Starting up a Hedge Fund: What are the Costs Involved?

To be sure, running a hedge fund sure sounds like an appealing job. The money, the power, the prestige; there is a reason why many highly educated people choose to work at a hedge fund. Sure the stress is off the charts and you will probably burn out by the time you are 40, but still - the money that you can potentially make seems to make it all worth it.

Have you decided that you don't just want to work at a hedge fund, but rather start your own? Do you have your compensation structure already worked out? A bunch of rich relatives that are looking to seed your fund? Make sure that you are aware of the costs before you decide to start up your fund. They include:

1. Lawyer to write up investor contracts.

2. Accountant.

3. Auditor.

4. Back-office person (for correspondence, help with marketing.)

5. Office costs (if you plan on being bigger than just taking your family's money)

6. Compliance officer (if you plan on starting your fund with a substantial amount of money.)

All of this obviously adds up, as none of these people will be cheap. This is why most hedge funds will charge you an annual management fee - to cover expenses such as these.

There are turnkey hedge funds, but you get what you pay for.  If you want to set up your fund right, you need the right people. The right people will likely cost you $150,000 just to get off the ground. There is a lot of work involved in starting a hedge fund, and you need to make sure that you don't cut any corners, or else it will come back to haunt you.

Hedge funds; unlimited income potential but they are extremely expensive to operate.

Filed under: Hedge Fund News | Stock Market Education | General Knowledge

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