The number of hedge funds in the market has increased considerably over the years. There are many reasons why these funds have become very popular. However, its the fact that many hedge fund managers make millions or even billions of dollars annually that drives people to start their own fund. These 7 hedge fund manager startup tips can help investors to start and run their own funds.

Hedge Fund Management

Managing a hedge fund can be challenging because these funds usually thrive on performance. Funds that produce poor yields year after year are often avoided by investors. To ensure that your hedge fund succeeds, you need to hire the right staff, implement risk controls, make sure the business is profitable and grow assets. The following tips will boost your chances of succeeding.

1. Get a Competitive Advantage

Since there are many hedge funds in the market, you can only attract clients if you have a competitive advantage over the competition. You may have a trading advantage, marketing advantage or resource advantage. This may come in the form of family offices or a close relationship with dozens of high net worth individuals who may want to invest with you.

2. Define Your Investment Strategy

It is important that you define your investment strategy or process to your staff as well as clients. You need to take your time to research extensively on the subject and identify the most suitable investment strategy. You should also read about strategies that have failed in the past so as to avoid them where necessary.

3. Capitalization

Some industry experts claim that a serious fund should manage at least $110 million worth of assets. However, some fund managers have reported huge profits with only $10 million worth of assets. It is important to note that investors will only take you seriously if you are managing a significant asset portfolio.

4. Sales and Marketing Plan

Before you can start running your hedge fund, you must have a sales plan to raise assets. After all, external investors will only come on board if you are already managing some assets. Consider raising seed capital from family and friends, high net worth individuals, financial advisers, seed-capital providers, pensions, foundations and endowments, wealth management offices and corporations. Once you have your seed capital, you can embark on a marketing campaign to attract more investors.

5. Risk Management

As the manager of the hedge fund, you must come up with an efficient method for managing both business risk and portfolio risk. Consider bringing-in an experienced consultant to help you manage these risks.

6. Compliance Issues

Be sure to have an experienced lawyer on your side to advice you on issues concerning licensing, certification, legal obligations and any other compliance issue. Consider building relationships and attending dinners hosted by industry players.

7. Choosing a Prime Broker

Every hedge fund needs to partner with a prime brokerage firm. Most hedge fund managers take several weeks or even months to analyze the costs, advantages and shortcomings of working with different firms before making a decision, and so should you. Hopefully, these 7 hedge fund manager startup tips will help you to start a successful hedge fund.