The Hedge Funds Weblog
How To Start Your Own Hedge Fund
Hedge funds make a lot of money – so much that you may have wondered if you could start your own. Fortune magazine has an article explaining how.
First, I needed a lawyer to create investor contracts and such, at a charge of $400 an hour, or about $30,000 a year. Other gotta-haves are an auditor ($30,000 a year) and an accountant (ditto).
A back-office outsourcer to handle stuff like shareholder communications runs as much as $75,000 a year – though a conference exhibitor that uses workers in India was peddling itself for about half that.
I also needed to trade through a brokerage. One exhibitor uses Bear Stearns and Goldman Sachs as clearing agents. ("If you use us, you can use Bear and Goldman's names on your marketing material. It really makes you look legit," the salesman told me.)
Then there was the optional compliance consultant ($15,000-ish), who ostensibly would keep the regs away. We're talking $200,000 just to get going!
Ah, but that's why there are funds of funds – hedge funds that invest solely in other funds – aching to provide seed money to folks just like me! They'd supply me with $20 million as long as I handed over half my annual fees and profits. Bill, a former Merrill Lynch broker who'd spent the past two years "sailing around the world, just diggin' life," said the terms seemed onerous: "They'll own you, man!"
Since hedge funds have become a big business, there are plenty of people willing to help you out. So check out the article, attend a conference, and find a few investors. When it is that easy, it makes me wonder if a hedge fund bubble is coming.
4 Comments so far ...
You know… that article in Fortune was supposed to be a sarcastic articles about hedge fund industry, not a How-to guide…
Comment on August 24, 2006 12:51 amYou should probably write an article on how to get out of hedge funds while you still can.
After more than 18 years promoting hedge funds, I get scared when I hear that more people are trying to start new hedge funds.
In the end, their results are pretty bad compared to an average long only equity fund.
It is actually cheaper for any one (capable of being a stock picker) to raise money “onshore” by promoting a long only global value fund.
Moise
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Comment on December 26, 2010 05:17 pmph 39874310