions can put your new firm on equal footing with established firms and demonstrate to investors that you are built to succeed.