Many emerging managers and hedge fund startups mistakenly believe that just because they have a great strategy investors will eventually flock to their hedge fund. Hedge fund investors like to see that you have a strong hedge fund business model and that you are of institutional quality. In the following video, I provide some tips and strategies for getting your hedge fund ocean-ready.

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

If you go out to meet investors too quickly, you could do a lot of damage to your hedge fund.
Some funds are too eager to raise capital and present their fund at a point when the fund is not yet at 100% and you risk losing that investor forever.
You want to have all your marketing materials and your investment strategy prepared and well-polished.
It’s ideal to have a lot of investors and consultants that will give you some advice early on in your fund’s lifetime and many managers try to launch so fast that they have not developed these relationships.

Transcript for Ocean-Ready Hedge Fund Business Model

Hello, this is Richard Wilson and today I’m going to talk to you from here in Nice, France about making your hedge fund business seaworthy or ocean-ready. Well, I’ve been learning more about sailing in these past few years while raising capital and working in a hedge fund industry. And I think one truth about a hedge fund industry is that if you launch your hedge too quickly and you go out and meet with investors too quickly and too many different types of investors too quickly, you’re going to get recorded in different institutional databases as being unprofessional, as not having a clear investment process. You’re going to do a lot of damage.

I even spoke with somebody at the game 2011 conference last week about this. And they said that they only represent and they only raise capital for fund managers within in their first 6 months of launching their fund, because otherwise they’ve probably already done so much damage for themselves in the industry, that’s a waste of their time but you can work with them. I think that’s a little bit extreme but I think the advice goes along with what I’m trying to tell you right now is that when you’re sailing in a bay as many sailboats do here around Nice, you can have some things that aren’t totally working well in your boat.

Your rigs cannot be set up right, your ropes could be loose, maybe a couple of your sails are in bad shape, maybe the things on the walls of your sailboat inside the boat aren’t really secured. But if you go out in the ocean you really need to be kind of sea-ready or ocean-ready or seaworthy. In other words, if you get in a storm or if you go over a bunch of swells you don’t want things flying around inside the cabin of your boat. If you need to have your main sail work because your engine dies, you really need that main sail to work. You can’t really rely upon, you got a coast guard in the bay that he’d come, tow you over 50 feet to your dock. It’s much more serious when you’re out in the ocean.

So it’s really a great analogy for running, starting and growing your hedge fund because before you go out and meet with very important investors, you don’t or you have a great relationship with, you really want to have everything walked down and in place. You want to have your marketing materials, kind of in grade A shape, institutional quality, everything that you’ve shown an investor you want to have looked at 5 times by people in your team, do the fifth draft, have it compliance approved. If somebody is going to ask you for a standard DDQ or a question that comes in a standard DDQ you should be able to answer within one business day, not a week or two.

Everything you do in your business should be well-polished by the time you’re meeting with new investors. Hopefully when you launch your fund you’re able to balance ideas off of consultants, advisors, service providers and some investors you already have good relationships with, then that’s how you get the important feedback and really figure out what’s your checklist, what’s those 20 or 30 things that you are kind of seaworthy before you go out and start meeting with investors face-to-face about your fund.

And this is something that I think is a common mistake to make. People want to get out there and raise capital really quickly, you know speed an implementation, just get out there and meet with investors and get great feedback, but really you need to be very cognizant of the fact that if you do that too early and too fast, you’re really going to hurt yourself and you could sink your boat very on in the process, whereas if you just take that first valuable piece of the feedback from your investors, really use it, implement it, and evolve your fund at higher levels before taking it out to 300 different investors, you’re going to be much better off in the long run.

So I hope you enjoyed this video. It’s Richard Wilson coming to you from Nice, France and we’ll see you again soon.

Before you go out and try to meet with investors to present your fund it is important that you have your hedge fund business model well-established and storm-tested so that it can stand up to inspections by hedge fund investors.

