Fortunately for those looking to start up in the hedge fund space in 2025, the industry outlook appears strong. Positive macroeconomic trends, such as falling interest rates and moderating inflation, are fueling growth in hedge fund capital, according to Hedge Fund Research (HFR).
Additionally, AIMA reports a rise in new hedge fund launches, with skilled managers starting their own firms and attracting allocators eager to invest in proven talent.
However, challenges persist. Another report by HFR notes that hedge fund fees hit historic lows in 2024, with management fees for new launches averaging 1.17 percent and incentive fees at 17.17 percent—a far cry from the traditional “2 and 20” model. These numbers highlight a competitive landscape where operational efficiency and meticulous planning play a critical role in a hedge fund’s success.
Setting Up Your Hedge Fund for Long-Term Success
Here are 5 actions that can set your hedge fund up for long-term growth:
1. Create a Business and Marketing Plan
Develop a business plan that goes beyond launching your fund to define the next phase of its growth. This plan should detail your investment strategy and the costs of running an efficient and institutionally sound operation.
As part of your plan, define what roles you want to hire in-house and what functions you can outsource. To conserve resources and gain operational efficiency, hedge funds are increasingly choosing to outsource essential, routine daily and monthly processes.
As your fund grows, you may need to rethink what functions are outsourced and what is done internally.
2. Adopt a Holistic Approach to Software and Services
Hedge funds face significant complexities that make managing operations demanding. These include the need for in-depth due diligence, administrative efficiencies, transparency, and adaptability to evolving regulatory and settlement standards.
Managing these complexities requires a new approach to vendor partnerships, one that goes beyond software and embraces a holistic approach combining software and services.
Partnering with a vendor that combines software with services provided by industry experts streamlines these processes. A vendor with a proven record of success and a commitment to collaboration ensures your fund will have robust operational support at the start and over the long term.
3. Choose Trusted Providers That Can Grow with Your Hedge Fund
Growing your hedge fund requires you to establish partnerships with trusted providers who will support your business far beyond its initial launch. To identify if a provider is suited for sustained growth, focus on their service capabilities and scalability. Ensure they can offer:
-
Comprehensive and personalized service that covers onboarding, implementation, and ongoing support of operational functions. See if your vendor provides a menu of front-, middle-, and back-office operational services that can support your operation without adding headcount or infrastructure.
-
Technology solutions that are flexible and configurable and can easily adapt as the needs of your fund evolve over time.
-
Platforms built on elastic infrastructure that allow for smooth integration with current and future tools.
-
For further extensibility, look for platforms that offer a marketplace of plug-and-play applications. Such solutions can simplify the expansion of your investment ecosystem and minimize the cost and human resources needed to onboard additional providers.
4. Look Beyond the Front Office
Connecting front-office tools such as portfolio management, trading, and compliance with middle- and back-office operations creates a unified infrastructure that drives efficiency in your hedge fund. By implementing an end-to-end technology solution from the outset, hedge fund managers can streamline operations, mitigate risks, and position their firms for long-term success.
This integrated system also allows your fund to effectively compete with more established players who are often hindered by outdated, fragmented legacy systems.
5. Find a Hedge Fund Technology Partner that Supports Your Vision
Hedge fund founders often focus on initial costs or day-one needs when choosing a technology provider, neglecting long-term growth considerations. To avoid costly missteps, align your provider's capabilities with your fund's goals.
Look at your business plan and determine if the technology supports your vision:
-
What’s your growth target, and what technology is needed to scale?
-
How much mobility should your system have across offices and jurisdictions?
-
Can the technology accommodate larger investors, diverse strategies, and new asset classes?
Next, evaluate the provider:
-
Do they have a strong industry track record and expertise in supporting growth?
-
Is their service and support team accessible and capable of solving your challenges?
-
Can their system evolve with your fund’s strategies and future needs?
-
Do they offer a flexible menu of managed services that supports your operational needs today and as your firm grows in the future?
Choose a modern, cloud-hosted system with scalable, elastic infrastructure to ensure flexibility, connectivity, and resilience in any market environment. Choosing a future-ready provider saves you from costly transitions and supports your long-term success.
Set Your Hedge Fund Ahead of the Competition
Hedge fund managers shouldn’t wait until after launch to address critical investment operations. The foundation of success starts with a strategic plan, the right partners, and scalable, end-to-end technology.
Implementing the right technology and services from the outset gives your fund a competitive edge, positioning your firm for operational efficiency and future scalability.
