A Guide to Starting Your Hedge Fund

Chapter 5The Business Plan: Implications and Applications

The will to win is not as important as the will to prepare to win.

Bob Knight

Introduction

This quote is attributed to Bob Knight, the former basketball coach at the University of Indiana-Bloomington, where he won three NCAA national championships and became equally well known for controversy due to his hot temper and winning ways on the basketball court. In his statement, Knight identifies a critical insight that often separates those who succeed and those who do not. Almost everyone wants to win but most are not willing to sacrifice the time, energy, and effort required to win. This principle is as applicable to starting a successful hedge fund as it is to a championship basketball team.

We feel that drafting a business plan is a critical step required to successfully launch a hedge fund. Until ideas are given structure and words put to paper, the prospect of starting a hedge fund resides squarely in the realm of daydreaming. Writing a business plan forces a potential fund founder to think through critical issues related to investing, risk management, and fund management.

In our experience, the greatest challenge successful traders have when transitioning from an institutional environment such as an investment bank to starting their own funds is the realization that they are no longer solely risk takers but also business owners. They must now think about a whole host of issues that were normally taken care of for them. ...