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If you are starting a hedge fund or currently running a hedge fund then this might be one of the most valuable videos that you watch this year. In the following video, I cover process documentation, why it is important, who should be doing it and I will give an example of how it can work.

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

Write down all of your high-level processes on a list.
Use a separate piece of paper or MS Word document to document the steps for each of the processes.
Analyze these steps and processes to see whether there are areas for improvement or unnecessary steps that should be removed to streamline your hedge fund business.
This will help you figure out whether your team and your resources are being used to their full potential.
“If you can’t document your system then you don’t know what you are doing.”

Transcript of Documenting Operational Hedge Fund Processes

Hello, this is Richard Wilson and right now we’re going to talk about process documentation, why it’s important, who should be doing it and just give a quick example of how it can work. And if you are starting a hedge fund or if you are running a hedge fund and you’re looking to improve its operations then this might be one of the most valuable videos that you watch this year.

Basically, process documentation allows you to see your business from a top-down view everything that’s it’s doing with more clarity probably than you ever have before. If you’re never done it this will provide a lot of value to your firm. The first thing you need to do is write down every important process that your firm undertakes, maybe you have an investment research process, maybe you have your general investment process, maybe you have a hiring process, how you hire more people to your team, it is an operational processes, some auditing processes, a compliance reporting process. Write down all of those major high-level processes. You should have at least 10 to 15 and probably not more than 30 and write down all those processes in a list.

Next, what you want to do is get a separate piece of paper for each process and you can use process documentation software if you’d like. You can use mind-mapping software if you’d like. But you can do these within Microsoft Word. It doesn’t take any special technology or software purchases to complete these tasks. If you open a Word document now, take those, say 20 business processes you have and document steps, 1 through 10 or 1 through 20 of what is done with each step of that process along the way.

Now, often times — I’ve done these for businesses that range from a million dollars of revenue or $500,000 of revenue to multibillion-dollar corporations and documenting these processes can be very challenging because lots of people operate in silos and sometimes even the CEO of a hedge fund or a company might not know how all the processes flow through the organization. So it’s very likely you’ll have to interview other people on your team or service providers to figure out exactly what all the steps are from soup to nuts, how things get done within your hedge fund.

What is important to do as an important process? So what you need to do is document all 20 or so of those business processes step-by-step so you can look at them and see if there’s any obvious areas of inefficiency improvement, maybe those steps, it can be taken out, maybe you’ve been meaning to improve your transparency if you’re a hedge fund or the institutional quality of it and some of these process if documented the right way can actually be shown to investors, to show them how you operate in a professional consistent manner.

It’s also important to have these in place so you can really analyze whether your team skills and abilities are actually being put to use in the best areas. I spoke with a hedge fund recently who documented all of their business processes and they ended up outsourcing 16 of the 18 business processes that they ran. They figured out that only two of them really pertain to their core competencies and their competitive advantage.

So integrate a story to show, if you’re starting a hedge fund or looking to improve your operational improvements this is something where you don’t need to go hire a consultant right now and spend $300 an hour paying them to document your processes, you should have your processes documented and this is somebody at a mid-level or a high-level within the organization can do. It does not take that much time to document them and it can give you some huge benefits that could lasts for a remainder that your firm or fund is in business.

So there’s one quote, I think it’s by Drucker that says “If you can’t document your system, you don’t know what you’re doing.” And then there’s another quote, I think it’s by Deming that says “If you can’t document what you’re doing, then you can’t improve it.” So it’s a great opportunity to both improve and make sure you know exactly what you’re doing and what you’re not doing by documenting all of your business processes and it’s something that I don’t see often done, so I think if you do this and you do it right and take away some lessons from it, it can be somewhat of a — you know one of those 10 things that gives your hedge fund a competitive advantage over others. So thank you for your time and we’ll see you again soon.

I recently spoke with a hedge fund manager who documented operational processes and ended up outsourcing 16 of the 18 processes that they ran. This shows how documenting operational hedge fund processes can help save your hedge fund money and make your fund more efficient.

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