Hedge Fund Business

Succession Planning & Hedge Fund Business Tasks

Over half of all hedge fund failures are business related.

Many institutional investors now scrutinize the business a hedge fund is running as much as they do their investment returns. This is important to note as many of even the largest hedge funds fall short within areas such as long term compensation, retirement, risk management and succession planning. To be fair many hedge funds are very performance-based and some see high turnover so spending much time on planning long-term for leadership grooming may not be a wise investment of time. That said, many small funds who are just breaking through the $100-$250M threshold often have dozens of processes, policies and institutional business risk management controls to set in place to please institutional investors and family offices.

Here is a recent article excerpt on this topic:
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Hedge fund firms often pride themselves on being ahead of the curve on financial trends but roughly 70 percent lag behind on planning for their own futures, according to a study to be released on Tuesday.

"Regardless of firm size, most participants have not taken all of the necessary steps to ensure a smooth transition in the event of a change in the senior management team," said Rick Flynn and Alan Kufeld, who provide tax, accounting and consulting services to hedge funds as principals.

While hedge funds used to be small businesses managing several hundred million dollars, the industry has grown up and many fund firms now oversee several billion dollars for big clients such as pension funds that want to see a succession plan.

But most fund managers acknowledge they haven't thought that far ahead. Less than one quarter of the respondents said they have agreed on a formal succession plan and fewer than 30 percent said they are ready to deal with the death of a managing partner, according to the data.

"This lack of preparedness poses a threat to both the role and personal wealth of the principal and will almost certainly affect the other owners of the management company as well as investors in the firm's funds," wrote Flynn and Kufeld about the results. Read more...

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