H o w t o s ta r t a H e d g e f u n d i n t H e u s 2 0 1 2

How To launcH a Hedge fund

frank napolitani, of concept capital markets, highlights the main issues to consider when launching a hedge fund in the us for 2012

frank L napolitani
is managing director, prime services group, concept capital markets.

he past three months have seen a flurry of activity of portfolio managers at larger hedge fund complexes inquiring about the next steps to launching a hedge fund during the first half of 2012. A number of factors are driving the increased activity: poor performance in 2011 at larger hedge funds, increased interest from global investors to invest with emerging managers and access to early stage/seed capital. The 2012 launches are shaping up to be the most promising that weve seen in quite a while. We touch on several new launch topics below and hopefully provide some insight on what managers need to consider as they prepare to launch a fund in 2012. Develop a business plan It is imperative to develop a business plan describing why your team has the ability to start and grow a successful alternative asset management firm. With the continued institutionalisation of the industry, simply taking a cottage industry approach wont cut it in the current environment if your goal is to attract institutional capital and grow a scalable business.
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As a start-up business, managers should look to get as much bang for their buck and look to align with service providers that can work with you at launch at a smaller asset base and be able to grow as your business grows. Knowing who those service providers are and forging a partnership are often key for a fund managers success as he or she attempts to launch. picking the primary funD service proviDers Like any important business decision, youll want to work with service providers that understand your business plan and investment strategy, and a group that you feel comfortable working with. Before picking any service provider, youll want to make sure the firm has name brand recognition within the hedge fund community and confirm their expertise in dealing with hedge funds and the specific asset class and structure you intend to manage. The key service providers youll need to engage with are legal, audit/tax, fund administration and prime brokerage. key components of running your funD Multi-custodial platform A key advantage of using a boutique prime broker-

prime broker age

age service provider like Concept Capital Markets is the multi-custodial platform we provide to clients. We work with several of the most reputable global custodian banks, which provides our clients the ability to multi-prime across various custodians while having to deal with a single support team at Concept. Global trading capabilities Concept Capital Markets serves its clients with a high touch, multi-asset class and complete outsourced trading solution. We serve as a one stop shop for execution of equities, ETFs, options, futures, fixed income and forex. In addition to trade execution, we support our clients with experienced traders to provide continuity, while acting as your partner who is focused on your needs. Risk management & advisory* The RiskONE risk analytics team provides outsourced risk analytics and management services to more than 70 hedge funds, which oversee more than $70bn AuM across all strategies. The risk analytics team provides the following customised analytics to its clients: Exposure reporting Stress testing/scenario analysis VaR Risk budget/volatility sizing Limit exception monitoring P&L time series and attribution analysis Capital allocation simulations Investment strategy allocation

we serve as a one stop shop for execution of equities, etfs, options, futures, fixed income and forex

can be disregarded for the purposes of the Form. Smaller hedge fund advisers that are required to file Form PF will be required to file on an annual basis. Large hedge fund advisers will be required to provide additional data and to file quarterly. A private fund is considered a large hedge fund adviser for a fiscal quarter if they had at least $1.5bn in regulatory assets under management calculated in accordance with Form ADV and attributable to hedge funds as of the last day of any month in the quarter. In determining whether you are a large hedge fund adviser, you are required to include hedge fund assets under management of any related person, as related person is defined for the purposes of Form ADV, unless that related person is separately operated. RiskONE manages every step of the reporting system from: Obtaining, reconciling, mapping and storing of key information Creation and review of customised metrics Review and interpretation of risk-based information Integrating the system effectively into investment management efforts Sharing appropriate information with outside parties

Middle/back office support In addition to the multi-prime/multi-custodian capabilities we provide to fund managers, ConceptONE can also serve as a funds outsourced middle and back office and facilitate aggregated portfolio reporting. This service provides fund managers with significant cost savings and the ability to allocate all of its resources to the investment process. Through the use of leading technology providers including SAS, Advent Geneva and Paladyne Systems, we provide our clients with multi-custodial, multi-asset class, multi-currency reporting through one aggregated set of reports. We currently work with approximately 15 custodians and provide an aggregated reporting package to our clients each morning. Regulatory requirements Form PF In addition to the requirements of having to file as an investment adviser, the DoddFrank Wall Street Reform and Consumer Protection Act are requiring the alternative investment community to implement a new way of reporting to the regulatory bodies. On 31 October 2011, the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) adopted a new rule requiring investment advisers to periodically file the new Form PF if they are registered or required to register with the SEC, or have at least $150m in private fund assets under management. If the adviser has principal offices outside the US, then funds that are not US persons and are not offered or owned in the US

Infrastructure support and start-up services Having assisted a large number of investment teams in launching funds since the mid-1990s, our relationship managers in the prime services group at Concept Capital Markets often act as business consultants to our clients during the prelaunch stage by helping them budget their prelaunch and first year expenses, choosing service providers (e.g. legal, audit, fund administration, outsourced compliance services, etc), general infrastructure items (e.g. office space, IT, etc), and developing marketing materials to present to prospective investors. After launch, we continue to work very closely with our clients as they tackle the ongoing issues of running a business, not just running a portfolio. IT managed services Concept provides a significant number of our hedge fund clients with outsourced IT services, including: Managing and hosting domain services including file sharing, email communications, network communications, server maintenance, network maintenance, and firewall protection Providing VolP phone service and high-speed internet connectivity Assistance in drafting and implementing an IT business continuity and disaster recovery plan integration of various trading systems based on manager preference. n
Disclaimer: Concept Capital Markets is a registered broker dealer and registered investment advisor with the SEC, a member of the Financial Industry Regulatory Authority (FINRA), and a member of the National Futures Association (NFA).
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ONE COMPLETE MULTI-PRIME SERVICE PLATFORM DESIGNED TO LET YOU FOCUS ON WHATS IMPORTANT
Concept Capital Markets, LLC offers a comprehensive suite of brokerage services that provide global investment managers with solutions that are customizable and scalable. The firm was built by former investment managers to serve traditional institutional customers, hedge funds and registered investment advisors with turn-key solutions and a full range of fund services designed to free investment managers to focus on their core competencies. Our multi-asset trading, clearing, financing and reporting capabilities combined with our dynamic, relationship driven culture differentiates us in an ever changing market. The company was established in 2010 following the spin-off of the Concept Capital division of Sanders Morris Harris Inc., whose origins date back to 1995. Concept Capital Markets, LLC is headquartered in Garden City, NY and operates branch offices in New York City, NY, Greenwich, CT, Chicago, IL, and Bernardsville, NJ. Concept Capital Markets, LLC is a member of FINRA and SIPC.

Prime Brokerage | Risk Management | Fund Administration | RIA Service | Family Office Services

Michael S. Rosen Senior Managing Director 516.746.5723 mrosen@conceptcapital.com

Frank L. Napolitani Managing Director 646.747.5228 fnapolitani@conceptcapital.com

www.conceptcapital.com
NEW YORK, NY | GARDEN CIT Y, NY | GREENWICH, CT | CHICAGO, IL | BERNARDSVILLE, NJ