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Your Checklist For Launching A Hedge Fund

Managing a hedge fund can be extremely rewarding and profitable. We’ve broken down the process of planning the launch of your hedge fund into an easy-to-follow checklist.

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Getting Started

Defining your goals at the early stages of planning your hedge fund will enable you to create a solid long-term business strategy that helps to build a successful fund.

If you’re planning to launch your hedge fund on your own you should factor in several months for research and administration. If you’re planning to use a company like Repool to help you launch your hedge fund, you can be up and running in a matter of weeks.

STEP 1 - Business Plan

Defining your goals at the early stages of planning your hedge fund will enable you to create a solid long-term business strategy that helps to build a successful fund.

Consider the following:

  • Do you plan to build a track record?
  • How will you manage your fund?
  • What strategies do you plan to use?
  • What risks do you see?
  • What is your fee structure?
  • What is your competitive advantage?

STEP 2 - Structure

Hedge funds are typically set up as a limited partnership (LP) or limited liability corporation (LLC) for both the fund itself and the management entity.

You will need to apply for a Federal Employer Identification Number (EIN) which you can get through the IRS Website and also complete the articles of incorporation for your specific state.

STEP 3 - Naming Your Fund

To help attract investors, the fund name you select should be unique, memorable, and relevant, as well as easy to pronounce and spell.

You can find out if your intended name has already been registered as a business by searching your state government’s website: https://www.usa.gov/states-and-territories.

STEP 4 - Registration

You’ll have to decide what kind of fund you’ll be launching and understand the registration requirements.

  • Will you be an ERA or an RIA?
  • Do you know the difference between section 3(c)(1) or 3(c) (7)?
  • What do you need to know about Regulation D?

Read more about this section in our guide to launching a hedge fund.

STEP 5 - Legal

The legalities of launching a hedge fund are complex.

It’s important to find and hire legal counsel that can help you navigate through the myriad of legal questions that will inevitably pop up as you go through the process of launching your fund.

STEP 6 - Technical

How are you going to manage hedge fund administration, accounting, and tax?

Do you have a bank account for your hedge fund?

You’ll need to factor in time for researching and selecting vendors for these requirements.

Setting up a bank account for your hedge fund can typically be a long and tedious process as banks are often unenthusiastic about partnering with hedge funds.

STEP 7 - Competitive Advantage

To define your competitive advantage, it’s important to know who, what, and where your competition is. This will enable you to develop a strategy that helps your fund stand out from the crowd.

You can check out what similar hedge funds are doing by analyzing their unique strategy and performance. Here are some common metrics you should become familiar with as you conduct competitor research:

  • Beta – The measure of an asset’s risk compared to the overall market’s risk
  • Alpha – The difference between an asset’s return and a beta benchmark’s return
  • Sharpe Ratio – The return percentage per unit of risk
  • Information Ratio – The excess return of an asset divided by its tracking error
  • Tracking Error – A measure of the difference between a portfolio’s performance relative to a chosen benchmark

Get the Ultimate Guide to Launching A Hedge Fund

Thinking about launching your own private fund?

Find out more about planning and launching your own hedge or crypto fund in the Ultimate Guide to Launching A Hedge Fund.

The guide covers everything from formation, structure, and registration to branding and strategy.

Get your free copy here.

Interested in launching your fund quickly and easily?

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