Starting a Hedge Fund

15 Common Hedge Fund Mistakes (Part 1)

Written by Bobby Jan for Gaebler Ventures

There are certain potholes hedge fund entrepreneurs just keep falling into. This article, the first in a series of six articles, discusses some common hedge fund mistakes that would be good to avoid if you are starting a hedge fund.

Starting a hedge fund isn't easy. There are many mistakes to be avoided along the way.

If you are interested in starting a hedge fund, first learn from the mistakes of others and try to avoid making them.

Here is our list of 15 common mistakes hedge fund entrepreneurs make.

  • Mistake 1 - Manager has no set plan for improvements.
  • Mistake 2 - Manager fails to monitor and communicate with clients.
  • Mistake 3 - Fund has poor marketing plans.
  • Mistake 4 - Hedge fund provides different returns to different clients.
  • Mistake 5 - Fund tries to appeal too many types of investors.
  • Mistake 6 - Manager is short-sighted.
  • Mistake 7 - Manager fails to manage client expectations.
  • Mistake 8 - The fund is too dependent on a few investment stars.
  • Mistake 9 - Employee compensation system is not effective.
  • Mistake 10 - Manager fails at controlling costs.
  • Mistake 11 - Manager fails to development alliances and partnerships.
  • Mistake 12 - Portfolio manager loses objectivity and independent thinking.
  • Mistake 13 - Portfolio manager is afflicted by high return tunnel vision.
  • Mistake 14 - Manager fails to manage personal stress.
  • Mistake 15 - Hedge fund entrepreneur begins with unrealistic goals.

Let's take a closer look at each of these hedge fund mistakes.

Hedge Fund Mistake #1: Manager Has No Set Plan for Improvements.

Generally, investors categorize hedge funds as an alternative asset that does not track published indices.

As a result, measuring hedge fund performance becomes more complicated than, say, measuring the performance of a mutual fund.

For hedge fund investors, the expectation is that the hedge fund will have well-defined plans for improving performance and other key hedge fund attributes.

Hedge fund entrepreneurs should therefore establish a system whereby hedge fund performance is tracked, assessments are made, and investment philosophy reviewed.

In addition to improving performance, hedge funds should set concrete plans for meeting marketing goals, improving technology, and monitoring individual employees.

Other Hedge Fund Mistakes

So far, we've covered one mistake in detail. Now, let's get to the rest of our hedge fund mistakes.

Cheng Ming (Bobby) Jan is an Economics major at the University of Chicago who has a strong interest in entrepreneurship and investing.

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What are you thoughts regarding these hedge fund mistakes?

  • Tim Walters posted on 6/14/2010
    Tim Walters
    I've been doing mini prime at Grace Financial Group LLC for about 9 years - number 9 and number 10 are the items I've seen the least of over the years.

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