There are many talented people out there who are passionate about investing and manage money during their spare time from their “real” jobs, says Amit Chokshi of GuruFocus. Many are blogging on his and other sites. Still others may dream of hanging out their own shingle and starting a hedge fund.

But it takes more to get started than an investment philosophy, track record, and an office he says. Not the least of which are the mundane details of compliance, registration, and administration.

In Connecticut, for example, where Chokshi resides, you are required to register with the state Banking Commission, even if you’re setting up a private limited partnership (such as a hedge fund). To register as a Registered Investment Adviser (“RIA”) at the state level, you need to take the NASD Series 65 exam. You could be exempted from the Series 65 if you are a CFA Charterholder. Then you have to submit your compliance manual, Form ADV and related documents with the Banking Commission.

Another step is to decide whether you want to be a hedge fund or offer Separate Managed Accounts (SMAs). Going the hedge fund route is costlier compared to SMAs, says Chokshi. His hedge fund required three legal entities, the limited partnership (the actual fund), the general partner (“GP”), and a management company (the RIA). You will need an offering memorandum, subscription agreement, and limited partnership agreement drafted by a law firm. These can run from $20k-$50k.

Chokshi goes on to highlight the many other details necessary for launching a hedge fund: 

– Deciding what state(s) in which to register, and pay taxes;

– The need to conduct an annual audit, along with tax returns, for your investors;

– Hiring an administrator for your fund. Most charge flat fees and a percentage of your assets under management;

– Finding a broker or prime broker who will executes trades for your funds.

Some fund managers use discount brokers. Others take advantage of “introducing” prime brokers where the broker manages all the reporting for the fund but uses a bigger firm, such as Goldman Sachs or UBS for custody of assets. This approach can provide more sophisticated trading platforms for newer hedge funds.

Chokshi’s article is a good primer on the major costs you will have to consider when starting your hedge fund. It also offers possible ways of saving money on these costs. You can read his full article at GuruFocus.com.

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