You can start your hedge fund out as an incubator fund , then go into a full hedge fund. That basically gives you time to work on your track record and study and take any exams. Obtain necessary regulatory registrations
As was mentioned before on this thread, incubator funds are a bunch of nonsense created by the legal industry to make money. THEY ARE TYPICALLY NOT LEGITIMATE and most times the performance cannot be used legally. I'm continually surprised that those professing intimate knowledge of fund law push a product that is typically so blatantly in violation of it. The concept of an incubator is for you to open a fund with only internal capital. This capital is usually personal, family, or friends. You aren't legally allowed to charge fees because the incubator doesn't have the proper registration or offering documents. But here's the catch.
If more than 50% of the capital in the fund is either your own money, your family, or anyone providing services to the fund, it is considered a proprietary account which you won't be able to use in your performance capsule. Also, you don't charge fees in an incubator and, on multiple occasions, the compliance department at the NFA has insisted that I only use
discretionary accounts that paid fees in the performance capsule. The entire concept of disclosing performance history is that you use history that is representative of your professional management. If it's your own money or family money and/or your aren't charging any fees, it isn't professional discretionary management.
The law firms offering incubator services are not in violation of the law. They are simply charging you a ton of money for something that you probably won't be able to use. Whether you break the law and claim prop performance as discretionary is fully on you. Starting an incubator with your own capital is literally no more useful than simply opening another personal account to dedicate to a specific strategy. If you read carefully, the law firms are not stating that your incubator record will be useable in your performance capsule on the DDOC or PPM (your official due diligence material). They claim that you'll be able to use it for gathering "indications of interest"
before creating your official fund and soliciting to prospective investors. They fully recognize that this track record is considered proprietary and is not typically useable on official docs. So you'd be using it as a teaser, but when the actual documents are presented to the investor there will be big bold statements that say;
THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY.
NEITHER THIS POOL OPERATOR (TRADING MANAGER, IF APPLICABLE) NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED ANY OTHER POOLS OR TRADED ANY OTHER ACCOUNTS.
That is accompanied by a performance capsule showing no history. If you choose to use the incubator history then you must also include performance for any and every other trading account you have for the most recent 5 years. This includes any live strategies that you were just testing. In the end, almost all prospective investors are very suspicious of prop trading results. Using an incubator to try to disguise them makes no difference and could get you into trouble.
