Launching your fund on the proper platform

So you want to manage assets— make sure you have strong support

So you are thinking of starting a hedge fund. You are not alone. More than 800 newfunds launched globally in 2013, including 71 in Asia.

Clearly, in spite of mounting regulatory barriers, the idea of launching and running a fund still has a lot of appeal.

Now, you face a crucial decision.

Should you try and launch a fund on your own or should you sign on with an established asset management platform?

Joining an asset management platform may make more sense for a startup fund than trying to go it alone.

The costs of creating a legal entity and building the infrastructure to support a fund— licensing, attorneys’ fees, compliance, technology, office space, staff— can add up quickly.

Many market professionals believe a newhedge fund needs to raise about $50 million to break even. With an established platform, you could be up and running with as little as $5 million to $10 million.

Economics, however, are only one factor.

Even if you have enough capital, the platform route allows you to focus on investing and leave the administrative tasks to the experts.

Time spent on administration is time spent away from what really matters: namely, identifying opportunities, raising money and investing it effectively.

The freedom to focus on investing is what makes the platform proposition compelling for startup, small and medium-sized funds.

Not all platforms are alike, however. They can vary widely in services and capabilities.

It is important to do your due diligence and know what questions to ask when talking to platform providers.

What constitutes a proper platform?

The two most important pillars are people and technology.

Who are the people looking after your business? You are entering into an important, everyday relationship. You will want to work with people whose resumes and credentials inspire confidence that they know what they are doing.

It is equally important that the platform offers a strong technology infrastructure, built around state-of-the-art systems, with a high level of automation and integration to help mitigate your operational risk.

Be wary of any company that claims to have built its own fund accounting or middle-office system.

Homegrown systems often raise questions about support, upgrades, scalability and integration with industry-standard technology, and theymay pose operational risks if these issues are not adequately addressed.

For your crucial applications— fund and investor accounting, trade order management, and clearing and settlement— look for proven, brand-name technology that is widely used in the industry.

The infrastructure needs to be scalable to accommodate escalating transaction volume and asset growth.

And it needs to be able to support complex fund structures and strategies.

Most importantly, the systems should be backed by global service and support and kept up to date with regular upgrades.

Moreover, they should have a roadmap to the future, in which cloud-based services and mobile accessibility are expected to become the norm.

Institutional investors and their consultants perform rigorous, ongoing due diligence on fund managers, with operations a key focus of their inquiries.

To tap into this critical source of funding, you will need to be on a platform that can stand up to the most intense scrutiny.

The importance of superior technology cannot be emphasized too much. Funds in the billions of dollars have been known to fail, not because of bad trades or market forces but because of inadequate infrastructure and administration.

Another important consideration is disaster recovery and business continuity. Ask prospective platform provider how they plan to protect your fund and investor data in the event of a disaster.

As you reviewa platform provider’s services, find out which are performed in-house and which are being outsourced.

It is not uncommon to have some services farmed out to specialists. However, certain aspects of your business— risk management, for example— are too important to be taken outside.

Beyond that, what is the provider willing to do to help you launch successfully and stay afloat?

Do they provide capital introduction services?

Do they have connections with investors?

Will they even help you prepare your presentations?

The proper platform, one that handles both your fund administration and your business administration, should ultimately give you a better chance of gaining traction and attracting more capital.

It will allow you time to travel and meet investors. It will provide the infrastructure and risk controls investors expect.

And it will allow you to focus on analyzing opportunities and making decisions — the reasons you decided to launch a fund in the first place.