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HR for Hedge: Setting Up Your New Fund's Human Resources Infrastructure

By Jordan DeSantis | Thursday, March 24th, 2016

For any new investment startup, the task list is lengthy. Beyond investment priorities and strategy decisions, new managers are also grappling with securing office space, ordering technology, engaging with service providers, and much more. One aspect often overlooked is human resources. To kick off our Hedge Fund Launch Webinar Series, we invited Maya Cohen, Senior Vice President at TriNet, to share HR priorities for startup hedge fund managers.

Human Resources Challenges for Investment Startups

HR can pose a challenge to any new business owner. If you’re venturing out from a larger institution, you’re used to relying on a large HR department to meet your needs and answer your questions. Now, as the employer for the first time, you’re expected to fill that role seamlessly. You’ll soon be faced with situations unfamiliar to you: creating initial offer letters, negotiating healthcare costs, and dealing with employee terminations. You’ll need to think about the type of work environment you want to foster. Will it be casual or formal? Will you offer rich benefits to employees? How will you handle payroll questions? These are just a sample of the decisions you’ll need to make as you start your hedge fund.

Cornerstones of a Firm’s HR Infrastructure

There are four primary areas you’ll want to think through as you set up your hedge fund’s HR infrastructure.

  • Payroll: This is the most basic. You’ll want to figure out the pay cycle for employees (is it monthly, weekly, etc.?). You’ll need to remit taxes, making sure all the employer-side taxes are accurately collected. Consider how your firm’s structure (LLC or LP) will affect you from a tax perspective. Will partners be W2 employees? Or will they file K1s quarterly? There is no right or wrong answer, but the majority of hedge funds across the industry treat their partners as W2 employees.

  • Benefits: Benefits will be one of the most important factors your employees will consider when deciding to work for you. There are two major categories: mandatory and elective. Mandatory benefits typically include benefits such as worker’s compensation and short-term disability. Without these benefits in place, you run the risk of being fined. On the elective side, it’s important to remember that not everything needs to be implemented day one. Staggering benefits as the firm grows is a great way to continue to support your employees over time. At a minimum, most firms offer medical, dental and vision benefits, but many also consider 401K plans, group life insurance plans, etc. Find out what works best for your firm. Do you want to be benefit rich and perhaps offer lower salaries to start? One tip: it’s better to increase benefits over time, rather than pare down.

  • Risk & Compliance: One of the key decisions you’ll need to make is how these HR responsibilities will be handled amongst the team. Will you outsource certain functions and leverage a Professional Employer Organization (PEO)? Or will you plan to hire one or more full or part-time individuals? Realistically, as a new launch, you’ll probably outsource at least some HR functions. Compliance is critical, so depending on your internal bandwidth, it may make the most sense to consider using an outside firm to support your team. Make sure to do a deep dive into the third parties you’re considering to ensure their provisions meet your firm’s needs.

  • HR Team: Assuming you’re going to leverage an outside firm for some or all of your HR needs, consider what type of firm you’re engaging with. Is it a call-center? Is there online access to information? Will you have a dedicated rep?

Be mindful of situations that are endemic of the hedge fund industry. For example, can the provider handle the unique payroll items that hedge funds often implement such as deferred compensation and different bonus schemes? For 401K plans, do you want to operate with self-directed brokerage windows? Many employees are financially savvy and want to select their own funds for retirement assets.

To hear more of what Maya shared during her webinar, including information on creating employee handbooks, and how the Affordable Care Act is affecting insurance coverage, listen to the full webinar replay below.

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