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Setting up a hedge fund is easy
With the performance that many hedge funds have seen in the last year, it is no wonder many individuals have considered starting one of their own. But is setting up a hedge fund easy, or will you require massive investment capital and many years of experience as a successful trader? The fact is that the process is quite simple when you understand exactly what these funds are and know the steps you will need to follow to be successful in this quest. If you are going to start your own then there are some professionals and documents that you will need to get to be in compliance and legitimate. You will need legal papers prepared which establish the investment vehicle, and those which create the management entity for the vehicle. You will also need to have a legal subscription agreement and operating agreement drawn up for the fund and the management company. A crucial document that you will require is the PPM, or the Private Placement Memorandum which provides information about your investment vehicle to potential investors. All of these documents will probably require an attorney to create, and this may be done on an hourly basis or by the job depending on the specific attorney you use. This is necessary if you are setting up a hedge fund so that everything is legal and valid.
Another factor when setting up a hedge fund is registration. These requirements will vary from one state to the next, but many states require that you must register if you are the hedge fund manager unless certain requirements are met. If you are not required to register with your state you may still be required to register with the SEC when setting up a hedge fund, and you may want to check with the appropriate attorney for advice in your area. Another consideration is using an incubator. This process allows you to start a hedge fund and gain the performance and experience you need to show potential investors.
The incubator method of setting up these funds will simplify the process, but it also comes with certain restrictions. This method removes the negative track record that all these investment options start out with, and give you a chance to improve this record. Setting up a hedge fund this way involves two steps. In the first step the management company and hedge fund are set up as legal entities, and the operating and legal subscription agreement are also drafted. In this stage the PPM is not created, but the fund can start trading. This will usually be done with your investment capital used to start the fund. This will allow your newly created hedge fund to build up a track record of success. The second step of the incubator involves creating the PPM using the trading record, for a better and more current view of the fund and performance. Setting up a hedge fund is easier than many people may think, and attracting new investors is often just a matter of articulating the strategies and performance of your fund.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Hedge Funds Investment14 May 2010|