There is a lot of competition for hedge funds around the world. A hedge fund start up has to really stand out to investors to succeed, because the investment firm is probably going up against not only other new hedge funds but also more established firms that have a history of success. The underdog firm needs to compete on many levels, such as fee structure, investment talent and strategy.
The person who runs a hedge fund start up might be an emerging manager, an investment professional who is in the process of making a name for himself or herself. Being classified as an emerging manager makes it that much more important for him or her to deliver on promises to the investment community. Even if the emerging manager was successful at a larger hedge fund or other financial institution, launching a new hedge fund essentially clears the slate in terms of fundraising and investment performance.
A hedge fund start up must initiate several key relationships that will keep the fundamental structure of the business running successfully. This includes hiring staff for back-end office tasks such as accounting and bookkeeping. If a hedge fund start up is too small to employ those professionals internally, then an outside firm should be hired to perform those tasks.
It also is necessary for there to be a legal professional or lawyer in place at the firm or engaged as an outside party. Hedge fund investments are large and complex, and it is vital that there are legal professionals there to assist with proper wording of documents so that there are no misunderstandings with employees or investors. There are law firms dedicated to providing these services to new hedge fund firms.
Depending on the investment strategy of the hedge fund start up, the firm might need to borrow money to perform certain investment transactions. Most hedge funds have an outside prime broker for these services. The broker also performs the clearing of trades in the financial markets. Investors are educated to seek out investment vehicles that engage outside firms for these tasks to ensure some accountability on the part of the hedge fund.
Marketing for a hedge fund start up might not be in the operating budget, at least initially. There are hedge fund marketing firms or databases that do not charge hedge funds to submit information on the investment style, strategy size and other characteristics of the fund. Instead, they charge investors who are using the service to research potential investments. Relationships are key in the investment community, so networking with other hedge fund professionals can open the discussion on some of the proven marketing arms around in the industry.