A hedge fund business plan is a different from writing a typical business plan, mostly due to the fact the hedge fund business model is different from a typical business.
When you create a hedge fund, you are actually creating two businesses: the management company and the fund itself. There are different styles of writing a hedge fund business plan but it should include the following four components: vision, company overview, product strategy, and market analysis.
- How many funds will the management company manage?
- Are there any plans to develop new products for investor?
- How will non-investment-related services be handled? Will they be outsourced?
- What are the factors that will contribute to the success of the business? For example, how dependent is the business on marketing vs. performance?
- Description of how each fund will be managed.
- Description of the different strategies used for each fund.
- What are the investment philosophies and strategies and how will this affect each fund?
- Discussion of expected leverage, turnover rate, characteristics.
- What are the benchmarks for each fund?
- Description of how the management company and fund are structured.
- A list of owners and how profits will be allocated.
- Detail the payments and expenses.
- How are the managers managed?
- What are the strategic alliances that the companies might have, if any?
- How will the management company be staffed?
- Where are the funds domiciled?
- Description of investment process for each fund and how this will impact results.
- Discussion of fee structure(s) and incentives.
- Describe the products that the management company sells. In most cases, these products are investment management services.
- Describe in detail the investment strategy and philosophy for each fund.
- Discuss sources of risk and returns.
- What analytical tools are used?
- How will investment decisions be made? Who makes them?
- Discuss past fund performance or hypothetical fund performance if these strategies are implemented.
- Discuss the demand for the services provided by the hedge fund.
- Analyze relevant sector growth and trend.
- Discuss the potential size of the fund.
- Discuss market factors that would impact the fund.
- Discuss the recent experience of investors in the relevant sector.
The Business Plan
Preparing a business plan, whether it’s for a start-up or an existing business, is one of the most important tools used in business management. We have over 27 years of experience in creating business plans for a variety of purposes from starting a business to seeking funding.
Using the Business Plan
A business plan is a tool with three basic purposes: communication, management, and planning. As a communication tool, it is used to attract investment capital, secure loans, convince workers to come on board, and assist in attracting strategic business partners.
The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows you to show that you have worked out all the problems and decided on potential alternatives before actually launching your business.
As a management tool, the business plan helps you track, monitor, and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments.
As a planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. Many business owners share their business plans with their employees to foster a broader understanding of where the business is going.
Business Plan Basics
A solid business plan precisely defines your business, identifies your goals, and serves as your company’s resume. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. It provides specific and organized information about your company and how you will repay borrowed money which is a crucial part of any loan application.
Every successful business plan should include some discussion about each of the following areas, since these are what make up the essentials of a good business plan:
› Executive summary
› Market analysis
› Company description
› Organization & management
› Marketing & sales management
› Service or product line
› Funding request
A business plan should be a work-in-progress. Even successful, growing businesses should maintain a current business plan.