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Launching a hedge fund: reputation first!

Although capital requirements are much more important now than they were a dozen years ago, it is reputation which is all important...

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The European directive on hedge funds and private equity firms is well on the way to being adopted, now that concessions have been agreed to by the new British government. Hedge fund managers will now have a somewhat more complicated life because of the much stricter transparency regulations.

This is added to the fact that capital requirements are now a lot more important than they were a dozen years ago. One of the main players in this sector who was present in London, and whose personal fortune is estimated to be 100 million euros, explained to Next Finance: "Before, 100 to 150 million euros would have been sufficient, today, two or three times more capital is now required"

It is just as well that there is a need for greater amounts of capital. Out of all the funds created, only a handful of them managed to succeed beyond a few years, owing to structures that were too fragile. The dynamic nature of the sector is, however, not lost. The main difficulty is to reach the masses who are crucial for paying for the necessary infrastructure; investors want to invest in quality institutional funds. Therefore, the investment of enormous amounts of money, as well as a concerted effort to communicate are necessary requisites to attract them, It is impossible to start off small. Today one needs about 300 to 400 million’s worth of capital to start with."

How does one create one’s own alternative fund ? I was working for several years for a commercial bank", continues our witness. After having spent many years in the markets, I thought that I was able to create value without going through a memory bank. When you are on the trading floor of a bank and interested in trading activities, you will be offered a promotion; if you accept, you will handle a large number of clients, but will move away from the markets and as a result, it will not be as interesting.... and it you turn the promotion down, you will stagnate; if you are really interested in the markets you will know which choice to make. Personally, I decided to create my own management company bringing along with me three colleagues. As it turned out, the first fund holder was the employer, I had just left. I put my own money in and, with that of my first client, the basic structure was created with 150 million euros. Today, we have about one hundred clients"

Bernard Oppetit, the founder of Centaurus Capital, one of the most visible funds in London, remembers the launch of his business, ten years ago. " We were only five and each one of us were doing all sorts of jobs, including making coffee. Today the team operates in a collegial manner and employs about 50 people. I am the founder, but four associates joined me to manage the company together. My main role is to follow the major moves in order to find the best investments."

Bernard Oppetit tells us that, when launching a hedge fund "personal presentation is important, as one must inspire confidence in one’s relationships and reputation. Once the business is established, these considerations become less important, as it is the company as a whole, and not any one person in particular that assumes overall importance. Reputation is the single most important thing in the banking sector."

Home to 80% of the European hedge fund industry, London is by far the most attractive place to start up one’s own fund. "The United Kingdom is best in terms of credibility with investors, as it’s very culture and tradition ingrain the concept that it is the shareholders who own the company. Too often, on the Continent, the shareholders are considered just shareholders, and companies are run solely for the benefit of the managers and not for the investors. We think that if management is not serving the best interest of the investors, it is our duty to inform them accordingly."

Johann Harscoët , May 2010

Article also available in : English EN | français FR

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