The Fundamentals of Hedge Fund Management, 2nd Edition

CHAPTER 2

The Service Providers

Hedge fund managers around the globe have a series of service providers to help them operate their business. Many different types of firms offer services to budding and existing hedge fund managers. Think of it this way: People believe all hedge fund managers are successful and have lots of money, therefore, many want to sell them something. Think about why people rob banks.

Today in the United States, most hedge funds have four different groups of service providers. Each fund manager has a prime broker, a lawyer, an audit firm, and an administrator. In some cases, hedge funds hire outside marketers, compliance consultants, and technology specialists.

By name, each of the providers is recognizable and probably needs no further explanation. However, in today's environment—with the new rules coming out of Washington and the potential for more regulation—you must realize the role each plays in a successful organization.

As a manager, you need to have top-notch firms that will provide exceptional, solid service to your fund, regardless of market conditions. You need to ensure you work with name-brand organizations. In today's competitive environment, many investors do business only with funds using service providers they have experience with from past investments.

This chapter explores the role of each of the service providers. The idea is to give you a basic but thorough understanding of the function each will play in your organization and how you ...