A Guide to Starting Your Hedge Fund

Chapter 8Fundraising

Show me the money!

Tom Cruise, in the movie Jerry Maguire

The survival of any investment firm is contingent upon raising capital and generating acceptable returns from that capital. Outside a few very rare exceptions, most funds will constantly be concerned with either raising additional capital or ensuring that capital remains invested. The fundraising process is a marathon that is sometimes tedious, but must be run well for a fund to succeed since the best investor in the world without capital is nothing more than a spectator. This chapter draws on our experiences of raising capital for multiple funds. We learned these lessons the hard way. With some of these lessons in mind, hopefully the road will be smoother for you.

The relationship between a fund and its investors can take many shapes. In fact, most investors would argue that the way in which funds approach and manage their investors is a key aspect that varies most noticeably from one fund to another. Some funds view their investors as necessary evils, or as objects of marketing and public relations management. The most productive fund–investor relationships, however, are those in which funds treat investors as business partners and foster collaborative relationships. Furthermore, successful funds always treat their investors as respected and appreciated clients.

Although there is often more investor money available than a wise fund manager requires, the reality is that not all investment money is ...