How to start a hedge fund?

I looked into this a while back as well. Most of the canned packages I saw were like most things in this business...pushing their products rather than educating. I guess if you're spending your time with folks who are new to something, you need to get something out of it - that's understandable. I didn't look at the specific package you guys are talking about but I did look at a few others that basically handled your back office. If you had a good person to work with (one who had done one or two before and had the legal stuff together), I think you could save about half from the canned packages. A few guys have done well with PT back office staff. That's crucial so you can focus on the trading.

If you can get the funding, a hedge fund is the way to go. You really get to step around many regs that tie the hands of the mutual fund guys and other money managers. I've heard many traders comment that some of the best mutual fund guys wish they could be hedge funds.

Good Luck to you. :)
 
A simple Hedge Fund that limits itself to equities is supposedly "easy" to set up. If you step into the futures arena with CTA registration be ready to spend countless hours with paper reporting, surprise audits and the rest. The preferred route is to set it up offshore with non-U.S. investors. There is an outfit in New Jersey (forget the name) that will do all U.S. filings for $10,000.00.
 
The key element for starting a hedge fund is the legal structure of the fund. This should cost you about 60K-100K with one of the top three law firms in NYC. You could find someone who used to work for the top three law firms that could probably do it for 35K-50K.

The important thing to remember is that if you want to get any kind of money from Geoge and the likes, you must be setup by one of the top three firms.

Also, most hedge fund investors will carefully look at who did the legal work for your fund.

Unfortunately, I can't give you more info at this time, but I recommend that you contact the major law firms in NYC with any questions. Remember, they want your business, so they should answer some questions ...

You might also want to contact Tony Oz in this regard. I am almost certain that he knows a lot about the setup process. and he normally likes to help out traders.

Good luck,

Bill

FWIW, it is a lot easier to get money from George and the likes than it is to get money from individual accredited investors. You must have the track record, of course :)

Are you ready to swim with the big fish? :D
 
George Soros of Soros Fund Mgmt. Almost all large established funds farm out a portion of their assets to outside managers. I believe he was alluding to this.

You can also contact Citco. They are the backbone of quite a few large well known funds (both offshore and on shore), including Soros' funds. http://www.citco.com

They are the creme de la creme. Not only will they set up a hedge fund. They also know all the channels for marketing it (selling in my view is as important as creating a fund on a stable legal footing).

But......are you sure you want to start a hedge fund? Have you really considered the consequences of going from managing a small (relative) amount for yourself to a large one for others?

It is a different universe! Not only will you have to trade but you will have to adapt to sudden inflows of capital creating drag on your performance. There are also the extra psychological ramifications of being resonsible for other's investments and having them breath over your shoulder, so to speak.

Personally I'm not interested in taking on that extra mental load right now. You may be. Just be careful and make sure that you have considered all the possibilities and that you are confident you can withstand the storms that will surely come your way.

If you are interested in one great trader's experience of going from trading for himself to trading for a hedge fund, read "Pit Bull" by Buzz Schwartz. It's enlightening.
 
MGB: I know the one I used, and I don't want to recommend them. I can't remember the exact name of the other two, but if you do some reseach I'm sure you can find it on your own.

Babak: Excellent post! You covered some of the most important points.

I have setup my own hedge fund just in case I wanted to take on outside investment money in the future. Right now, most of the money in the fund is mine, and I think I will keep it that way.

I am not sure if I can discuss this any further, so please excuse me from answering any questions.

Another guy who is exteremly friendly and helpful is Deron Wagner. You might want to try and contact him. Here is his thread on SI:

http://www.siliconinvestor.com/stocktalk/subject.gsp?subjectid=51208

You can probably contact him through his website.

Bill
 
Interesting post babak
I always assumed that the next logical step is to go hedge after having a decent 3 year record. There are definately other aspects that you have to consider when becomming a fund that are troubling.
Still.... I think that the best way to make a lot of money is to manage other people's funds. Even at a few hundred percent annual return, I will not get rich fast. It's much easier to do just 100% for a multi-million dollar fund and take a cut of that.
 
This is a good thread. But here's my input. Sombody said read Buzzy Schwartz book PITBULL, good idea. I was a retail broker for a big firm(the one with the bull) and I left 'cause I didn't like working with clients. Some were ok, but most of them you couldn't make happy no matter what you did. Make them money, they're friendly , but sometimes don't give you much credit. Lose them money and sometimes they'd treat you like you tried to kill their mother or something.
Maybe it would be different in the hedge world where the money is more experienced, but for now I like working by myself, for myself.
 
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