Hedge Fund Service Providers Overview

The hedge fund industry includes not only the hedge fund managers and the investors, but also the service providers that help the hedge fund and the manager with the day to day duties associated with running a hedge fund.

The industry has grown rapidly over the last decade and continues to develop at an ever rapid pace.  In the beginning there were hedge fund attorneys, prime brokers, hedge fund administrators, hedge fund auditors, but now we also have consultants, website designers, due diligence experts and compliance firms.  All of these businesses fall within the category of hedge fund service providers.  I’ve detailed the various roles of these businesses on other parts of this blog, but am producing this overview which should be especially helpful for start-up hedge funds.

Hedge fund service providers list

Hedge Fund Attorney – the hedge fund attorney is probably the most important service provider.  The attorney is also likely to be the first service provider you contact.  If you need a hedge fund attorney, or if you would like a referral to a hedge fund attorney, please contact us.

Prime Brokerage – a hedge fund’s prime broker plays a critical part of the day to day operations of the hedge fund.  In addition to acting as the fund’s main custodian, the prime broker will execute all or some of the fund’s trades.  Prime brokers can provide soft dollar services for hedge funds as well.

Mini Prime Brokers – mini prime brokers have arisen in order to service start-up, small and medium sized hedge funds.  Typically smaller hedge funds cannot get the needed customer service from the larger prime brokerage firms and thus look to these mini prime brokers who can provide the necessary customer service with good execution prices.  Mini prime brokers typically will not hold the funds assets – instead the custody and clearing functions will be performed through the back office of the larger prime brokerage firms.

Hedge Fund Auditor – hedge fund auditors provide hedge funds with yearly audit services.  In addition to pure audit services, the hedge fund auditor can also provide yearly tax return services for the hedge fund.  Auditors typically do not also act as administrators because of conflicts of interest issues, but I have heard of some groups who argue that it would be ok for an auditor to also act as an administrator in certain circumstances.

Hedge Fund Administrator – the hedge fund administrator can provide a whole suite of services to a hedge fund.  Most notably the job entails striking the net asset value of the fund on valuation days.  The administrator also does the accounting for the fund, keeping track of the inflows and outflows and maintaining each investor’s capital account balance.  Administrative firms have been increasingly offering more and more services (such as mid and back office services) to hedge fund managers.

Hedge Fund Consultant – recently there has arisen a new category of service provider of a hedge fund consultant is a generic title for a person with some sort of experience within the hedge fund industry.  Many times consultants come from the brokerage side or from third party marketing firms.  Consultants can add a lot of value to emerging hedge funds because of their experience within the industry and their ability to provide managers with fund raising help and ideas.  The consultant may also help the manager fine-tune marketing materials and provide strategic advice to marketing campaigns.  Consultants can also help with hedge fund database selection.

Hedge Fund Risk Analysis/ Risk Managers – while brokerage firms are beginning to build software solutions that help a manager understand and manage a fund’s risks, outside risk managers can provide such services as well as real life experience.  Many of these risk managers have experience with very large funds or other trading institutions and can provide a wealth of knowledge and insight into risk management procedures for any strategy.

Hedge Fund Websites – one way hedge fund managers can keep in contact with their investors is through a password protected website.  These websites have become very popular with managers.  I have worked with many groups who can provide these services and would be happy to pass along their names.

Hedge Fund Due Diligence – hedge fund due diligence has become a very important part of hedge fund investing and this part of the industry will only continue to grow.

Hedge Fund Compliance Firms – some hedge fund managers are licensed as investment advisors or need help making certain filings (like a 13F filing or Form SH).  Hedge fund compliance firms will help a manager comply with all of the hedge fund laws and regulations.  The manager may also choose to use a hedge fund lawyer for such services.

Third Party Marketers and Capital Introduction Services – third party marketers and capital introduction services will market hedge funds to high net worth and institutional investors.  These service providers are licensed as brokers with FINRA and are usually paid a portion of the manager’s management and performance fees.  These services are invaluable to small and start-up hedge funds as they can help a fund grow much faster than without these services.

Hedge Fund Databases – while these are not necessarily service providers in the classical sense, they do provide an important tool for hedge fund managers.  Hedge fund databases allow a manager to post performance returns with the hope that an investor will eventually make an investment into the fund.  There are a lot of databases out there, most of which charge a fee for the service.  Before selecting a database, you should do comparative research to determine the costs and time it will take to use the database.

It should also be noted that the hedge fund industry is experiencing rapid chages, both on the business and regulatory fronts.  As a result of these changes the duties of the firms named above have been merging and the hedge fund manager will be able to receive many different services from the same group or groups of companies.

2 thoughts on “Hedge Fund Service Providers Overview

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