Launching a Hedge Fund: Six Considerations for a Hedge Fund Startup
Considerations for Launching a Hedge Fund<br />
Hedge Fund Launch Process<br />Launching a hedge fund can usually take an average of six months and requires an extensive amount of planning and preparation<br />
Six Considerations for Your Launch<br />A hedge fund launch is a major undertaking that requires a methodical approach with experienced partners in various industries.<br />Fund Development<br />Marketing<br />Infrastructure<br />Telecommunications<br />Data Protection<br />Archiving<br />
1. Fund Development<br />Hire legal council to create your legal structure<br />Draw up essential documentation and tax planning<br />Will you be an LP or LLC?<br />Develop your business plan<br />Create documented policies for compliance, valuation, and training<br />Evaluate needs for order management, accounting, and risk management<br />Attract talent<br />Hire a chief operating officer (COO) responsible for trading operations, investor relations, legal accounting, finance, and IT<br />Hire/outsource payroll and benefits duties<br />
1. Fund Development (cont.)<br />Work with a prime broker<br />Provides financing (margin lending, derivatives trading, and security lending) and value added services (capital introduction, business consulting, talent identification, and human resource consulting)<br />Determine the fund’s location<br />Domestic, offshore or both?<br />Popular areas such as the Cayman Islands, the British Virgin Islands, Ireland and Bermuda each have different tax requirements and business costs<br />
2. Create Your Marketing Plan<br />Create and regularly update marketing materials for investors and legal advisors<br />Managers are advised to register with the SEC<br />Have the principal of the fund, of which he is a general partner, sell securities (no commission)<br />Hire a third-party marketer or broker dealer to sell securities (commission)<br />Most controversial method is to use the Cash Solicitation Rule (Rule 206(4)3)<br />
3. Establish Your Infrastructure<br />Create a reliable and secure technology infrastructure for 24x7 protection and support with the following essentials:<br />A business continuity plan (BCP) and corresponding disaster recovery (DR) system<br />A voice communications system<br />Email and instant message archiving<br />Create a multi-tiered approach to security<br />Physical<br />Data security<br />24x7 monitoring <br />Cameras<br />
4. Select Telecommunications Providers<br />Determine Your Internet and Phone Connectivity<br />Use two services and a router in case one goes down and look for a partner that offers proactive monitoring and security features to achieve near 24x7 availability<br />Create an easy-to-use phone service<br />Use a phone switch or PBX for routing calls, voicemails, and offers caller ID, auto attendant and integration with ring-down lines to various brokers<br />Select your market data provider (examples include: Bloomberg, Thomson Reuters and Dow Jones) <br />Selecting a vendor is based on the market and product coverage, as well as cost, speed, reliability and client service<br />
5. Finalize Data Protection<br />Create your Business Continuity Plan (BCP) and Disaster Recovery (DR) guidelines – can take 2-3 months<br />Determine the following:<br />What are the mission-critical processes? <br />Who are the key personnel? <br />How are they going to be notified of an emergency? <br />Where / how will they continue to operate?<br />How often should I test my DR plan? (2-3 times per year)<br />Host the DR site in a different geography to protect against local outages<br />Conduct daily offsite backups of essential documents in an electronic format<br />
6. Create Your Archiving Approach<br />The Federal Rules of Civil Procedure relating to Electronically Stored Information requires you to supply data on request:<br />Email, Instant Messaging (IM), Bloomberg Mail/IM<br />Documents, spreadsheets and PDFs<br />Adhere to legal time requirements for email and IM data archiving<br />Avoid data changes/deletions using WORM (Write Once Read Many) format<br />Index data into searchable files so only requested information is provided<br />House data on its own offsite server accessible via the website<br />
Online Resources<br />Visit Eze Castle Integration’s Online Knowledge Center at <br />http://www.eci.com/knowledge-center/index.html.<br />For more information, please visit Eze Castle Integration online at http://www.eci.com.<br />Follow Eze Castle Integration on Twitter at: http://www.twitter.com/ezecastleECI.<br />
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