June 3, 2020  
 
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Starting a Hedge Fund

 

Writing a Hedge Fund Business Plan

Written by Bobby Jan for Gaebler Ventures

Writing a hedge fund business plan is a bit different than writing a typical business plan. If you don't know how to start, this article will show you what to include in your hedge fund business plan.

If you want to start a hedge fund, you might realize that the hedge fund business model is different from typical businesses.
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When you create a hedge fund, you are actually creating two businesses: the management business and the fund itself.

Writing a hedge fund business plan is also a bit different from writing a typical business plans.

There are many ways you can write a hedge fund business plan but all of them should include the following four components: vision, company overview, product strategy, and market analysis.

This article provides a general guideline for drafting each section. The guidelines, however, are not exhaustive. If you are writing a unified or merged business plan, please be careful of how much you disclose. Finally, it is important to consult a professional before finalizing your business plan.

Vision

  • How many funds will the management company administer?
  • Are there any plans to develop new products for investor?
  • How will noninvestment-related services handled? Will they be outsourced?
  • What are the factors that will contribute to the success of the business? For example, how dependent is the business on marketing vs. performance?
  • Description of how each fund will be managed.
  • Description of the different strategies used for each fund.
  • What are the investment philosophies and strategies and how will this affect each fund?
  • Discussion of expected leverage, turnover rate, characteristics.
  • What are the benchmarks for each fund?

Company Overview

  • Description of how the management and fund companies are structured.
  • A list of owners and how profits will be allocated.
  • Payments and expenses.
  • How are the managers managed?
  • What are the strategic alliances that the companies might have, if any?
  • How will the management company be staffed?
  • Where are the funds domiciled?
  • Description of investment process for each fund and how this will impact results.
  • Discussion of fee structure(s) and incentives.

Product Strategy

  • Describe the products that the management company sells. In most cases, these products are investment management services.
  • Describe in detail the investment strategy and philosophy for each fund.
  • Discuss sources of risk and returns.
  • What analytical tools are used?
  • How is investment decisions made? Who makes them?
  • Discuss past fund performance or hypothetical fund performance if these strategies are implemented.

Market Analysis

  • Discuss the demand for the services provided by the hedge fund.
  • Analyze relevant sector growth and trend.
  • Discuss the potential size of the fund.
  • Discuss market factors that would impact the fund.
  • Discuss the recent experience of investors in the relevant sector.

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

Related Articles

Want to learn more about this topic? If so, you will enjoy these articles:

Starting a Hedge Fund
15 Common Hedge Fund Mistakes (Part 5)


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