Grant, skill and capital (in that order) are indeed the required conditions, but are still insufficient for starting a hedge fund business. You just got lucky with your domicile, Sir
America is a vast land of opporunity compared to Europe. Here all business plans go straight to the wastebin, regardless of how world-class the trading strategies underlying them might be. Reason? No legal definition of an accredited/qualifying/professional investor. The structure most resembling a hedge fund here is a broker-dealer, which in Europe requires:
- exactly the same regulatory capital as a mutual fund,
- two on-board licensed investment advisors (versed in long-term 30's investment techniques - most useful),
- an on-board control officer,
- two on-board licensed board members,
- an office "of substance" (no outsourcing allowed),
- etc, etc.
Fixed costs (and hence operational risk) caused by all this regulatory stifling stuff are an order of magniture higher than for an ordinary company investing, say, in real estate. Double taxation can be avoided by setting up the broker-dealer as a limited partnership, but not in all countries. You can be PhD-level developer of 4xBernstein black boxes for S&P timing, turn sophisticated nonlinear models into multiple-Sharpe trading strategies, have a prop-trading quant friend who happens to be a winner of country-wide riskless arb competitions, and even willing investors able to seed you with regulatory capital (i.e. EUR 1 mio + 150k p.a. in costs), and still have all business plans stifled by the regulatory environment (oh, did I mention the 6-8 month wait for the [possible] approval?) The deadly combination of double taxation and high regulatory overhead can kill even the best alpha/capital pairs, especially those on the lower-risk end (my partner is a zero-VaR/capital-protection-by-construction advocate). And if your fellow residents are not even allowed to invest offshore (you would need to set up a full mutual fund, with a no-short-selling-custodian and daily strategy leaking, pardon, reporting, to market your products to your fellow countrymen), then you are effectively cooked. Yes folks, OPM capital can prove effectively useless if you happen to be born on the wrong side of the pond (read: EU). At least foreign investors are not barred, so perhaps we should go this route - that of scrapping our overregulated investors altogether and going for some quality capital from abroad? But the issue of trust is so much country-of-residence dependent, that I seriously doubt international capital will ever be forthcoming... Please PM me if you know any solutions to this third and final missing piece of the hedge fund puzzle.
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Quote from Grant:
You have the vital element , here - a (presumably) brilliant trading system. What are they offering? Money, of which there is a lot flying around from numerous potential parties. My point is anyone can get capital, but how simple is it to get a successful trading system? That's the hard part.
