New barriers to starting hedge fund in the EU in 2018


Starting up a new hedge fund today is a challenge unless it’s a spin-off from sizable and established funds. Nevertheless, despite the difficulties of raising capital, it is still possible to be successful.

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If you want to be successful, it’s worth taking some advice from Warren Buffet who said “It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.” Wasting valuable skills on time-consuming, mundane tasks is not a good idea. Hiring staff, implementing all the necessary risk controls and regulations as well as running a successful hedge fund takes up so much time and energy.  It’s better to outsource some tasks to experts who already have successful solutions, giving you time to focus on what’s important.

Why is it becoming more difficult?

It’s tough to establish a new hedge fund today. It’s becoming increasingly difficult to raise capital, fee expectations are lower and keep being squeezed, regulatory pressures are mounting, and operational costs have increased. In the face of all these difficulties, establishing an audited track record of high yields is not easy. You need at least two to three years of high yields to attract serious investors.

What can you do to differentiate yourself and survive?

Emerging hedge fund managers are competing fiercely to raise seed capital. You need to assess what will make you attract the attention of investors. What is critical is your core value proposition, a good marketing strategy, and an audited track record. You will need enough funds to survive while you build up a credible track record and raising capital is a major challenge. Most new hedge funds start off with capital raised from family and friends or an individual of high net worth, so they can start creating a track record.

A successful track record

Never underestimate the importance of building up a track record. It’s essential to be regulated while building your track record and applying for an FCA license can now take as long as18 months, which is a big delay.  Increasing regulatory burdens also require more infrastructure which in turn increases operational expenditure.


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Jerry Lees
Jerry has been Chairman of Linear Investments since January 2013. Linear Investments is FCA regulated to provide prime brokerage, execution, and hedge fund platform services, including FCA umbrella, capital introduction and hedge fund office infrastructure. Lees started his career as a trainee graduate at Lloyds bank. He gained experience in many technology and financial businesses before founding Northgate Computer Services, a leading Financial FinTech company. Later he was part of the team that created Liberty (part of Clearstream Bank), the first global electronic trading and execution platform. As Global Marketing Director, he set up distribution throughout Europe, the USA, and the Far East. The business was sold to Reuters for £50m in 1999.