PARTNER CONTENT
The industry has seen a robust number of launches over the last few quarters, and that momentum continues as we head into 2026. While asset raising is always tough, capital is gradually been flowing back to liquid hedge fund strategies.
Once a manager decides to pull the trigger, they are faced with many decisions and paths, which are often driven by the investor.
JonesTrading provides clients with extensive support during the launch process, and we are passionate about working closely with entrepreneurs. We outline considerations when launching an investment management business – funds and SMAs. Each structure also requires differing operational and infrastructure details.
Team – hiring vs outsourcing
Investors want to know that all responsibilities are covered. A strong team who can collectively run all aspects of the fund businesses is the key to success and is often a combo of internal hires and outsourcing – especially for non-investment functions.
Internal hires – Depending on the investment strategy and operational complexity of the firm, the founder’s first hire is often a research analyst who can help drive performance and scale the investment process. A well-rounded COO who can run all non-investment related activities is typically another early hire. This role becomes even more valuable if they can also drive the marketing efforts at the onset, as funds often delay the hiring of an internal marketer.
Outsourcing – Outsourcing the CFO and CCO roles is now commonplace and generally an acceptable business strategy at launch, with an ongoing review to determine if internal operational hires are needed.
Outsourced Trading is also very common and a practical way to scale the trading function and infrastructure. At Jones, our clients gain the benefit of our capabilities, access to liquidity, and seasoned team, which is very difficult and expensive for a fund to replicate inhouse.
Structures
Managers should work closely with their legal counsel to determine what fund structure makes sense, which is very much driven by the investor type and portfolio. Common structures and other trends include:
- Domestic standalone: This is one entity commingled fund structure, allowing for taxable and US investors. Delaware LP is the most common.
- Offshore standalone: For non-US and tax-exempt investors. Cayman and BVI are the most common domiciles.
- Mini-master: Two entity structure. For example, an onshore master fund with an offshore feeder.
- Master-feeder: Three-entity structure. Onshore and offshore feeders, investing directly into the master fund (typically offshore). Investments sit at the master fund. Investors subscribe into the appropriate feeder.
- Separately Managed Accounts (“SMAs”) – A high percentage of allocations are coming via SMAs rather than into the fund entity. It is important to create a plan for SMA conversations inclusive of all operational and trading considerations. Operating SMAs have never been easier given technology, but the proper plumbing is key to ensure success. An OMS/EMS is often used to ensure portfolio monitoring and traded properly (e.g same average price) and allocated to the various accounts.
- Special Purpose Vehicle (SPV) – A standalone fund entity specific for one investment. Sometimes referred to as a “best ideas”. Sometimes structured as closed ended, with one defined closing date or capital calls.
- Fund of One – A fund launched for one investor.
- Series – A master fund with various underlying Series – each for one portfolio. Often used to allow investors to choose their own allocation between the Series or to create separation between Series. Domestic Series LLCs or offshore Cayman SPCs.
Fund terms
The Offering Memorandum outlines fund terms. If a manager agrees to terms with an investor that differ from the fund docs, these are typically captured in a side-letter.
Minimum investment – The minimum subscription accepted into the fund. The GP has discretion to allow investments below the minimum.
Subscription/redemption frequency and notice period – these terms should align with the portfolio. For a liquid strategy, monthly subscriptions are usually available. Redemption terms should also reflect the portfolio liquidity but are also in place to protect other investors and ensure fair liquidation. Quarterly redemptions with a 30 or 60-day notice are common.
Lockups – Establishes commitment periods and restricts redemptions. Should align with the portfolio. Soft lockups allow redemptions but carry a penalty (e.g 3% on redeemed amount). Hard lockups set a defined term (e.g one year lock).
Management and incentive fees – 1.5% management and 15% incentive are the average based on industry surveys. Management fees range from 0 to 2% and incentive fees from 10% to 30%, depending on the portfolio and whether in the fund or SMA. Management fees typically paid monthly or quarterly (in arrears or in advance) and incentive fees are crystallized annually (accrued monthly). Management fee is paid to the investment manager entity (IM) and incentive fee to the GP. Management fees are used to pay operating expenses (salaries, rent) for the business that are not fund expenses. Incentive fees are typically re-invested into the fund by the GP.
High Water Mark (HWM) – Established to restrict the manager from being paid an incentive fee unless performance surpasses the previous account high.
Hurdles – Incentive fees are paid if performance surpasses a pre-established hurdle or metric, such as a fixed return (5%) or index (S&P500).
