LH2004 said: ebaynoob said: A couple friends of mine and I are looking to lose some money and end our friendship so have come up with the bright idea of opening up a hedge fund incubator fund. What do you mean? Thanks guys for your comments. I was a bit afraid to throw this question out there for fear of being flamed to high-heaven. I’m glad you all have received this question well. Let me try to give a little more background:

Yeah, I have done this. I am not going to go into a lot of detail (don’t have the time) but here is the basic concept.

No-one is going to invest in a new Hedge fund. You need to establish a track record. I am not a Physician however I have a network of friends that are Physicians. This network wanted to find other Physicians to buy into a Hedge fund that purchases ownership in Home Health Companies. They asked if I wanted to join the group and I said yes. We decided to start a Hedge Fund after about 3 or 4 lunch meetings. We were quoted about $52,000 for the first year to start it up by a law firm out of San Francisco, CA.

We decided to do a incubator fund and I think we paid $6,213 for the first year to a law firm.

The key is to go slow but not so slow that you loose forward movement. Your goal with a incubator fund should be to establish a track record for your hedge fund. The law firm will create your hedge fund and management company as legal entities. You begin building the fund’s performance history by trading with your own limited funds. When we interviewed law firms, a lot of them pressured us to make the incubator fund a off shore legal entity. I am not sure why but this is a BIG deal with attorney’s who do incubator funds. We decided that we wanted to stay as a US entity as when investors here off shore they get a bit nervous.

We required all members to come to the table with 10k and we had 10 friends. This gave us $100k to start with. We were told by all of the attorney’s we interviewed that we were extremely under funded at 100k and they would expect us to have closer to 250k or more — especially if we were dealing with Home Health companies. We then kicked up the initial investment for our group from 10k to 25k and 3 of the 10 people backed out.

After 4 months, we were able to replace those 3 individuals and had our 250k initial investment.

Does this help answer your question?