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| The following are initial investment criteria that buy-side investors typically use to immediately distinguish worthwhile small, new and start-up hedge funds. Hedge fund managers should be aware of these issues and ensure that they are able to satisfy them in order to maximize their ability to attract investment capital. |
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1) Length of common work experience of all core hedge fund team members. Cohesion of an established team ? how well do they work together? How well do they divide their labour and how well do their areas of expertise fit?
2) Direct experience in the same proven strategy / multiple strategies. Investors will want to know extent of relevant market experience.
3) Positive performance track record that can be verified by a reputable third party.
4) Clearly articulated strategy and objectives defined by the management team.
5) Definable edge in strategy and market ability. With so many funds available, a proven strategy alone is not enough, it is vital to be able to differentiate from other funds.
6) A forward looking, scalable strategy that can easily grow substantially in size.
7) Ability to build a sustainable franchise, not a temp niche player. This is especially important if targeting institutional investors in the future as they will be looking for track record coupled with a mid to long-term future from point of entry.
8) Very solid risk management practices that can be stress tested. Whether common or proprietary risk evaluation models are being used, the parameters must be able to be tested through market simulation.
9) Impeccable personal and business histories of all key members of the management team.
10) Directly able to interact with local market members in the local language. Investors will look for this kind of edge over the global funds run from major financial centers.
11) Demonstrable understanding of and sensitivity to the local market culture and idiosyncrasies.
12) Solid fund infrastructure and legal framework set up.
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