Capital calls – Most common with closed-ended fund structures, where investors contribute capital as it is called, based on the underlying investment activity. Some hedge funds that take a “PE approach to investing” use calls to align capital inflows with investments.
Core service providers
Prime brokerage – Clearing and custody of cash and securities, margin financing, securities lending, trading and reporting. JonesTrading provides a robust Prime Services platform with top tier custodians, electronic trading and algos, agency block trading, and outsourced/supplemental trading across global equities, options and fixed income. Fund managers rely on the PB to facilitate their portfolio and trading needs across fund and SMA accounts. A high level of service is critical for success and to help ensure a fund manager is operating efficiently. The PB also provides consulting and capital introduction services to clients.
EMS / OMS – Jones is integrated with all the major EMS and OMS platforms and can help find the right fit. EMS plays a key role in electronic trading and seeing real-time positions, PL and market data. The OMS has additional functionality related to pre-trade and post-trade (compliance, allocations, file generation) and often necessary when there are multiple portfolios, traders, or counterparties.
Legal – Fund and management company entity formations, drafting of fund and management company documents (PPM, sub docs, LPA) and operating agreements.
Fund administration – The fund’s books/records, handling all portfolio, fund and partnership accounting. Monthly NAV for hedge funds, with independent reporting to outside investors. Process investor transactions, AML/KYC, wires, annual GAAP Financials and audit/tax support.
Audit/tax – Fund audit, tax prep and K-1s. Estate planning and attestation services – performance verification of historical investment activity.
Other providers
- Marketing collateral – Preparing the fund’s pitch book, tear sheet, website and due diligence questionnaire (DDQ).
- Banking – Fund entity needs a bank account for investor activity, fund expenses, management fees. Overseen by the fund admin. The IM needs an account for non-fund expenses (e.g rent, salaries, IT, receive management fees). The GP will need to collect incentive fees.
- Compliance consultant – Manuals, SEC registration, regulatory filings.
- IT managed services – Network, hosting, telecoms, DR/BC.
- Portfolio and Risk reporting
- Insurance – E&O, BOP, D&O, liability, cybersecurity, key man, etc.
- Professional Employer Organization (PEO) – Payroll, 401ks, healthcare, benefits
- Office space – Shared office suite, sub-let, management company rental
- Third-party marketing
- Staffing / recruiting
Trading
Managers launching new firms come from a variety of backgrounds when it comes to trading. They can often be bucketed into either:
- They handled trading in the past, executed trades themselves electronically or engaged with brokers themselves OR
- They did not handle trading in the past, focusing on the research process
As they launch the fund, managers can also be bucketed into either:
- They want to trade themselves OR
- Do not want to trade themselves
New manager should determine what categories they fit into and how they prefer to spend their time.
Jones helps clients with the trading technology and coverage setup. This may include electronic trading within an EMS, supplemental coverage by our desk, or outsourced trading where we manage all trades, commission wallet, directing trades to brokers and even sit inside the OMS to fully replicate an internal trader’s role.
Asset raising efforts vs capital introductions
Managers should develop marketing collateral that clearly introduces the fund, its team, strategy, portfolio, risk management process, terms, infrastructure and service providers. Collateral includes pitch book, tear sheet, logo, website and DDQ. A sales & marketing plan should be in place to raise assets with appropriate resources and budget. Internal marketing hires are often delayed, but growing an investment management business requires a consistent and professional sales approach.
It is also important to note the difference between asset raising efforts and capital introductions.
The asset raising process is driven by an internal or third-party marketer, who owns the entire process, attends all meetings, handles follow-ups, negotiations, onboardings, and monitors or manages ongoing investor communications and relations.
Capital introduction is a value-add resource to consult, host events, and communicate manager ideas to investor contacts, and facilitate targeted introductions. This team works alongside the fund’s internal marketing efforts to enhance their efforts, provide market color, trends, feedback and support roadshows.
Jorge Hendrickson, Co-Head of Prime Services, JonesTrading – Jorge is responsible for driving growth through Jones’ hybrid technology and high touch services. He advises fund managers on launching, operating, and scaling their businesses. In 2021, Business Insider named him one of the “29 people to know when launching a fund.” He has worked with numerous funds over the years across Hedge, Private Equity, Venture Capital, Real Estate, Private Debt and Crypto. Former Chief Revenue Officer at Opus Fund Services and held earlier roles at Concept Capital, Bay Head Capital, Intrepid Capital, and Bridgewater Associates.
