Launching a Hedge Fund: How to Raise Capital - Defining Your Story

How do emerging hedge fund managers raise capital? One of the most challenging aspects in the early days of launching a hedge fund is raising capital. In our 3-part blog series, we lay out how the most successful new fund managers typically raise capital. First, defining your story.

Posted on
Read time
5 minutes

How Do You Raise Capital For A Hedge Fund?

When raising capital for your hedge fund, you need a clearly defined story establishing the validity of your investment strategy and the opportunity it presents. Your hedge fund story distinguishes your fund from all the rest, highlighting its value with compelling facts. Therefore, before approaching prospective investors, you need to develop your pitch, outline your strategy and learn how to present a persuasive argument that your hedge fund will see results.

What is Your Pitch?

When raising capital for hedge funds, you must develop a convincing pitch that clearly defines your strategy.

  • What are your hedge fund’s focus industries and markets?
  • What are the opportunities in these markets?
  • What figures and stats prove this market is currently ripe for investment?

A convincing pitch differentiates your offering, so investors can focus on the opportunity.

What is Your Strategy, and Why?

Your hedge fund strategy tells investors how their investment will generate active returns and how much risk it presents. Your story includes an overview of your strategy and explains why it’s ideal for your financial product. For example, if you use a long/short strategy, explain how investing in long positions for high-performing investments helps finance short positions for underperformers. Investors want to understand how you reduce risks while providing more impressive gains.

A higher-risk strategy appeals to investors with a higher risk threshold. In this case, you might focus on an event-based merger arbitrage strategy. Investors need to know how you take advantage of merger activity by investing in shares in the company targeted for takeover and short-selling shares in the buying company to compensate in case the transaction doesn’t close. Other events might be corporate reorganizations, which again present a high risk because the company might collapse before the reorganization is complete. Again, investors need to understand why you might choose this strategy so they feel confident your hedge fund can deliver results.

Learn How to Sell Your Strategy

Selling your strategy – and yourself – takes practice. You need to learn how to tell your story in a concise and relatable way. Known as an “elevator pitch,” to sell your strategy, you want your pitch to reflect your knowledge instead of sounding like you’re simply reciting statistics. Although short and sweet, you want to get the point across and make it clear you understand the deeper meaning behind the why’s of your story.

Some points to help you learn how to sell your strategy include:

  • Value: Make sure your pitch addresses what your investors value most. How does your hedge fund and “brand” deliver that value?
  • Unique Value: Make it clear your hedge fund is unique with points comparing it to leading/competing hedge funds. Flaunt your advantages to win investors over quickly.
  • Keep It Relevant: Avoid going off on a tangent, even if that tangent is fact-based. You’ll lose your audience if you don’t offer a clear and engaging presentation that leaves no doubt you’re the best game in town.
  • Speak, Don’t Recite: Know your information inside and out so your pitch is conversational and natural instead of forced and practiced. List essential talking points and practice a short, sweet, and informative way of explaining them.
  • Avoid Jargon: Buzzwords and jargon are confusing and appear too salesy. Using laypeople’s terms feels more authentic, putting people at ease. Unfortunately, jargon can also come across as disingenuous, making people feel like they’re being swindled.
  • Make an Emotional Connection: Make a statement that resonates with investors. Remember our first point: Bring value to the forefront. What key points show investors you are well-informed, understand their needs, and can deliver on your promises?  
  • Overcome Objectives: Proactively sharing information improves transparency and overcomes objections. Understanding investor pain points can create compelling arguments to sell your strategy.
  • Be Consistent: Keep things structured so your information is consistent, and do not leave openings for discrepancies that reduce trust.
  • The 5 W’s: Make sure you explain the what, who, when, where, and why, along with the how to cover all bases.
  • The Right Service Providers: Select service providers that fit your brand, so the entire message is in alignment and congruent from start to finish.

Utilize Cap Intro with Your Prime Broker

Capital introduction is often offered by your prime brokerage to help you develop enough critical mass to become profitable. By introducing you to their institutional investors interested in your particular strategy, raising capital for hedge funds takes less effort. You can also look for events in your area that introduce investors to fund managers.

Stay tuned for Part Two of our Raising Capital content series: Building Relationships.

Looking for modern launch or backoffice solutions?


Repool, Inc. (“Repool”) serves as an administrator to various pooled investment vehicles.  The content on this site, or any associated distribution platforms and public Repool online social media accounts, platforms, and site (collectively, “Distribution Channels”), is provided for information and discussion purposes only, and should not be construed as or relied upon in any manner as legal, business, tax, investment, or other advice. Repool’s services and information available on Distribution Channels are not a substitute for third-party professionals (including properly licensed and/or registered lawyers, brokers and tax professionals), and you should seek your own professional advisers, including legal counsel. Repool is not licensed to provide legal advice and is not registered as a broker-dealer or investment adviser, and Repool is not otherwise licensed or registered.

Any views expressed in posted content, such as articles, blogposts, commentary, videos, or social media, are those of individual Repool personnel or third-party authors and are not the views of Repool or our affiliates, unless explicitly stated otherwise. Additionally, with respect to any content or views available on Distribution Channels, Repool makes no representations that the information has been validated by independent, licensed third-parties, nor that such information has any enduring accuracy or appropriateness for any given individual or situation.

Laws and regulations applicable to the sale of securities, forming pooled investment vehicles (including private funds), and investment management (including serving as an investment adviser or commodity trading advisor) are complicated and occasionally ambiguous. Relevant law may come from the state, federal, or international level, and you may be under the regulatory oversight of one or many regulatory bodies such as, but not limited to, the Securities and Exchange Commission and the Commodity Futures Trading Commission. It is your responsibility to ensure that, when forming, offering interests of and managing any pooled investment vehicle, whether supported by Repool’s administrative services or not, you are in material compliance with applicable laws including obtaining any and all applicable licenses, permits, registrations, memberships, and approvals that are required in order to form, offer securities of and manage such pooled investment vehicle.  You should not rely upon Repool in making any such determinations or as a replacement for licensed, third-party professionals.

Building the future of fund services

© 2023. Repool, Inc.