We continue series of articles based on the book “The Pragmatic Hedge Fund Manager” started with Part 1 on The History of Hedge Fund Industry.
This section contains expert advice from a range of hedge fund specialists to help you with your startup hedge fund business and some tips for emerging hedge fund managers. Below are some of the opinions shared by the most prominent, emerging hedge fund experts:
Informed Decisions by Glen Dailey
According to Glen Dailey, an emerging hedge fund expert and a managing director at Jefferies & Company, hedge fund managers should set realistic goals and schedules. Rushing into starting a hedge fund can be disastrous. So, take the time to make effective strategies and select the right service providers that will help you grow. He further suggested that managers should create strong investor relations through capital introduction services from major brokers that can help the business today and in the future.
“Capital introduction is a much sought after service from prime brokers which can be very helpful in providing a new hedge fund exposure to potential investors. Take advantage of introductions and begin to build relationships with potential investors.” Glen Dailey
Considering Liquid Alternatives by Marc J. Wolf and Frank Attalla
According to Marc J. Wolf and Frank Attalla, the hedge fund experts of Rothstein Kass, hedge fund managers have to make informed decisions about the investment services and registered products. They have to decide whether the product is right for them or not and how they will implement the product strategy if they choose the registered product. The liquid alternative investment has grown considerably in the past few years. Before taking any action, managers need to consider all the business implications before considering liquid alts as the best option.
“The liquid alternative space has grown at a breakneck pace in recent years, and there doesn’t seem to be any slowdown in sight. Before making any move, managers need to take a hard look in the mirror and consider all the business implications — and consult with their service providers — before getting caught up in all the liquid alts excitement.” Marc J. Wolf and Frank Attalla
Making Solid Technology Decisions by Mary Beth Hamilton
Mary Beth Hamilton, vice president of Eze Castle Integration, shares her thoughts about technology decisions saying that “9 out of 10 hedge fund startups are selecting a cloud-based solution versus a traditional on-premise solution for reasons including simplicity, cost containment, improved flexibility and simplified IT management.”
She further suggested that “Regardless of whether a hedge fund selects on-premise IT or cloud, security is fundamental as all investment firms are at risk. A multi-layer security approach is essential to protecting the critical information that passes through the organization’s system every day.”
She suggested hedge fund managers to divert their focus towards the disaster recovery plans that are crucial for sustaining the business during crisis.
Valuation Risk by Daniel Johnson and Eric Lazear
Hedge fund experts, Daniel Johnson, Wells Fargo Global Fund Services and Eric Lazear, FQS Capital Partners, suggest emerging hedge fund managers about the operational risk involved in the hedge fund creation process saying that “Operational risk can take many forms, but valuation is a good place for investors’ initial focus: are the holdings of the fund accurately valued, and is there a process in place to ensure that they are accurately valued at each dealing period?”
They further explained “Unlike reviews of performance, it is essential that any review of valuation risk include all parties involved in valuing the assets of the fund. This will often include speaking to the administrator about their role in the process and what the involvement of the investment manager has in determining the final prices.”
Furniture Matters by Jeff Brechman
Jeff Brechman, director of sales at CFS group, suggests that choosing an appropriate office space within a budget are the most essential things for a hedge manager. In addition, it is also important to choose the right technology a hedge fund will utilize to make sure that the chosen furniture will support the users or then clients appropriately.
“Hedge funds should look for a furniture partner that has the ability to identify each client’s specific needs and provide them with the right product for their furniture application. Jeff Brechman
Other Tips for Emerging Hedge Fund Managers
Starting up in the hedge fund industry is no simple task. It can present quite a lot of hurdles and obstacles which are often very difficult to overcome. Despite the tough survival conditions, a large number of people see it as a very lucrative business venture and are hence interested in trying their luck at it. Even though there is no single sure fire way to make it big in the industry and the experience is bound to be different for everyone, there are a couple of small suggestions and tips which can help you to begin in the right direction and possibly even increase chances for your success. So let’s take a look at a few of these and discuss why you should pay attention to them.
