When it comes to starting a business, the world is your oyster and if you choose the right endeavor, it can yield quite a large and valuable pearl. One way that some people have elected to earn a living, and quite a comfortable one at that, is by starting a hedge fund. In 2009, the highest paid hedge fund manager earned $4 billion. Clearly, there is money to be made in this industry if one knows how to start.
The first and most important step is to find people to invest in the hedge fund. The fund manager earns a living from the performance and management fees charged to clients. A typical management fee is between one and two percent of the total fund and the performance fee is approximately twenty percent of the fund profits. Therefore, it stands to reason that if a fund is too small, it will not provide enough income to be the only occupation.
Since the investment sector is one of the most regulated U.S. industries, starting a private investment partnership involves a lot more steps than does starting a retail shop. An accountant and a lawyer should be retained for consultation purposes. The accountant can also serve as the auditor for the partnership.
These professionals will help the entrepreneur prepare the partnership agreement. They will advise whether a U.S. or offshore hedge fund is recommended. A prime broker should be obtained so the fund can execute trades and this will cost between $25,000 and $90,000. To keep the focus on investing, hiring someone to handle the administrative work is recommended. A compliance consultant will perform these duties for approximately $15,000 or the back office can be outsourced to a company that handles such functions.
All of this may sound relatively simple but there are more details and requirements regarding each step. The entrepreneur should conduct in-depth research and seek advice from professionals in the industry prior to starting this venture. Though this will take some extra time, it will provide the individual with the knowledge necessary to obtain the best investors.