Help Starting a Fund
- Thread starter showyouwang
- Start date
Yes. In any case, even accepting your numbers, we've made progress from "$2 million".
Agreed, OP needs a whack with the LART.
No offense, but you really are misleading people. I assume you have the best of intentions, but your information is simply wrong.
Aaron Schindler and I both contributed to a very long thread on this topic, here:
http://www.elitetrader.com/vb/showthread.php?threadid=26648
I think my comments were at the very end. The short summary: I used an attorney who specializes in the field to establish a Delaware-registered LP + California-registered LLC (management company). I'm registered as a CPO with the NFA, and able to accept investor dollars; I'm a "hedge fund". I have a third-party administrator who handles NAV, cash management, and my AML requirements. I have engaged a leading (top 5 by any metric) accounting firm for audit/tax services.
Total startup cost: about $20k. After the first 12 months (including audit/tax), I'll be at about ~$50k. And this is me without cutting ANY corners.
If operating budget was an issue, and instead I was doing the work by hand + lower tier service providers, I could achieve all of the same for probably less than $10k the first year.
OP didn't state anything about his fund so anything in this thread is pure speculation and guesswork. OP also asked about DIY Accounting and Admin which is probably why I went on the high side.
My intent was not to mislead and what I said is very accurate within my experience - which is mostly 40 Act mutual funds and ETFs. Hedge Funds are such a vague thing that without an understanding of the Investment Objective, size of the fund and complexity of the fund you really can't speculate on startup costs.
Perhaps I come from a different world where starting your own Asset Pool within an LLC structure isn't pitched as a Hedge Fund. I don't mean to cut your fund down at all - but since you are a "hedge fund" (in quotes) do all of your investors meet the "Sophistocated Investor" criteria?
You can set up a hedge fund cheaply but no one will put real money into it unless it is done well. That means, top tier lawyers, administrators, auditors and investment in infrastructure and other services.
All of that is expensive but you can do a reasonable job with $500K for startup.
All of that is expensive but you can do a reasonable job with $500K for startup.
Are you referring to accredited investors, as per Reg D? Yes, absolutely. Minimum investment level is $250k.
Because I'm dealing with commodity futures am I also subject to further regulation by the CFTC/NFA. This also means I'm exempt from the Investment Advisers Act.
The only debate in my mind is whether I wanted to limit to qualified purchasers (roughly, investors with $5mm+). Going to qualified purchasers would significantly LESSEN my compliance costs even with the CFTC/NFA.
There's no other fund startup costs I should need to pay for, even if some institutional investor was allocating $50mm to me tomorrow.
I'm not sure how it is in the States but in Australia or Singapore the cost for setting up a Hedge Fund would be roughly as follows.
And this is for top tier Lawyers, Accountants and Custodian/Administrator.
First year.
$35-50k: Legal advice, structure of Management, offering documents, etc, etc.
In the first and subsequent years, the cost is more like.
$50k: Custodian and Administration.
$30k: Audit fees
$10k: Ongoing legal advice.
In my opinion, I haven't set mine up yet, but will soon, and have looked into it extensively.
And this is for top tier Lawyers, Accountants and Custodian/Administrator.
First year.
$35-50k: Legal advice, structure of Management, offering documents, etc, etc.
In the first and subsequent years, the cost is more like.
$50k: Custodian and Administration.
$30k: Audit fees
$10k: Ongoing legal advice.
In my opinion, I haven't set mine up yet, but will soon, and have looked into it extensively.
Interesting thread. It's funny to see other posters attacking the one that actually knows the industry. $2million may be an exaggerated number but it is not far from that figure, if you plan to set-up a proper hedge fund
If you want to pitch your hedge fund to sophisticated investors, FoFs, investment pools and groups, you will need:
1) Lawyer
2) Administrator
3) Auditor
All of which have to be respectable, hence not cheap.
Additionally, you will need to have a proper IT in place, as FoFs and investment groups do perform due diligence on your IT. Depending on how the trading is executed, risk management will also be called into question, and if there is any discretionary trading going, there needs to be a human risk manager.
Finally, you need to have a proper prime broker, which often has fixed monthly costs unless you are doing a lot of volume.
Bottom line, it is not cheap to start the type of hedge fund that you read about in Wall Street Journal. Hence it is wise to keep it simple via a cost effective LLC, such as an asset pool, until you are ready to take in big money investors.
If you want to pitch your hedge fund to sophisticated investors, FoFs, investment pools and groups, you will need:
1) Lawyer
2) Administrator
3) Auditor
All of which have to be respectable, hence not cheap.
Additionally, you will need to have a proper IT in place, as FoFs and investment groups do perform due diligence on your IT. Depending on how the trading is executed, risk management will also be called into question, and if there is any discretionary trading going, there needs to be a human risk manager.
Finally, you need to have a proper prime broker, which often has fixed monthly costs unless you are doing a lot of volume.
Bottom line, it is not cheap to start the type of hedge fund that you read about in Wall Street Journal. Hence it is wise to keep it simple via a cost effective LLC, such as an asset pool, until you are ready to take in big money investors.
I don't know heech personally but he caught the Reg-D reference and seems to know what he's talking about.
Truth is for 99% of people a simple power of attorney arrangement is fine. (when someone would give an asset manager power of attorney to trade their accounts, consider it like having two users)
Unless you want investors and plan to hire a staff and sales team to sell your fund, its overkill and an ego thing (in my opinion). A simple LLC structure is fine and much cheaper.
Others failed to mention/include office space, insurance, IT, computers/hardware, prime broker, disaster recovery, etc. You can't just open a legit hedge fund in your garage and expect people to put serious money in and if they do - you probably already know them well enough that you could do power of attorney and save you both some coin.
Either way, OP still has yet to fill in the blanks so we are left to go tit for tat.