Technically, pretty much anyone can start their own hedge fund. However, the complicated web of legal regulations and financial requirements typically ensures that only people with money and knowledge actually launch their own fund. Some of the legal or practical requirements of getting your hedge fund on the market include having:
- All the legally required licenses or exemptions
- The money required to keep the fund open during its first few years (typically six-figure numbers at this stage)
- Employees (from COO to back-office workers) to keep the fund going
- A sound investment strategy and the ability to communicate this strategy to potential investors
Most importantly, a new hedge fund needs initial investment capital before it can hit the market – that's equity that will be invested into assets right away to give the fund assets under management (AUM) to start the investment process. Hedge funds can draw this money from pretty much anywhere before launch, from friends and family to endowments, foundations, or private hedge fund seeders looking to invest in fledgling hedge funds. Typically, hedge funds will aim to launch with at least $5,000,000 AUM in order to have significant assets to show for.
While there is always some risk associated with hedge fund investing, new funds are usually seen to be the riskiest. That's because they often still have to prove themselves, especially if there's no famous hedge fund manager, well-known star investor, or astoundingly innovative strategy involved from the beginning. If you're an investor, chances are you'll want to see some proof that the new hedge fund has a chance at making money. In short, you'll want to see the financial pedigree of the people involved or the numbers that suggest the fund follows a sound investment strategy.
This means that you'll first need to gather in-depth information about the new fund to determine if they can reach their goals and offer you the returns you want. When it comes to quants, CARL is your best option for this, as we gather all the necessary information before adding a hedge fund to the CARL app. This means that a large part of the due diligence process is already done, and you can invest with a significantly lower risk. Set up a CARL account today to gain access to exciting quants which have already undergone our due diligence process.