Launching a Small Hedge Fund: Daniel Strachman

September 6, 2012 James Heinsman Quote of the Day

A commonly believed myth states that starting a hedge fund requires at least a billion dollars. GAIM Conference Series  director of research and strategy Daniel Strachman explains that it is possible to get one up and running with significantly less funding.

“It’s reasonable to think that a group of people could get together and launch a fund for under a million dollars,” he ssaid. “You could hire a lawyer, hire an accountant, open a couple brokerage accounts, and get a fund up and running from an out-of-pocket expense of just north of $100,000.”

Still, “in terms of launching a fund, I think you need to launch at a minimum between $10 million and $20 million to have critical mass.”

Smaller hedge funds are considered less important, or even insignificant, by many financiers. Strachman believes all products and businesses are launched “because the market demands them” though, and the same goes for smaller hedge funds.

“That’s what makes our market the most interesting market in the world,” Strachman said. “We’re able to create products and build liquidity and provide services to meet the demands of investors. I don’t think it’s a failure if someone launches a fund of $5 million and grows it to $50 million. That’s a nice business. It may never be a billion dollar fund. But okay, there’s room for everybody. There’s an opportunity for everybody to be in the market.

“I think the issue now is that with the JOBS Act and other rules that have come out, there’s more of a framework for operating the business. I think that’s what makes the business so interesting.”

 

Daniel Strachman, GAIM Conference, Hedge Fund Industry, Small Hedge Funds, Starting a Hedge Fund,

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