Many of the questions that constantly come up during theHEDGEAnswers conference calls, as well as from readers ofmy books, are about choosing a service provider.
Hedge fund managers, both new and old, seem to think that just because someone offers a service to the hedge fund industry, well, they are real experts and know what they’re doing. This is just not the case. All service providers are not created equal. And choosing the right one to do business with is mission-critical to the success of any start-up or on-going concern. I believe that you get what you pay for, and so I suggest that you don’t operate under the assumption that service providers have become commoditized and simply choose the one that is cheapest.
If the cheapest lawyer or accountant works for you well, then choose him or her, but make sure that the can get the job done. When it comes to the law, all documents are not created equal. It is important that you choose a lawyer who is not going to learn on your dime. The same can be said for the others who provide service to the fund. Make sure the firms have experience, a knowledge base and a client list that actually does what your fund does.
Don’t be a guinea pig.
Going with names in the industry, while not always the cheapest solution, is a not the worst decision you can make when launching a new fund or new product in the marketplace. Investors today, especially institutional investors, operate with a check-the-box mentality. If they are reviewing a set of fund documents or a presentation and see a law firm, accounting firm or brokerage firm that they don’t recognize, they often will say no to fund – because they can’t check the box. It does not make sense, it is not right but it is done.
Fund managers can avoid this by using names people know. There are plenty of well- known, good firms that offer legal, accounting, brokerage and administration, so picking one with experience should not be that hard. Do your homework and choose well, because the decision you make today will save you headaches in the future
THINS THAT DRIVE ME CRAZY:
Nothing to report…this can’t last forever!