How To Start Your Own Hedge Fund

Date: Wednesday, October 14, 2009
Author: Lawrence Delevingne, Clusterstock

After taking a beating, and watching investors flee in droves, hedge fund assets are back to nearly $2 trillion, according to HedgeFund.net.

And with capital flowing, thanks to the Fed, it's time for you, yes you, to grab your share of the pie.

"Contrary to conventional wisdom, it’s actually a favorable time to start a hedge fund," says Turn Key Hedge Funds. Reasons include that "the market is inevitably recovering after a historic collapse and all things being equal, riding that recovery is possible;" and "there remains an appetite among high net worth individuals and institutions to capitalize on investment opportunities outside the rank and file."

But, you can't just start a hedge fund in your sleep. You need to know a few things about the new environment.

"Obviously, this financial crisis has shifted how the hedge fund industry operates," says Evan Rapoport, a Managing Partner at consultancy HedgeCo Networks. "The biggest change in the industry investors have become extremely cautious, especially in dealing with new funds and the increased awareness of hedge fund infrastructure.  This current market place is the most difficult for raising capital for hedge funds."

Richard C. Wilson, a consultant who runs the Hedge Fund Group adds that "the environment for starting a hedge fund right now is tough...investors are weary of non-institutional hedge funds and there is a lot of competition for seed capital and investor attention among emerging hedge fund managers."

So you'll need plenty of patience besides great investment ideas and tough-to-get seed money. In the past, some funds could be profitable in three years; now, Wilson says there's a five to seven year range for most funds more in line with typical business break-even periods. "Running a hedge fund is becoming a very long-term game."

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