“From Start-Up to Success: What It Takes to Launch a Hedge Fund”
Over the years, EisnerAmper has been instrumental in helping managers launch funds. We have worked with some of the legends in the industry, assisting them from pre-launch to maturity as they have grown to multi-million and even billion dollar funds.
As a result of working with funds at the ground level, our partners and industry veterans have honed in on the traits that are indicative of a successful manager. In this four-part blog series, we will highlight some of the most important traits that EisnerAmper and alternative investment professionals have noticed and look for in start-up managers.
Part I: Traits for Success
Many successful managers understand that not only are they investing and making trades, but also running a business and therefore, demonstrate the ability to be a CEO.
“We look at their ability to be a CEO; their move from a prop desk or No. 1 at a hedge fund to running a company,” said David Walsh, Vice President, Investcorp.
However, some founders of investment managers realize they favor the investing more than running a business, and therefore, appoint someone else to run the business part of the fund.
“Pre-launch, successful hedge fund managers realize that if they are a great investor, they might not be a good CEO, so they need to be able to differentiate between the two, and therefore have someone to focus on running the business,” said Boris Onefater, Managing Partner, Founder, Constellation Advisers.
Mr. Onefater further stated, hiring someone to run the business goes hand in hand with the strategies of many accomplished founders: Build a robust team of people based upon their particular strengths, such as someone focused on operations coming on board as Chief Operating Officer. Successful founders know when to step back and let others on his or her team focus on certain components of the business.
Peter Testaverde, Partner, Financial Services Group, EisnerAmper, specified that some of the most successful hedge funds he has helped launch constructed their teams based on their specific investment strategy. “If it was a multi-strategy hedge fund, the founder would hire people dedicated to each strategy,” he said. “If the person has a heavy research background, he or she might hire a trader.”
Finally, the most accomplished founders understand the importance of structuring their businesses contingent upon the types of investors they will target. “If their investment strategy is more viable for retail investors, they would set up their firms as RIAs,” said Richard Taglianetti, Managing Director, Corinthian Partners. “If they target institutions, they would have analysts and risk managers in place from the beginning.”
Stay tuned for part two in our four-part blog series: “The Costs of Running a Business.”