Deciding on a strategy for your hedge fund

One of the most critical questions that a soon-to-be hedge fund manager must ask themselves is this: what exactly is my strategy going to be and (most importantly) is this a strategy I can sell to potential investors. Of course the strategy must be sound and must be something that the manager knows – this is not the time to begin experimenting.

It is most common for a manager to continue on with a strategy which he has been running for a long time, either on the side or with a previous employer. For many different reasons (fear, greed, uncertainty) the manager may decide to implement a dual strategy hedge fund . Often the dual strategy hedge fund will have a more conservative strategy and a more aggressive strategy. The dual strategy approach is different from a principal protection hedge fund and is more than simply hedge fund risk management procedures.

Whether a manager decides to utilize a dual strategy approach is business consideration. If you are running two strategies – a major and minor strategy – then you are going to be, at least somewhat, internally conflicted when it comes to time management, especially if the minor strategy is a time intensive strategy. It might be that the higher returns from the minor strategy (instead of, say, a money market) may not be high enough to justify the time necessary to achieve those higher returns. If that time cuts into the time for the major strategy, then you are probably going to be better off focusing in on your major strategy.

Like anything, when you focus on one trading program, especially for smaller, non-institutionalized fund managers, you are generally going to be better able to perform.

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