Hedge Fund Mavericks Logo

How To Write a Hedge Fund Business Plan + Template

How To Write a Hedge Fund Business Plan

Creating a business plan is essential for any business, but it can be beneficial for hedge funds that want to improve their strategy or raise funding.

A well-crafted business plan outlines the vision for your company and the step-by-step roadmap of how you will accomplish it. To create an effective business plan, you must first understand the components essential to its success.

This article provides an overview of the critical elements that every hedge fund owner should include in their business plan.

 

What is a Hedge Fund Business Plan?

A hedge fund business plan is a formal written document describing your company’s business strategy and feasibility. It documents the reasons you will be successful, areas of competitive advantage, and your team members. 

Your business plan is a critical document that will convince investors, fund partners, and lenders (if needed) that you are positioned to become a successful venture.

 

Why Create a Hedge Fund Business Plan?

A hedge fund business plan is required for banks and investors. The document is a clear and concise guide to your business idea and the steps to make it profitable.

Entrepreneurs can also use this as a roadmap when starting their new company or venture. Especially if they are inexperienced in starting a business.

 

Writing an Effective Hedge Fund Business Plan

The following are the critical components of a successful business plan:

Executive Summary

The executive summary of a hedge fund business plan is a one- to two-page overview of your entire business plan. It should summarize the main points you will present in full in the rest of your business plan.

  • Start with a one-line description of your hedge fund
  • Provide a summary of the key points in each section of your business plan, which includes information about your company’s management team, industry analysis, competitive analysis, and financial forecast, among others.

 

Company Description

This section should include a brief history of your company. Include a short description of how your company started and provide a timeline of milestones your company has achieved.

You may not have a long company history if you are just starting your hedge fund. Instead, you can include information about your professional experience in this industry and how and why you conceived your new venture. If you have worked for a similar firm or been involved in an entrepreneurial venture before starting your hedge fund, mention this.

You will also include information about your chosen hedge fund business model and how, if applicable, it is different from other companies in your industry.

 

Industry Analysis

The industry or market analysis is a crucial component of a hedge fund business plan. Conduct thorough market research to determine industry trends and document the size of your market. 

Questions to answer include:

  • Which industry are you targeting?
  • How big is the market?
  • What trends are happening in the industry right now (and, if applicable, how do these trends support your company’s success)?

You should also include sources for your information, such as published research reports and expert opinions.

 

Customer Analysis

This section should include a list of your target audience(s) with demographic and psychographic profiles (e.g., age, gender, income level, profession, job titles, interests). You will need to provide a profile of each customer segment separately, including their needs and wants.

For example, a hedge fund’s customers may include accredited investors, family offices, and financial institutions.

You can include information about how your customers decide to buy from you, and what keeps them buying from you.

Develop a strategy for targeting those customers who are most likely to buy from you, as well as those that might be influenced to buy your services with the right marketing.

 

Competitive Analysis

The competitive analysis helps you determine how your product or service will differ from competitors and what your unique selling proposition (USP) might be that will set you apart in this industry.

For each competitor, list their strengths and weaknesses. Next, determine your areas of competitive differentiation or advantage; that is, in what ways are you different from and ideally better than your competitors.

 

Marketing Plan

This part of the business plan is where you determine and document your marketing plan. Lay out your plan, including the following 4 Ps.

  1. Product/Service: Detail your product/service offerings here. Document their features and benefits.
  2. Price: Document your pricing strategy here. In addition to stating the prices for your products/services, mention how your pricing compares to your competition.
  3. Place: Where will your customers find you? What channels of distribution (e.g., partnerships) will you use to reach them if applicable?
  4. Promotion: How will you reach your target customers? For example, you may use social media, write blog posts, create an email marketing campaign, use pay-per-click advertising, or launch a direct mail campaign. Additional advanced promotions strategies include retaining a PR firm and attending relevant conferences and networking events.

