Starting A Hedge Fund
Lets say you want to start a hedge fund. Its not that complicated though you would need some tools and processes set up to run your operations. Off course the variety of tools and processes would depend on the your knowledge and complexity of your strategies.
Though a vanilla hedge fund would need at least the following to exist:
1) Disclosure document.
2) A securities license. (Free)
3) Registration with the NFA or SEC, depending on what you are going to trade and the size of your startup.
4) Private Placement Memorandum, Operating Agreement, Subscription Agreement. If you have a lawyer do this for you it will cost about $15-20k.
5) A broker. IB isn’t a Prime Broker, just a broker. A Prime Broker would be someone like GS, MS, MER, and such. These guys feed you research, steer clients to your fund, and if you are really good and swing a big stick you get inside information. I’m not kidding about that.
6) Auditor - allegedly they are suppose to have passed some licensing exam specifically focused on investments - not some one-clown shop located in the sticks (yes I am referring to Madoff, how he got away with his auditors is beyond me). Cost: $5-10k / year.
7) Administrator - you can have someone in house to take care of your IT infrastructure and accounting. You also can outsource that to a hedge fund administrator who would do all that for you.
10) Have a Bloomberg terminal.
11) You must be self sufficiently funded.
12) You must have A LOT of experience in all four markets ( Equity, Bonds, FX and Commodities ), plus futures and options.
* If you want to manage money for clients who live in California you have to be a Registered Investment Advisor in that state, regardless of the amount of money you are managing. You have to know the specific laws of each state you have a client in. It’s good to work with an attorney who can keep you out of those nets.
** I would say an audited track record became a must it today’s realities.
*** All together start up fees are going to run 75k+/-.