Did you know the hedge fund industry is estimated to be a $3.2 trillion industry as of 2017? And it’s actively growing.
Now that’s a large industry and it’s no surprise that people are always looking into starting their own hedge fund in hopes of changing their financial future. The truth is that not just anyone can start a hedge fund.
Keep reading to learn 7 essential tips for starting a hedge fund.
6 Essential Tips for Starting a Hedge Fund
Because the market is recovering from a collapse and there’s still an appetite for individuals with a high net worth to capitalize on investments, it’s a favorable time to start a hedge fund. A hard money lender such as Orchard Funding is a perfect example of private money lender for those with big dreams.
1. How Much Money Do You Need?
The first thing you want to ask yourself is how much money do you need to get started? There are hedge funds that start with as little as $1 million and others that start with $5 million.
The higher the amount you start your hedge fund with the easier it is to be successful and the easier it is to grow your hedge fund. Starting one with less than a million isn’t impossible but it makes it more difficult when you start with a smaller amount.
2. Raise That Money
Now that you figured out how much you want to start your hedge fund with it’s time to raise that cash. This might be the most difficult part if you don’t have $1-$20 million dollars laying around for a rainy day.
Depending on your situation you can start by talking to close friends and family about being initial investors in your hedge fund. Make sure to present them with a plan on how and when you’ll pay them back if they decide to take a chance on you.
Investing your own money will also make them more willing to invest their money on your hedge fund dream. You can use your own savings, early retirement money, loans, etc.
Another way to raise money is by networking. Find rich people with money and convince them that you have what it takes and the talent to invest wisely. Go to wherever they hang such as a luxury golf course and strike up conversations because you never know who you’re going to meet.
3. What’s Your Strategy?
After figuring out how much you will need to start your own hedge fund and successfully raising the capital to get started it’s time to choose your strategy. This is where you will figure out what’s going to make you stand out from the competition.
You can choose from various strategies for investing such as arbitrage, event-driven, equity options, commodity futures area, etc. These are to name a few that you can choose from.
Make sure to do your research and choose wherever your strength is.
4. Time for a Broker
There are many broker options available and this is going to be an important piece to run a successful hedge fund. Finding a broker that can give you personalized service that’s affordable will go a long way.
There are of course big name such as JP Morgan that will give you instant credibility which you can opt to use as your broker.
Make sure to ask your potential broker questions such as “will you help me if something goes wrong at the clearing broker?” You want to have confidence in the broker you choose so make sure to choose wisely and don’t rush this step.
5. Location, Location, Location
Like with most other things location is important and when starting your own hedge fund location is also important. Opening your doors in prime locations such as London, and Greenwich are great because you will have an obvious advantage being in those areas such as qualified investors living in those areas.
The local areas have the capital to spend which can mean more money coming through your doors.
Because locations such as Greenwich, Chicago, and London are prime they will also be more expensive. Keep this in mind when you first decide how much money you will need. This is something you want to take into consideration and have as part of your plan.
6. Teamwork
Now it’s time to find your team of experts to help you run your hedge fund successfully. It’s time to do your research and choose wisely when it comes to your lawyer, auditor, an accountant.
You won’t go very far trying to run your hedge fund all by yourself. Like most good businesses you need experts that know what they’re doing to make sure everything runs like a well-oiled machine. The reason you’re opening a hedge fund is to make money not to go under and close your doors.
Finding your team is as important as finding your broker.
Happy Hedge Funding!
Now that you have the step by step guide above to help you with starting a hedge fund it’s time to take action. You won’t get anywhere just dreaming about it you have to get started.
Follow each of the seven steps above to set up a strong plan to build your very own successful hedge fund. Starting a hedge fund is by no means a walk in the park. You will have challenges along the way but once you’re up and running it will be worth it.
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