 

Operations Plan

This part of your hedge fund business plan should include the following information:

  • How will you deliver your service to clients? For example, will you meet in person or over Zoom only?
  • What infrastructure, equipment, and resources are needed to operate successfully? How can you meet those requirements within budget constraints?

You also need to include your company’s business policies in the operations plan. You will want to establish policies related to everything from customer service to pricing to the overall brand image you are trying to present.

Most importantly, in your Operations Plan, you will outline the milestones your company hopes to achieve within the next five years. Create a chart showing the key milestones you plan to achieve each quarter for the next four quarters and each year for the following four years. 

Examples of milestones for a hedge fund include reaching $X in sales, hiring X team members, or $X managed. 

 

Management Team

List your team members, including their names and titles, as well as their expertise and experience relevant to your firm. Include brief biographies for each team member.

Particularly if you are seeking funding, the goal of this section is to convince investors and lenders that your team has the expertise and experience to execute your plan. If you are missing key team members, document the roles and responsibilities you plan to hire for in the future.

 

Financial Plan

Include a summary of your complete and detailed financial plan (your full financial projections go in the Appendix). 

This section includes the following three financial statements:

Income Statement

Your income statement should include:

  • Revenue: how much revenue you generate.
  • Cost of Goods Sold: These are your direct costs associated with generating revenue. Your COG includes labor costs and the cost of any equipment and supplies used to deliver the product/service offering.
  • Net Income (or loss): Once expenses and revenue are totaled and deducted from each other, this is the net income or loss
Sample Income Statement for a Startup Hedge Fund 
Year 1 Year 2 Year 3 Year 4 Year 5
Revenues
Revenues $ 336,090 $ 450,940 $ 605,000 $ 811,730 $ 1,089,100
Total Revenue $ 336,090 $ 450,940 $ 605,000 $ 811,730 $ 1,089,100
Direct Cost
Direct Costs $ 67,210 $ 90,190 $ 121,000 $ 162,340 $ 217,820
Total Direct Costs $ 67,210 $ 90,190 $ 121,000 $ 162,340 $ 217,820
GROSS PROFIT $ 268,880 $ 360,750 $ 484,000 $ 649,390 $ 871,280
Other Expenses
Salaries $ 96,000 $ 99,840 $ 105,371 $ 110,639 $ 116,171
Marketing Expenses $ 61,200 $ 64,400 $ 67,600 $ 71,000 $ 74,600
Rent/Utility Expenses $ 36,400 $ 37,500 $ 38,700 $ 39,800 $ 41,000
Other Expenses $ 9,200 $ 9,200 $ 9,200 $ 9,400 $ 9,500
Total Other Expenses $ 202,800 $ 210,940 $ 220,871 $ 230,839 $ 241,271
EBITDA $ 66,080 $ 149,810 $ 263,129 $ 418,551 $ 630,009
Depreciation $ 5,200 $ 5,200 $ 5,200 $ 5,200 $ 4,200
EBIT $ 60,880 $ 144,610 $ 257,929 $ 413,351 $ 625,809
Interest Expense $ 7,600 $ 7,600 $ 7,600 $ 7,600 $ 7,600
PRETAX INCOME $ 53,280 $ 137,010 $ 250,329 $ 405,751 $ 618,209
Taxable Income $ 53,280 $ 137,010 $ 250,329 $ 405,751 $ 618,209
Income Tax Expense $ 18,700 $ 47,900 $ 87,600 $ 142,000 $ 216,400
NET INCOME $ 34,580 $ 89,110 $ 162,729 $ 263,751 $ 401,809
Net Profit Margin (%) 10% 20% 27% 32% 37%

Balance Sheet

Include a balance sheet that shows your assets, liabilities, and equity. Your balance sheet should include:

