The Ultimate Hedge Fund Operations Checklist: 10 Must-Dos

Under the hood, there are indications your hedge fund is humming along…or about to break down. This is where solid operations come in: insuring compliance, a best-in-class tech stack, digital security, and more. Here we outline the best practices hedge funds should take to keep things running.    

1. Focus on Raising Funds

Capital raising is one of the most daunting yet basic tasks any firm faces. There are effective ways to position your team and strategize for success in raising assets and securing investors while making sure you comply with all requirements pertaining to what you can say to investors and how you can distribute your material.  

2. Invest in Investor Relations

In order to build and foster loyalty among your investors, you must learn to communicate with them effectively. This communication, however, can not only secure their commitment to you; it may also lead them to refer you to new clients. Investor relations, then, is the first step in business development.  

3. Create Spot-On Legal and Compliance Measures

Set a top-down tone of commitment to compliance by establishing processes and control measures that prevent potential legal trouble, lawsuits, and regulatory violations. Do it reputably from inception so you can focus on success and avoid unwarranted scrutiny.  

4. Implement Thorough Tax and Accounting Procedures

Whether you use in-house or outsourced bookkeeping, you need to implement the resources to manage and oversee the accounting, financial reporting, annual audit, and tax preparation requirements of the fund and its clients. The accuracy of your books and records is critical to daily operations and clients — and the regulatory agencies who may want to put you under investigation.   

5. Build the Right Tech Stack

Being offline is simply not an option for any firm, and meeting the wealth, tax, asset, and liability management needs of the principal(s) and the estates requires specialized attention. You’ll need the right hardware and software to guard your firm against the ongoing threat of cyberattacks, identity theft, and system outages, and ensure that your data is always secure and accessible. By protecting the interests of the firm’s owner(s), you ensure their peace of mind and secure their loyalty. 

6. Streamline Trade Operations

Tailor and construct an efficient and risk-mitigating workflow to handle the entire life cycle of a trade, from order entry to execution and allocation to settlement and reconciliation. This workflow effectively ensures the accurate and timely processing of market transactions. Errors cost your firm money and damage its reputation.  

7. Budget Wisely

By forecasting, budgeting, and overseeing the financial accounting and tax preparation needs of the ownership entity, you will meet requirements for cash, treasury, and management reporting. Understanding the financial condition of the business is critical to the principal(s), partner(s), outside financial stakeholders, and investors.  

8. Don’t Ignore Administrative Needs

A business cannot function without proper behind-the-scenes support, resources, and services. Heed the importance of an efficient infrastructure in meeting the ongoing needs of your clients and employees.  

9. Be a Human Resources Champion

Your most important resource is human capital. To get the best performance out of your team, it’s important to design and adhere to policies for talent acquisition, diversity and inclusion, training and professional development, and benefits that most employees value. Employee dissatisfaction and turnover cost you valuable time and money.  

10. Prioritize What’s Important

Focus on the key areas of your firm to determine how to budget. Break it up by the Areas and Categories you want to focus on in order to prioritize them. First, compare the first item in the list to the rest in sequential order until you find a higher priority. Second, replace that first item with the higher priority item. Our team at Arootah has a time-tested, proven methodology for your team to not only set goals but also map out actionable steps for achieving these goals. To dig deeper into this process, consider setting up a goal-setting workshop for your team.   

The Bottom Line

Hedge fund operations are the key to a healthy business, and appropriate planning in the 10 categories above is crucial for building consistent support. Revisit this list periodically to be sure each function is humming along — and if you find a glitch under the hood, address it now. Problems just get more expensive the longer you wait to repair them.  

Looking to strengthen your firm from the inside out? Arootah’s Hedge Fund Advisory leverages our experience across the key areas of a firm: investments and operations. Our experienced industry veterans support you throughout the entire life cycle: from start-up to raising capital to ongoing operations and beyond. Reach out to see how we can support you. 

Disclaimer: This article is for general informational purposes only and does not constitute legal, investment, financial, accounting, or tax advice, or establish an attorney-client relationship.  Arootah does not warrant or guarantee the accuracy, reliability, completeness, or suitability of its content for a particular purpose. Please do not act or refrain from acting based on anything you read in our newsletter, blog, or anywhere else on our website.