Myriad of choice for start-up hedge fund managers

Whilst in London recently I attended an event focused on start-up hedge fund managers. Although the number of launches in 2016 was down on recent years, those at the cutting edge in London at least, are reporting an uptick in the number of funds launched towards the end of the year or which are otherwise in the pipeline.  Opening discussions on the prospects for sector growth quickly turned to discussions on the cause of the lower numbers and the challenges facing new start-ups. Prospective hedge fund managers face a myriad of choices when establishing a new hedge fund operation.  This article highlights some of the key areas for consideration. Internal operations A good starting point is to consider the expectations of the target investor base. Is it necessary to build an institutional grade infrastructure with significant numbers of permanent staff, dedicated IT systems, prestigious office premises and the like or is a more modest operation sufficient? Whilst the days of a laptop, access to a trading system and a few spreadsheets are long gone, it is worth considering whether the core investment and risk management teams can be supported by individuals with specialist knowledge in the areas of accounting, finance, regulatory compliance and IT security on a part time or contract basis. There are clearly pros and cons of each approach, but if tight control of costs in the early years is an absolute priority – which in many cases it is likely to be – it is perhaps worth building a lower cost but scalable operation which can be expanded as AUM grows. Stand-alone fund versus platform It...