Hedge Fund Question of the Week – Summer Edition – No. 1

Do start up managers know how a hedge fund firm operates?

Answer:  Not usually.

Consider that almost all new managers previously worked as an investment analyst or maybe a portfolio manager.  In those roles, the task is to find good investments and steer away from bad ones.  It’s not to oversee (or even learn) what goes into operating the firm, otherwise known as the middle and back office. 

But a well operated firm can be critical to the success of a new manager.  The necessary components are wide and varied, from finding office space to choosing prime brokers and other counterparties, setting up an IT infrastructure, portfolio financing, payroll, compliance and many more.  

Advice on how a new manager should best proceed can be equally wide and varied.  While there are many good sources, one of the best places to start is with a group of people who are typically very knowledgeable and very willing to help: co-workers who ran the middle and back office at the new manager’s old firm.