From Idea to Launch: Modern Hedge Fund Ops 101
Practical lessons distilled from the Composer × Repool webinar, “Modern Fund Ops: How to Start and Scale Your Own Fund.”
The new playbook for emerging managers
Kevin Fu, Repool’s CEO, began by explaining why early attempts at “fund‑in‑a‑box” solutions rarely solved an emerging manager’s real problems. Most legacy vendors simply brokered introductions to lawyers, auditors and primes while charging a toll for standing in the middle. Repool’s thesis is different: automate entity formation, administration and investor onboarding inside a single software platform so managers can stay focused on generating alpha rather than stitching together back‑office vendors.
You’re probably allowed to start a fund, if you know the rules
In most U.S. states a first‑time manager can operate as an Exempt Reporting Adviser (ERA). If you advise only private funds, manage less than $150 million across all vehicles and base yourself in a state that recognizes the exemption like New York, California, Texas, Florida and Connecticut, the regulator requires no Series‑exam license and no SEC registration on day one.
Budget reality check
Launching “lean” still means budgeting between $50 000 and $60 000 in the first year for formation, administration, audit, tax and state filings. States that waive the annual audit can knock that down to roughly $35 000, but managers running a million‑dollar strategy must accept a 5% to 8% performance drag if those costs are borne by the fund.
Secure capital before the paperwork
The biggest killer of fledgling funds is over‑estimating committed capital. Kevin urged prospective managers to behave as though the fund already exists: demand written confirmations, not casual interest, before forming entities and writing cheques to service providers.
Choose a structure that matches your state, then keep it simple
Most managers in “fund hubs” such as New York default to a three‑entity Delaware stack: limited‑partnership fund, general‑partner LLC and management‑company LLC. This is because the configuration is tax‑efficient locally. In states without that advantage, a two‑entity setup (fund LLC plus manager LLC) achieves the same liability shield with fewer filings. Whatever you choose, regulators judge you on where you actually work; a virtual mailbox in Florida cannot override the fact that you trade from California.
Know who can invest
Every fund interest you sell is a private security. Despite myths about Regulation 506(b), non‑accredited investors are off‑limits, and many states insist that investors meet the stricter qualified‑client standard, currently a net worth above $2.2 million or at least $1.1 million invested before you may charge performance fees. If all your prospective LPs merely satisfy the basic “accredited” test, double‑check that your state does not elevate the bar.
Scaling without losing focus
Sub $25 million managers typically trade on Interactive Brokers or Composer Business Accounts. As assets approach the $50–100 million range, many migrate to “bulge‑bracket” primes such as Jefferies or Clear Street and bolt on an order‑management system to spray orders across multiple brokers. International capital often justifies a Cayman or BVI feeder once the tax‑filing burden for offshore LPs outweighs the extra admin bill.
Digital‑asset exposure introduces fresh complexity. Spot‑only crypto portfolios are treated like securities, but once you add futures or perpetuals you enter CFTC territory and Kevin’s view is that the compliance burden is rarely worthwhile for funds below roughly $20 million.
A practical five‑step action plan
First, validate demand by locking in commitments that cover at least your first‑year cost drag. Second, stress‑test strategy capacity at 10x to 20x your personal‑account size to ensure the economics still work. Third, pick an ERA‑friendly domicile and assemble your “three Ps”: a trading Platform (Composer), a Prime broker (IBKR or Composer), and an operational Provider (Repool). Fourth, launch lean by executing the LP agreement, private‑placement memorandum and compliance manual, then start the clock on an audited track record. Finally, scale deliberately: layer in multi‑prime, an OMS and international feeders only when assets or complexity demand the upgrade.
Ready to build?
Composer Business Accounts deliver no‑code algorithmic execution, real‑time trade previews and advanced analytical tools, while Repool handles the operational heavy lifting. Together they let you concentrate on raising capital and compounding returns.
Book a free consultation with Composer here.
Disclaimers:
Starting a fund involves understanding and complying with a variety of rules and regulations. It's important to seek professional advice to understand the complexities and risks involved.
Understanding who can invest in your fund involves navigating complex regulations. It's important to seek professional advice to ensure you're compliant with all relevant rules and regulations.