By Karen Allan, audit manager, haysmacintyre
Launching a hedge fund can be both an exciting and daunting opportunity. There are many regulatory and administrative hoops to jump through. Here we explore the 5 key areas you need to consider for a successful launch.
- Prove your track record
When launching a new fund, it is increasingly important to provide a verified track record to potential investors. This agreed-upon procedure, performed by an auditor, is derived from your needs and requirements, and is focussed on the aspects of performance you want to confirm to your investors.
This may include the percentage yield over a set time period, the returns on the fund, the fund value at a specific date and any further key performance indicators you think will be useful to your fund in securing investment.
The letter provided by the auditor is often included within your initial investment prospectus to provide substance and third-party testament to your track record in fund management.
- Construct your business
Which entity structure will suit your needs? In the hedge fund space, limited companies and limited liability partnerships are the most commonly adopted set-ups. This is dependent upon your plans for the business, and relevant tax planning. There are benefits to both and these should be considered in association with the future structure of any group which may be set up to include fund manager, investment advisor and the fund itself. Bear in mind that the structure you adopt will influence the future ongoing compliance requirements of your business.
- To outsource or not to outsource
Identify your skill base and any gaps in knowledge which need to be complemented by expert service providers. Outsourcing is most commonly used for legal, accounting, audit, taxation, compliance and prime brokerage. You could go as far as outsourcing your Chief Operating Officer (“COO”) or your regulated status with the Financial Conduct Authority (“the FCA”).
An outsourcing approach is cost effective and can be adopted to suit your needs and flexed over the life of your business. It may be appropriate to outsource more of the services in the initial phase of the fund launch, allowing your focus to remain on the fund performance and obtaining investment.
Dependent upon your skillset and your affinity to a hands-on approach, a COO could be your saving grace. A COO can be brought in house or outsourced. This individual will have pre-existing relationships with providers and will help to smooth out the start-up phase of the business. This will enable you to focus on your key strengths and the ongoing management and performance of the fund. In the later phases of the launch, a COO will be able to assist in the development of the entity, if the plan is to add to the team.
As you develop the fund and the business, you may consider bringing some of these services in house as the business grows and suitable staff are on-boarded.
- Develop your support network
Your service provider network and relationships will be absolutely key to your future success and it is very much worth investing time and effort to find complementary firms which are the right fit for you.
Referrals drive the industry and service providers in the hedge fund space are very dependent upon their reputation and the referrals they receive by complementary services and clients.
Talk to service providers: have a conversation with at least three providers of each service; you will be able to benchmark fees, service offering and the general feeling of the company and its ability to work with you.
Do your due diligence: in short, ensure that their reputation within the industry is good, the service providers used by the fund and the fund manager will dictate a degree of investor confidence, which will impact future funding.
Relationships are key: a strong working relationship with the manager or caseworker at each service provider is integral to future success. You will be relying on these individuals a lot throughout your journey, more heavily so in the launch phase. You want to know that these individuals are competent, reliable, can be left to their own devices and have a similar work ethic to yours. Get to know your caseworker or manager at each of your service providers and maintain an ongoing and regular dialogue with them.
- Build your network
This space is a very close-knit world. It is important to ensure that you are speaking to the right people and building a suitable network for investment and future possible services or referrals. Even once you have an established network, you will need to keep developing and evolving this to ensure that your network is flexible and suited to your business at each stage of its life cycle. Get out there, talk to others who have walked this path before you, ask about their successes and in particular areas with which they struggled or failed. Learn from your peers.
Good luck.
About the firm
haysmacintyre’s dedicated team of financial services sector specialists are able to offer a wide range of services and are available throughout the year to ensure you have all of the ongoing support you need. Services include:
- Audit & assurance, FCA audits, GABRIEL reporting, Corporate tax, Digitalisation of tax, LLP tax, Personal tax,
- VAT, Outsourcing, Employment tax, Company Secretarial, Payroll
haysmacintyre contributed to the book “Successfully Launching A Hedge Fund in Europe” published by Hedge Fund Insight.
Contact: Karen Allan, Tel: +44 20 7969 5500, E: kallan@haysmacintyre.com