Considerations for Launching a Hedge Fund

Hedge Fund Launch ProcessLaunching a hedge fund can usually take an average of six months and requires an extensive amount of planning and preparation

Six Considerations for Your LaunchA hedge fund launch is a major undertaking that requires a methodical approach with experienced partners in various industries.– Fund Development– Marketing– Infrastructure– Telecommunications– Data Protection– Archiving

1. Fund DevelopmentHire legal council to create your legal structure– Draw up essential documentation and tax planning– Will you be an LP or LLC?

Develop your business plan– Create documented policies for compliance, valuation, and

training– Evaluate needs for order management, accounting, and risk

management

Attract talent– Hire a chief operating officer (COO) responsible for trading

operations, investor relations, legal accounting, finance, and IT– Hire/outsource payroll and benefits duties

1. Fund Development (cont.)

Work with a prime broker– Provides financing (margin lending, derivatives trading, and

security lending) and value added services (capital introduction, business consulting, talent identification, and human resource consulting)

Determine the fund’s location– Domestic, offshore or both?– Popular areas such as the Cayman Islands, the British Virgin

Islands, Ireland and Bermuda each have different tax requirements and business costs

2. Create Your Marketing PlanCreate and regularly update marketing materials for investors and legal advisors

Managers are advised to register with the SEC

Have the principal of the fund, of which he is a general partner, sell securities (no commission)

Hire a third-party marketer or broker dealer to sell securities (commission)

Most controversial method is to use the Cash Solicitation Rule (Rule 206(4)3)

3. Establish Your InfrastructureCreate a reliable and secure technology infrastructure for 24x7 protection and support with the following essentials:– A business continuity plan (BCP) and

corresponding disaster recovery (DR) system– A voice communications system– Email and instant message archiving

Create a multi-tiered approach to security– Physical– Data security– 24x7 monitoring – Cameras

4. Select Telecommunications ProvidersDetermine Your Internet and Phone Connectivity– 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

Create an easy-to-use phone service– 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

Select your market data provider (examples include: Bloomberg, Thomson Reuters and Dow Jones) – Selecting a vendor is based on the market and product coverage,

as well as cost, speed, reliability and client service

5. Finalize Data ProtectionCreate your Business Continuity Plan (BCP) and Disaster Recovery (DR) guidelines – can take 2-3 months

Determine the following:– What are the mission-critical processes? – Who are the key personnel? – How are they going to be notified of an emergency? – Where / how will they continue to operate?– How often should I test my DR plan? (2-3 times per year)

Host the DR site in a different geography to protect against local outages

Conduct daily offsite backups of essential documents in an electronic format

6. Create Your Archiving ApproachThe Federal Rules of Civil Procedure relating to Electronically Stored Information requires you to supply data on request:– Email, Instant Messaging (IM), Bloomberg Mail/IM– Documents, spreadsheets and PDFs

Adhere to legal time requirements for email and IM data archiving

Avoid data changes/deletions using WORM (Write Once Read Many) format

Index data into searchable files so only requested information is provided

House data on its own offsite server accessible via the website

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