Q&A by Don Bright
HEDGE FUND BASICS
We have a small group of investors/traders. We like to think that we’re somewhat knowledgeable about the markets and trading, and we’re considering forming a hedge fund of sorts. I have some basic questions. Can you help?
I’ll try to shed some light on the subject (see my answer to the next question), but if you choose to proceed, consult a good securities lawyer, and find a compliance officer before filing any formal documents.
What exactly constitutes a hedge fund? My understanding is that it simply “pools” investor money run by one or more manager/traders. The investors get most of the returns of the fund, and the management keeps a fee plus a percentage of the profits.
There are many misconceptions about hedge funds these days. I suggest you take a step back and create a business plan for what you are trying to achieve by entering into this venture. If you and/or your group are making good returns and simply wish to “ramp it up” a bit with more capital, then there are alternatives that may work better for you.