I am thinking about starting my own hedge fund company down the road. And here is what I found on how to get it started.
All following information are quoted from http://www.fwallstreet.com/article/170-how-to-start-your-own-hedge-fund/
What does it take to start a hedge fund? The scary truth is that virtually anyone can start a hedge fund; and, it can be fairly inexpensive and easy to do.
THE HEDGE FUND ENTITY
Hedge Funds are typically structured as:
- a limited (or limited liability) partnership, or
- a limited liability company, or
- a trust.
Running Total: $150.00
GETTING THE TAX ID NUMBER
You’ll need to get a tax id (FEIN) number from the IRS. Simple enough – go to the IRS website and get it online in a matter of minutes. It’s fast, easy, and free.
Running Total: Still $150.00
BECOMING AN INVESTMENT ADVISER
If you will have 15 or more investors in your hedge fund, you’ll need to register as an investment adviser with the SEC.
To become an investment adviser, you’ll need to sit for a regulatory exam – the Series 65. The Series 65 is a 3-hour, 140 question exam, of which 130 count towards your final score. It’s not the hardest exam in the world (part of the “scary” conversation above); but, you’ll need to score a 68.5% or better to pass.
SCHEDULING YOUR EXAM
Your state will generally “sponsor” you to take the exam (as opposed to the Series 7, which requires a firm’s sponsorship); so, you fill out Form U-10, sign over a check for $120, and schedule your exam.
Once you’ve successfully completed the exam, you are now licensed (though not yet registered) as an investment adviser.
Running Total: $270.00
THE “REGISTERED INVESTMENT ADVISOR” VS. “INVESTMENT ADVISOR REPRESENTATIVE”
At this point, you have a decision to make – Do you run your partnership/advisory business as a sole proprietor (eg., Joe Ponzio Sole Proprietor) or do you (as is more commonly done) create an investment advisory company to shield yourself from personal liability (eg., Joe Ponzio Funds, Inc.)?
To be safe, you create a corporation (or LLC, whatever) to act as general partner of your LP. (Your investors will be the limited partners). You’re cheap; so, you create your Illinois corporation for $175 instead of expediting for $300. Once incorporated, you’ll get a FEIN for your company as well.
Thus, you will personally be the Investment Advisor Representative (IAR) of your company, which will act as the Registered Investment Advisor (RIA).
REGISTERING YOUR RIA AND IAR
First, you have to register your company as the RIA, which you will do through the Investment Adviser Registration Depository (IARD). The instructions are on the IARD site; so, I’ll spare you the details. It’s not rocket science; but, it will likely take you a few hours to figure it all out.
Once your firm is set up, you’ll need to “register” yourself with your firm by filing a Form U-4. Coming in at 28 pages, it looks like a beast. (You can also file it electronically.) So long as you don’t have a lot of disclosures (eg., if you’re not a criminal), you won’t fill in half of them.
Submit your U-4 with a $30 check…
Voila! You are now an investment adviser, running an investment advisory firm and a hedge fund.
Total Cost: $475.00
In addition, do you know that Buffett started his early Buffett Partnership as a “hedge fund company”? Here you go,
http://www.fwallstreet.com/article/169-hedge-funds-and-the-early-buffett-partnership/
In sum, as we can see that starting hedge fund company is not as difficult as most people think. Why not give it a shoot if you think you are capable of doing it?
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