One of the biggest tips that we can give you is to do your homework before you get to class. What we mean by that is that you absolutely must get to know the industry from the inside before you ask investors for money or even start building up the infrastructure that would be needed. You should be well aware of all the latest trends in the market and must have concrete knowledge regarding commodities and how the invest process actually unfolds.
Bring Solid Strategies to the Table
Additionally, you also have to be fully aware of your end of the deal i.e., what you plan to bring to the table. It would be a brutal mistake to try to juggle things thinking that your plans and strategy will become clearer with time. On the contrary what usually happens is that things start to get even more complicated once you have launched off and hence, can spiral out of control, especially if you do not know what you are supposed to do. So take time, even months, to sit down and come up with a strong and independent strategy that will help to sustain you in the business.
Indeed it is important to do all of this as they do have a considerable impact. But it is important to know where to draw the line especially if you are just starting out. This is because you will already have too much on your plate and too little time and resources to be able to give equal attention to everything. Therefore, it would be much more productive to completely immerse yourself in things that really matter because at this point a fancy workplace and luxurious dinners will not be enough to capture your intended audience. Since you are new in the market, you will not have much to your name and you will have to start from scratch and slowly build a reputable name for yourself.
Develop a Charismatic Business Persona
Thus, the next tip which follows naturally is to shape your business persona. This implies working on your personality and grooming yourself in a way that will help you to influence clients. Now, there are two main aspects to this, one of which we have already mentioned above. Of course you will have to know your material inside and out, but that’s not where the job ends.
If you plan to work in the hedge fund industry, remember that you will interacting some of the biggest and most talked about people in the finance world. They are usually very high profile individuals who are typically pressed for time and very difficult to convince as they have a greater number of business opportunities available to them than the average person. It is not an easy thing to woo them even if you have all the right facts and figures to present to them. The second aspect is how you present these facts and figures to them.
You must be confident and clear in your speech. Being eloquent and dignified is one of the qualities that will go miles when trying to impress them. Similarly, you must also be very sharp. Give them answers to their questions even before they get a chance to ask you. To be able to do this you must know your client very well and thus we suggest you do some research about them and all their past ventures before meeting up with them.
You must also polish up on your people reading skills. When making presentations or during conversation, always maintain a strong eye contact. Not only will they convey a sense of confidence but it will allow you to judge their reaction to what you are saying. Take these cues very seriously and adapt what you are saying accordingly.
You must also have a very dedicated team. Running a hedge fund is not a one man show and potential investors are well aware of that. They will be interested in knowing who will be managing the fund and what other groups are supporting you if any. Thus, make sure you align yourself with the right kind of people. Choose a manager who is experienced and sophisticated in his tactics. This alone will be a huge plus point towards strengthening your case.
Increase your Social Circle
You should be ready to widen your social circle if you want to cast a wider net. This begins by making all the right kinds of contacts and associating within a particular class of people. Hedge fund investors are not common people, they are the super-rich and elite who prefer to limit themselves to those who are similar to them for a variety of reasons. You will have to gain access into this society and start working your way into it by being at the right place at the right time.
If you are already a part of them then you should not have much trouble, but if you fall outside this category then it can be a bit of a challenge. Begin by seeking help from investment banks who can help you get in touch with probable investors. They can introduce you to them and also invite you to hedge fund conferences which are held regularly many times a year. These events are great for mingling and the more you are seen at them, the better your chances are.
Lastly, keep it real. Do not have very unrealistic expectations and do not try to be too adventurous. Keep things safe and stick to doing what you know best otherwise you could end up in a lot of hot water. Always keep in mind that you have been entrusted with a great deal of money and there are very high hopes attached to it so invest it wisely. Do not for even a single day leave things solely upon your team; stay involved constantly and consistently.
By following these top tips, we assure you that you will be able to attain your targets and create a firm standing for yourself in one of the world’s most lucrative and demanding industries.