18 Lessons From Shooting Star Hedge Funds

18 Lessons from Shooting Star Hedge Funds

Fast growing hedge funds are unlike most large hedge funds and emerging hedge fund managers. They have figured something out and are positioned to grow unlike 90%+ of the industry.  Here are some lessons which can be taken away from some of the fast growing hedge funds we have worked with:

  1. They take transparency serious and work to be pro-actively very transparent - more so than their competition.
  2. They approach multiple investment channels but mostly ignore those completely out of their reach (example, potential pension fund clients for a $75M fund).
  3. They are always developing relationships and they have dedicated internal and some external professionals always selling on their behalf.
  4. They not only pedigree on their team but they are always building that pedigree through additional research, hiring of expert staff, and through speaking & writing.
  5. They document their operations and make decisions based on what is best long-term for the organization rather than what is cheaper to implement today.
  6. They have risk management and trading plans which are closely followed, this helps them improve their actual trading results and provides confidence to investors since their historical trading actually matches up against the decision making rules of their plans.
  7. They know that "risk management" while sounding less sexy than "hedge funds" is the business they are in, and they invest in their own business accordingly.
  8. They have documented, tested, and third party verified financial controls, compliance processes and audits completed at least quarterly and these reports are sent to at least board members if not investors
  9. They invest and improve their infrastructure every year even if the pay-off for doing so could be 5-7 years away, ironically these are sometimes the investments which pay off the soonest though because investors recognize the type of long-term investments being made
  10. They are experts at completing due diligence processes with institutional consultants, family offices and other types of institutional investors.  They have professionals who are trained for phone-based pitches and sales and hand-offs during these processes are seamless.
  11. They have just as good of marketing materials as the $1B hedge funds because after investing $300,000+ in infrastructure, talent, research, and risk management it would be a waste not to spend $20,000 on presenting it in the right light in a professional manner.
  12. They have seen the light that investing in the right areas does produce returns so they re-invest their money even faster and often more efficiently than even small hedge funds on a tight budget
  13. They invest in training for their employees and board members who they grow more long-term relationships with than many emerging hedge fund managers might.
  14. They are not only aware of the competition but they are watching them.  Not in terms of what they are investing in so much as what risk management tools, software, trading tools, and USPs they are employing.
  15. While hiring they look for very specific skill sets and a minimum of 7 years of experience in the industry, unless they have a policy of grooming from the ground up.  Most fast growing hedge funds we know though like to hire professionals who can hit the ground running and quickly integrate as part of the team.  They actually have an HR department or at least one person who is head of talent development and HR related activities, something almost all small hedge funds lack.  When they are asked on the phone by institutional consultants if they plan on adding anyone they have a sophisticated intelligent answer instead of the generic, "we may add an analyst within the next 3 quarters."  
  16. They understand the "trust by verify" mindset of investors and they make it easy to verify everything.
  17. They conduct more due diligence on business partners, investors, and potential employees than some retail investors spend on investing in small emerging manager hedge funds.
  18. They realize their success is never going to be built on one software program, capital raising process, or investment trend so they constantly are working to build their 1,000 blocks of competitive advantage and ability.

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