  • Assets: Everything you own (including cash).
  • Liabilities: This is what you owe against your company’s assets, such as accounts payable or loans.
  • Equity: The worth of your business after all liabilities and assets are totaled and deducted from each other.
Sample Balance Sheet for a Startup Hedge Fund
Year 1 Year 2 Year 3 Year 4 Year 5
ASSETS
Cash $ 105,342 $ 188,252 $ 340,881 $ 597,431 $ 869,278
Other Current Assets $ 41,600 $ 55,800 $ 74,800 $ 90,200 $ 121,000
Total Current Assets $ 146,942 $ 244,052 $ 415,681 $ 687,631 $ 990,278
Fixed Assets $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
Accum Depreciation $ 5,200 $ 10,400 $ 15,600 $ 20,800 $ 25,000
Net fixed assets $ 19,800 $ 14,600 $ 9,400 $ 4,200 $ 0
TOTAL ASSETS $ 166,742 $ 258,652 $ 425,081 $ 691,831 $ 990,278
LIABILITIES & EQUITY
Current Liabilities $ 23,300 $ 26,100 $ 29,800 $ 32,800 $ 38,300
Debt outstanding $ 108,862 $ 108,862 $ 108,862 $ 108,862 $ 0
Total Liabilities $ 132,162 $ 134,962 $ 138,662 $ 141,662 $ 38,300
Share Capital $ 0 $ 0 $ 0 $ 0 $ 0
Retained earnings $ 34,580 $ 123,690 $ 286,419 $ 550,170 $ 951,978
Total Equity $ 34,580 $ 123,690 $ 286,419 $ 550,170 $ 951,978
TOTAL LIABILITIES & EQUITY $ 166,742 $ 258,652 $ 425,081 $ 691,831 $ 990,278

 

Cash Flow Statement

Include a cash flow statement showing how much cash comes in, how much cash goes out and a net cash flow for each year. The cash flow statement should include:

  • Cash Flow From Operations
  • Cash Flow From Investments
  • Cash Flow From Financing

Below is a sample of a projected cash flow statement for a startup hedge fund business.

Sample Cash Flow Statement for a Startup Hedge Fund
Year 1 Year 2 Year 3 Year 4 Year 5
CASH FLOW FROM OPERATIONS
Net Income (Loss) $ 34,580 $ 89,110 $ 162,729 $ 263,751 $ 401,809
Change in Working Capital $ (18,300) $ (11,400) $ (15,300) $ (12,400) $ (25,300)
Plus Depreciation $ 5,200 $ 5,200 $ 5,200 $ 5,200 $ 4,200
Net Cash Flow from Operations $ 21,480 $ 82,910 $ 152,629 $ 256,551 $ 380,709
CASH FLOW FROM INVESTMENTS
Fixed Assets $ (25,000) $ 0 $ 0 $ 0 $ 0
Net Cash Flow from Investments $ (25,000) $ 0 $ 0 $ 0 $ 0
CASH FLOW FROM FINANCING
Cash from Equity $ 0 $ 0 $ 0 $ 0 $ 0
Cash from Debt financing $ 108,862 $ 0 $ 0 $ 0 $ (108,862)
Net Cash Flow from Financing $ 108,862 $ 0 $ 0 $ 0 $ (108,862)
Net Cash Flow $ 105,342 $ 82,910 $ 152,629 $ 256,551 $ 271,847
Cash at Beginning of Period $ 0 $ 105,342 $ 188,252 $ 340,881 $ 597,431
Cash at End of Period $ 105,342 $ 188,252 $ 340,881 $ 597,431 $ 869,278

 

Appendix

You will also want to include an appendix section which will include:

  • Your complete financial projections
  • A complete list of your company’s business policies and procedures related to the rest of the business plan (marketing, operations, etc.)
  • Any other documentation which supports what you included in the body of your business plan.

 

Build a Successful Hedge Fund

Writing a good business plan gives you the advantage of being fully prepared to launch and grow your hedge fund. It not only outlines your vision but also provides the process to accomplish it.

Now that you know what to include in your hedge fund business plan, it’s time to get started writing.