Hedge Fund Business Investment

An important part of running any successful company is reinvesting in the business, a hedge fund should be no different.  In the following video, I provide you with ten signs that a hedge fund is investing in their own business.

Video Transcript/SummaryThe strategies and tips provided within this video module include:

  1. Make sure the hedge fund manager has a real office.
  2. They use service providers.
  3. They invest in an experienced team.
  4. The have a very strong advisory board.
  5. They have training for their hedge fund employees, after they join.
  6. The systems that they have in place.  
  7. They have processes in their hedge fund business documented.
  8. The level of risk management for the hedge fund business is high.
  9. The research that they use to make decisions.
  10. The quality of their marketing materials.  

I recently spoke at the GAIM conference in Monaco and many hedge funds were looking for ways to show investors that they consistently invest in their hedge fund business.  These ten signs will give you a better idea of whether the hedge fund manager is, in fact, re-investing in their hedge fund business.

Transcript of Hedge Fund Business Investment

Hello, this is Richard Wilson and welcome to this short video on 11 signs that a hedge fund manager is reinvesting in their own business. I’m coming to you from Nice, France today where I was in town recording some training videos for the hedge ground and I just spoke in Monaco, next door, at the game. I had a conference with about 800 people there. And it was really interesting a while there. It was obvious that both hedge fund managers and family offices attending were very interested in knowing more about how to reinvest in their business the right way and how to make it obvious to investors or the hedge fund managers taking their business seriously and really reinvesting in their own business and taking it as something that, you know it was long-term venture and not something they’ll set up and try to make a million dollars in one year.

So the first thing they should look for is to make sure the hedge fund manager has a real office and that they’re not just running the fund out of their house or their garage. You know if somebody is taking their seriously they may have rented an office space or have an office for their employees as their fund grows. The second thing is they have service providers. Many times people try to do their own fund administration when they’re starting up but they don’t have a time broker to start with. If they’ve taken their hedge fund seriously and spoken with people they know, they have to have certain service providers in place. They should have an auditor, they should have an accounting firm, they should have a current brokerage firm, they should have a fund administration firm, they should have an attorney they go to, a compliance legal expert. If they don’t have those things in place, they haven’t done the very basics.

The next thing is team. This is the most important thing. If they have really taken their hedge fund seriously, they’re invested in their team. They have people with great experience, 7-10 plus years experience on their team and at the very least a very strong advisory board. Advisory boards just take a lot of work and creativity. If somebody doesn’t have a strong advisory board in place then it’s really hard to believe their taking their hedge fund business very seriously unless they’ve just started out and they have great bench experience on their team. That’s the only excuse they could find for not having a great advisory board in place.

The next sign is someone who has invested in their hedge fund is that they have training for the employees after they joined. In the hedge fund industry everybody values experience like gold until you come in the door and then almost nobody trains their current team. That is non-sub $1B hedge funds. Lots of large hedge funds do train their team consistently and very thoroughly. But most hedge fund managers under a billion dollars have no training systems in place for anyone on their team, which is I think really ironic given how valued a hedge fund experience is in our industry.

The next sign is someone who has invested in their hedge fund is the systems they have in place, the technology, the trading systems, the reporting systems, how everything flows through the business. You can really tell if it’s really segmented and not working well but how quickly people respond to requests for certain type of data and that you can just really tell someone has reinvested in how they run their business based on their technology and the reporting and trading the systems they have in place.

Next for your tips include having processes. All of the procedures and processes in your business should be documented so that when a new employee comes into the hedge fund, they just look at what processes are related to their responsibilities, they know how things are supposed to be done, everything in the hedge business should be done systematically, almost nothing is done only time. There should be a process for doing everything. In this way if you needed to replace someone on the team or God forbid, the principal of the hedge fund dies, the hedge fund can still move on and follow the same investment process, the same risk management techniques and the same capital raising strategies.

The last few tips here, the level of risk management in the firm, if somebody takes a lot of research, hard work and reinvestment in the business, you know had a very elementary risk management techniques just in how they chose securities, there’s really not enough to cut it anymore. They need to manage operational risk as well as portfolio risk in many different types of ways. So if the manager is not, then that’s a big sign they haven’t reinvested in their own business enough.

The last two tips. They research they use to make their investments, the experience on their team, how do they make their decisions, what’s the quality of information coming into those decisions, and lastly finally is the level of quality of their marketing materials. If their marketing materials looks like a college project or a high school then that says one thing, if their marketing materials look like something from Wall Street, coming out of Merrill Lynch or Goldman Sachs, it says something completely different.

So just to review real quick, the top 10 things that show the hedge manager is reinvested in themselves included their office space, their service providers, their team, their training for their team, their systems, their advisers or board of advisers, their processes and procedures, their risk management, their research and their marketing materials.

This is Richard Wilson. Thanks for joining me. I’m here in Nice, France and we’ll see you next time.

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