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    Hedge Funds for the Rest of Us
    Hedge Funds for the Rest of Us
    Hedge Funds for the Rest of Us
    Ebook53 pages47 minutes

    Hedge Funds for the Rest of Us

    By Private Placement Handbook Series

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    About this ebook

    Anyone with $30,000 to $40,000 can start a hedge fund. Hedge funds now manage $2.2 trillion in assets, up four fold in five years. Originally a hedge fund invested in equities and used leverage. It actually had to hedge to protect against market swings by taking long and short positions. Only a hedging fund could be called a “hedge fund.” Now hedge funds are simply private investment pools of money, normally structured as a limited partnership or limited liability company. These profits are referred to as a “performance fee” or an “incentive allocation.” They can amount to 20 or even 30 percent of the profits. Unlike a mutual fund, a hedge fund is not open to just any investor, and it cannot advertise for investors. However, a hedge fund can use any means necessary to make money, whereas the SEC prohibits the use of derivatives or shorting strategies by mutual funds; in other words, mutual fund are limited to taking long positions. There is more risk to the typical mutual fund than to the typical hedge fund because a hedge fund can employ long and short positions to make money in good and bad markets. Also, a mutual fund manager is paid on the basis of the amount of assets under management. A hedge fund manager is paid primarily based on results, and most hedge fund managers often invest their own money. Hedge funds engage in arbitrage and employ hedging strategies. Hedge fund managers who use traditional, long-only equity strategies do not hedge in fact but operate a type of mutual fund.

    LanguageEnglish
    PublisherPrivate Placement Handbook Series
    Release dateSep 18, 2015
    ISBN9781310492860
    Hedge Funds for the Rest of Us
    Author

    Private Placement Handbook Series

    After getting a JD from Stanford Law School, a MA from the University of Chicago, a diploma from the University College London, and working as a reporter for The Wall Street Journal, Doug was a member of the California bar for 40 years, during which time he founded a series of law reporting services now owned by Thomson-Reuters. Doug specializes in debt and equity crowdfunding. He helps small business identify and solicit sources of private equity. Doug monitors a LinkedIn discussion group, State Securities Regulation, with 1500 members. Connect with Douglas Slain: LinkedIn: http://linkedin.com/in/douglasslain Facebook: http://facebook.com/douglas.slain Twitter: https://twitter.com/exemptofferings Blog: http://www.privateplacementadvisors.com/apps/blog Web site: http://privateplacementadvisors.com

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      Book preview

      Hedge Funds for the Rest of Us - Private Placement Handbook Series

      I. Getting Started

      Anyone with $30,000 to $40,000 can start a hedge fund.

      Hedge funds now manage $2.2 trillion in assets, up four fold in five years.

      Originally a hedge fund invested in equities and used leverage. It actually had to hedge to protect against market swings by taking long and short positions. Only a hedging fund could be called a hedge fund.

      Now hedge funds are simply private investment pools of money, normally structured as a limited partnership or limited liability company. These profits are referred to as a performance fee or an incentive allocation. They can amount to 20 or even 30 percent of the profits.

      Unlike a mutual fund, a hedge fund is not open to just any investors and cannot advertise for investors. However, a hedge fund can use any means necessary to make money, whereas the SEC prohibits the use of derivatives or shorting strategies by mutual funds; in other words, mutual fund are limited to taking long positions.

      There is more risk to the typical mutual fund than to the typical hedge fund because a hedge fund can employ long and short positions to make money in good and bad markets. Also, a mutual fund manager is paid on the basis of the amount of assets under management. A hedge fund manager is paid primarily based on results, and most hedge fund managers often invest their own money. Hedge funds engage in arbitrage and employ hedging strategies.

      Hedge fund managers who use traditional, long-only equity strategies do not hedge in fact but operate a type of mutual fund.

      First Steps

      It is very easy to join the hedge fund industry; in fact, starting a hedge fund gets easier every year. Brokerages, lawyers, accountants and other financial professionals often team up to provide a one-stop-shop approach to developing and launching hedge funds. Most consultation work is conducted over the phone or Internet. All one needs to start a hedge fund are money, a lawyer, a prime (or introducing) broker, office space (or a home office), and eventually an accountant.

      Money

      Most hedge fund managers look to friends and family for their startup money since it is difficult to attract institutional investors to a new fund. Many hedge funds have some if not most of their manager’s wealth invested in them.

      Legal Services

      The legal development process normally begins with a planning consultation that covers investment adviser registration, location of the hedge fund, and reliance on safe harbors and exemptions. A legal consultation identifies matters that require further planning and, more often than not, further consultations. The fund and its management company are formed in the appropriate jurisdictions. Bank and brokerage accounts are opened. A lawyer will draft operating agreements and the offering documents

      Prime Broker Services

      After the hedge fund is organized and the offering documents are prepared, one needs a prime (or introducing) broker. An introducing broker is a registered broker/dealer who has an agreement with a prime broker to use the prime broker’s custody and clearing services. A top shelf prime broker or introducing broker will provide marketing and capital introduction services.

      Conventional advertising and marketing of hedge funds is against the law. However, legal alternatives have been developed and good fund managers are usually able to get the right kind of investor attention. It

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