Starting a Hedge Fund
Hedge Fund Business Plans
Written by Bobby Jan for Gaebler Ventures
Building a hedge fund business is quite different from building other businesses. This article will show you how to organize your hedge fund business plan.
If you want to start a hedge fund, you will have to write a business plan.
However, hedge fund entrepreneurs should be warned that creating a business plan for a hedge fund is quite different from other businesses. Hedge fund entrepreneurs must create two companies simultaneously: the fund and the management company.
The management company carries most or all of the employees of the hedge fund and manages the fund. The business plan of the management company is typical. Its components are: 1) executive summary, 2) vision, 3) company overview, 4) product strategy, 5) market analysis, and 6) marketing plan.
Since you are creating two businesses, you may create two separate business plans. However, you may also create a "merged business plan" or a "unified business plan".
Two Separate Business Plans
The components for both business plans are the same: 1) executive summary, 2) vision, 3) company overview, 4) product strategy, 5) market analysis, and 6) marketing plan.
There are many advantages for creating two business plans instead of one. Since the business plan for the management company is really meant for general partners, you may not want to disclose select information to limited partners. Creating two business plans allows you to better control information. Creating two business plans also enables you to customize each business and delineate them as separate entities.
The disadvantage is, of course, creating two business plans takes more time and effort to draft and maintain than one. There might also be a lot of duplication between the two business plans.
Merged Business Plan
A merged business plan is literally the merge of the management business plan and fund business plan. A merged business plan has the structure except that each component is repeated for each business. For example: 1) executive summary for management, 2) executive summary for fund, 3) vision for management, 4) vision for fund, etc.
The advantage of a merged business plan is that better enables you to describe how the two businesses are related and discuss related key points between the two businesses. Another very important advantage is that this business plan is a lot more attractive to the limited partners/clients/investors and fund sponsors (such as lenders, brokers, etc.).
The disadvantage of the merged business plan is that it may limit how much information you want to disclose. Like creating two separate business plans, the merged business plan does not eliminate duplications.
Unified Business Plan
The unified business plan has the same components as the merged business plan (executive summary, vision, etc.). The difference is that most components address the management and the fund instead of listing them separately. Some components, however, might still address each business separately, depending on the need of your hedge fund.
The advantages and disadvantages of a unified business plan is very similar to that of the merged business plan. The difference is that that unified business plan places more emphasis on the interrelationship of the two businesses.
No single business plan structure is more appropriate for all hedge funds. As a hedge fund entrepreneur, you must carefully consider which business plan structure best fits your business.
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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