A Guide to Starting Your Hedge Fund

Successful hedge fund investing begins with well-informed strategy A Guide to Starting Your Hedge Fund is a practical, definitive "e;how-to"e; guide, designed to help managers design and launch their own funds, and to help investors select and diligence new funds. The first book to examine the practical aspects of setting up and operating funds with a focus on energy commodity markets, this book scrutinises the due diligence process and comprehensively reviews the opportunities and risks of all energy commodity markets as hedge fund investments. Extensive planning and strategy advice prove invaluable to prospective fund managers and investors alike, and detailed discussion of the markets' constraints help inform procedural decisions. Readers gain insight into practical matters including legal and commercial structures, due diligence, fund raising, operations, and more, allowing them to construct a concrete investment plan before ever touching a penny. Asset managers are looking to energy commodities to provide attractive uncorrelated if volatile returns. These high returns, however, are accompanied by high risk. Few investors have experience evaluating these investment opportunities, and few prospective fund managers understand the market fundamentals and their associated risks. This book provides the answers sorely lacking in hedge fund literature, giving investors and fund managers the background they need to make smarter decisions. Understand the markets' structures, opportunities, and risks Develop a comprehensive, well-informed investment strategy Conduct thorough due diligence with a detailed plan Examine the practical aspects of fund raising, legal and tax structure, and more Oil has long been traded by hedge funds, but electricity, the fuels that generate electricity, and the environmental products like emissions allowances and weather derivatives have become the new "e;hot"e; investment strategies. These high returns come with higher risk, but A Guide to Starting Your Hedge Fund ensures participants have essential information at their disposal.

Successful hedge fund investing begins with well-informedstrategyA Guide to Starting Your Hedge Fund is a practicaldefinitive "how-to" guide, designed to help managers design andlaunch their own funds, and to help investors select and diligencenew funds. The first book to examine the practical aspects ofsetting up and operating funds with a focus on energy commoditymarkets, this book scrutinises the due diligence process andcomprehensively reviews the opportunities and risks of all energycommodity markets as hedge fund investments. Extensive planning andstrategy advice prove invaluable to prospective fund managers andinvestors alike, and detailed discussion of the markets'constraints help inform procedural decisions. Readers gain insightinto practical matters including legal and commercial structuresdue diligence, fund raising, operations, and more, allowing them toconstruct a concrete investment plan before ever touching apenny.Asset managers are looking to energy commodities to provideattractive uncorrelated - if volatile - returns. Thesehigh returns, however, are accompanied by high risk. Few investorshave experience evaluating these investment opportunities, and fewprospective fund managers understand the market fundamentals andtheir associated risks. This book provides the answers sorelylacking in hedge fund literature, giving investors and fundmanagers the background they need to make smarter decisions.* Understand the markets' structures, opportunities, andrisks* Develop a comprehensive, well-informed investment strategy* Conduct thorough due diligence with a detailed plan* Examine the practical aspects of fund raising, legal and taxstructure, and moreOil has long been traded by hedge funds, but electricity, thefuels that generate electricity, and the environmental productslike emissions allowances and weather derivatives have become thenew "hot" investment strategies. These high returns come withhigher risk, but A Guide to Starting Your Hedge Fund ensuresparticipants have essential information at their disposal.

Acknowledgements ixPart I Why This Book? 1Chapter 1 Introduction 3Why This Book? 3The Big Picture and Energy Commodities 4Case Study: Amaranth Advisors 5Layout 6The Beginning 7Bibliography 7Part II the Basics 9Chapter 2 What Is a Hedge Fund? 11I Already Know What a Hedge Fund Is 11A Little Bit of History 12So What Is a Hedge Fund? 13Hedge Funds (Un)Defined 16The Growth of the Hedge Fund Industry 18Hedge Fund + Commodities = Commodities Corporation 19Whither Energy and Commodity Hedge Funds? 20Moving Forward 20Bibliography 21Chapter 3 What Are Energy Commodities? 23Introduction 23What Are Energy Commodities? 23The Regionality of Electricity 25Why Are Energy Commodities Attractive for Investors? 27A Complex, Solvable Problem 30Drivers of Complexity 31Conditions for Solvability 36Principal Sources of Opportunity and Risk 39Bibliography 46Chapter 4 Trading and Investing in Energy Commodities 47Bottom-up and Top-down 48Trading + Managing a Business = Successful Hedge Fund 49The Edge? 50Trading Energy Commodities 52Basic Financial Knowledge for Commodities 55Conclusion 56Bibliography 59Part III Starting the Journey 61Chapter 5 The Business Plan: Implications and Applications 63Introduction 63Objectives and Uses of a Hedge Fund Business Plan 64Conclusion 71Bibliography 72Chapter 6 Laws, Contracts, and Lawyers 73Don't Kill Your Lawyer 73Legal Basics for Funds 74Master-Feeder Fund Structures 77Side-Pocket Structures 81The Firm 84The Investment Advisory Agreement 86Contents viiAttributes and Variations of the Investment Management Enterprise 87Structural Design Decisions 88Case Study: Complex Tax Structuring 98Be Nice To Your Lawyer 103Bibliography 104Chapter 7 Service Providers 105Introduction 105Long-Term Relationship: Service Providers and Marriage 106Service Providers: Who and Where? 107Negotiate, Negotiate, Negotiate 108Service? 110How to Choose? 112Final Thoughts 113Bibliography 113Part IV Running the Business 115Chapter 8 Fundraising 117Strategic Investor Portfolio Design 118Start-up Lifecycle Analysis and Investor Portfolio Development 127Investor Acquisition - Marketing 130Tools for Marketing and Key Marketing Documents 140Marketing Documentation 143Investor Maintenance - Investor Relations 152Chapter 9 Operations and Infrastructure 155Introduction 155Infrastructure and Technology 158Bibliography 160Part V Final Thoughts 161Chapter 10 Investing in Energy Commodity Hedge Funds 163Asset Allocation: Portfolio Building Basics 163Asset Allocation: Understanding Different Strategies 167Checklist for Investing in Energy Commodity Hedge Funds 170Bibliography 171Chapter 11 Quo Vadis 173Bibliography 179Appendix A Sample Business Plan Outline 181Appendix B Outline of a Confidential Explanatory Memorandum: Sample Offshore Feeder Ltd 183Appendix C Sample Due Diligence Questionnaire Outline 189Index 195