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Thriving in the Hedge Fund Startup Market: Three Considerations for Emerging Managers

By Katie Sloane | Tuesday, August 23rd, 2016

It’s no surprise that starting a hedge fund is no easy feat. In an increasingly competitive landscape challenged with evolving investor and regulatory demands, progressive technology and mounting cyber threats, emerging managers can become overwhelmed at the winding path that lay before them. Still, hundreds of emerging managers attempt launching every year due to the prospective monetary and fundamental rewards.

What sets apart successful startups from those that fail? In today’s post we will cover a few essential areas startupreneurs should consider during their launch journey.

Invest in People

Your greatest assets walk out of the door every day: Your team. Every hedge fund startup is backed by people, and the more dynamic and versatile this team is, the greater chance the firm has of achieving and sustaining a successful future. Why? Since capital is limited during the development phase, selecting people with skill sets in multiple arears is essential. Additionally, employees are ambassadors for your firm, and thus, critical to attracting investors.

Embrace Outsourcing

Sourcing reputable, industry-specific external providers is just as important as employing internal staff. As an emerging manager, you’ve undeniably come to cognize that certain functions are better off outsourced to third parties. Remember to focus on what you know and leave the rest to the professionals. Doing so will save you a great amount of time, money and unnecessary headaches.

Typically, startups will consider outsourcing in the areas of HR, IT and accounting. A common mistake made by new fund managers is overlooking the breadth and depth of technology that the firm will require. As a fund grows, IT service providers should be able to support this growth and meet their infrastructure, cybersecurity, disaster recovery and communication needs. 

Take Due Diligence Seriously

As a startup in need of funding, attracting and retaining capital is critical. Increasingly, operational due diligence has evolved into a key component during the investor decision-making process. To justify whether the investment is sound, investors delve disclosure provided by the firm to demonstrate transparency, dependability and parallel interests to their own.

Emerging managers should keep updated records of historical performance, business operations and legal compliance. Additionally, proactively plan for common DDQ questions investors will ask and understand that due diligence is an ongoing process, as well as, a marketing opportunity that can progress overtime.

Related Resources:

Cyber Security Planning for Investment Firm Managers​​

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