How to Start a New Hedge Fund

Starting a hedge fund is much different from launching other kinds of companies. Most significantly, there is almost no chance that you will be able to start this business out of a garage. To get a hedge fund up and running, you need buckets and buckets of cash.

If you are wondering why someone would provide money to an unproven fund, Ackles said that it's because of the advantages in being the first to jump on board. "You negotiate a deal where they get reduced fees," he said. "So they pay less than the investors that come after them, so they get a sweeter deal."
Launch Time

"Then after that, I've got my $100 million and I launch," said Ackles. "What it takes next is me creating the actual business, just like you and I would do for any [other business]. So I need to have the infrastructure; I need to pick a place for an office, I need to hire a team."

That team could come from a bank if your hedge fund spun off of one. "It might be a portfolio manager at the top, but there are traders that work with him," said Ackles. "And perhaps others -- a compliance person, a legal person. You have to hire people.

Raising Capital

"Let's say you've got all of those pieces," Ackles continued. "Now you need someone to help you raise the money. While an investor wants access to the portfolio manager, the portfolio manager has the day job of watching the trades. Typically they will hire marketing people, so there's going to be someone in-house or external that is charged with bringing investors to the table."

Managers still have to come to the meeting, Ackles said, "because you won't give anyone a check for millions of dollars without seeing their face and looking them in the eye."

"But there's someone that has to do all of the legwork and get the meeting and make sure that those things happen, and even help report the fund's performance to databases so that those investors might call them."

Build Your Brand

A hedge fund could have all the pieces in place. But if investors don't know it exists, it won't go anywhere.

"If you don't have a website and you don't speak at events, how are you going to be known?" Ackles questioned. "I may be two blocks from you and have money to allocate to the type of strategy you have, but if I don't know you're there, and we don't meet each other, I'm never gonna write you the check. So you have to have some amount of publicity.
"