Although starting a hedge fund is nowhere near as simple as opening an account at an online brokerage, it doesn’t need to be difficult for seasoned traders with proven track records. The formation of a hedge fund is actually very easy, if you find the right person or firm (a “provider”) to help you. And it can be done for less than $10,000.
- Find a provider you trust to help in the setup.
- If need be, register as an Investment Adviser. Visit www.iard.com to start the process.
- Determine what will make your hedge fund unique. Finalize the fund’s investment objective and investment strategies, prepare biographical data on yourself to include in the offering documents, and decide how often you accept investors, how you will be compensated, what expenses the fund will bear as opposed to the management company, how you will be set-up as to trader tax status, etc.
- If you are forming a commodity hedge fund, start the process of becoming a member of the NFA. You can do that at www.nfa.futures.org/registration/nfamembership.asp. You will also need to register with the NFA as a Commodity Pool Operator. You can do that at ww.nfa.futures.org/registration/cpo.asp.
- Obtain a first draft of your offering documents (private placement memorandum, LLC operating agreement and subscription materials) from your provider. Do a thorough review of the documents, and ask questions to make sure you understand all of the aspects of your fund.
- Form your entities, get the tax ID numbers, make the appropriate IRS elections, and prepare resolutions so you can open bank and brokerage accounts.
- Your provider’s attorney should be actively involved in the review of your documents. This is an important part of the preparation of your fund.
- If you registered as an Investment Adviser or with the NFA, make sure that the regulators have approved any such applications.
- Your provider should give you the SEC Form D and the blue sky filings for the states where you expect to initially distribute your offering documents. Make sure your provider gives you instructions on how and where to file the various documents, and general instructions regarding the distribution of your offering documents. You should now have a finalset of offering documents
- Take your offering documents to a copy store and have them printed and bound. Consider the image you wish your fund to project when choosing the printing materials and binding method. Remember you can have no marketing materials other than your offering documents.
- Mail your SEC Form D. You can check on its status at www.sec.gov/edgar/searchedgar/companysearch.html. File your blue sky filings within the appropriate time — either before distribution or within 15 days of the first sale in that state, depending on the state’s rules.
- Start distributing your offering documents and attracting investors. Keep a log of everyone you distribute documents to. Deposit your seed capital and begin trading the fund.www.active trader.com
