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How Much Money Does it Take to Start a Hedge Fund?


The answer: Less than you'd think.

Contrary to popular belief, you don't need a billion dollars to get a hedge fund up and running.

According to Daniel Strachman, a financial expert who serves as the Director of Research and Strategy for the GAIM Conference Series [Informa plc (INF.L)], you can start with a relatively small amount of money.

"It's reasonable to think that a group of people could get together and launch a fund for under a million dollars," Strachman told StreetID. "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."

That, however, is just the beginning. "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," said Strachman.

While some have questioned the value of smaller hedge funds, Strachman believes that products are launched and created "because the market demands them."

"That's what makes our market the most interesting market in the world," he 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."

Strachman disagrees with those who say it's a mistake to launch a small hedge fund.

"Everybody would love to have money from the large endowments, foundations, and pension plans," he said. "But it's not realistic to say that if you got $5 million or $10 million you're gonna get money from a large pension plan."
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