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Prelaunch Guidelines

Concept Capital Markets, LLC

Prime Services Group

GARDEN CITY, NY | NEW YORK, NY | GREENWICH, CT | CHICAGO, IL | DEL MAR, CA

Concept Capital Markets, LLC |1010 Franklin Avenue, Suite 303 |Garden City, NY 11530 |Phone646.747.5228 |www.conceptcapital.com
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Table of Contents

1. Develop a Business Plan................................................................................................................................... 3

2. Choose Primary Service Providers .................................................................................................................. 3

3. Choose Secondary Service Providers ........................................................................................................... 8

4. Physical Plant & Infrastructure....................................................................................................................... 10

5. Human Resources: Staffing .......................................................................................................................... 11

6. Middle & Back Office Operations ................................................................................................................ 12

7. Enterprise Risk Management......................................................................................................................... 13

8. Capital Raising ................................................................................................................................................. 15

9. Timeframe to Launch Hedge Fund.............................................................................................................. 17

10. Summary ........................................................................................................................................................... 18

11. Contact Information ....................................................................................................................................... 18

12. Important Disclaimer ...................................................................................................................................... 18

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1. Develop a Business Plan

A business plan is the document that owners, business partners, vendors and financial sources want to see when you are
starting your company. You should take the necessary time to work through your business model, estimate the gross
revenues, general operating expenses, infrastructure needs and staffing.
A business plan is a road map for your business. It should answer all fundamental questions about where you are going, how
you plan to get there and whether you can succeed. For all intents and purposes it is the directional compass of your
business.
Business Plan designs will vary, but all plans will generally describe the business. Business plans also show where the company
is going and how it plans to get there. They show whether the company is profitable now and whether it’s likely to remain
profitable.
Your business plan should be a guiding force that serves as a continual reference while still being amendable. Don’t be
afraid to makes changes when appropriate. As you encounter new opportunities consider how those opportunities fit into
your plan. If it’s a good fit, do it. If it isn’t, decide whether the opportunity is worth deviating from your business plan or
whether it’s time to write a whole new plan. A good plan is well researched, thought through, articulate, and flexible.

2. Choose Primary Service Providers

Before picking any Primary Service Provider, you’ll want to make sure the representative firm(s) have the following
characteristics:

a) Name Brand Recognition within the Hedge Fund Investor community

“Check the Box” for investor due diligence: investors want to recognize names that they’ve done business with in
the past and feel comfortable with the manager’s choice(s) of who their service providers are.

b) Firm’s Expertise in Hedge Funds

The firm should have a deep knowledge of all issues related to hedge funds not only domestically, but globally
as well.

c) Partners and Associates expertise in Hedge Funds and related matters

The partner(s) and/or associate(s) you work with at each representative firm should also have a deep knowledge
of their respective area as it relates to hedge funds.
The service providers you choose during your prelaunch stage will often be your service providers for many years
to come, so you’ll want to pick service providers that not only have the expertise, but also people with whom you
would enjoy working.

d) Startup Expertise and Ongoing Support

You’ll want to choose service providers that are “right sized”. They should not only have an expertise in launching
new hedge funds, but also be able to grow with those funds and providing the ongoing support and expertise that
will be required as their business grows.

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Legal

The key determinant used in establishing the correct structure for the hedge fund is determined by the geographic
location(s) of the Fund’s initial investors. As an example, a Fund that will be structured to accommodate US-only investors
will be set up differently than a Fund structured to accommodate Non-US investors.

There are generally four (4) types of Fund Structures that are used by Investment Managers:

US Partnership: This can be structured as a Limited Partnership (LP) or a Limited Liability Company
(LLC) and is created to accommodate investors that reside in the United States.

Offshore Fund: This can be structured as a Corporation or a Partnership and is created to

accommodate investors that reside outside of the United States and US-Tax Exempt
investors. The Fund is often organized in a tax haven jurisdiction which may include,
but not be limited to: Cayman Islands, British Virgin Islands, Bermuda, etc..

Master Feeder Structure:
This allows for US-Only, US-Tax Exempt and Non-US investors to invest in the same fund
structure. Traditionally, the US-Only investors enter the Fund through the Domestic
Feeder and the US-Tax Exempt and Non-US investors enter the Fund through the
Offshore Feeder. This structure creates efficiency to the Investment Manager by
allowing them to manage only one (1) pool of capital versus multiple pools.

Parallel/Side by Side Structure:
This structure allows US-Only, US-Tax Exempt and Non-US investors to invest with the
Investment Manager separately. The Domestic Fund and the Offshore Fund are run
as “parallel” or “side-by-side” with each other and attempt to allocate trades on a
pari passu basis. Given the separation of the two (2) funds, there is often slippage
between the Funds given their different size and representative fund expenses.

In addition to the forming the Hedge Fund Structure, you will be required to organize the General Partner (GP) and
Investment Manager (IM) entities. Often organized as Limited Liability Companies (LLC), the GP engages the Investment
Manager through an Investment Management Agreement (IMA) to manage the Fund. The IM is paid the asset based
Management Fee (e.g. 1%-2%) and the General Partner is allocated the Incentive Fee. (e.g. 20%) Each entity will need to
have an Operating Agreement drafted and negotiated amongst the Founding Partners.
When structuring your Fund Offering Documents, there are a number of considerations to make when determining the Fund
Terms. Some of those terms are described in more detail below:

Minimum Investment: This will be the minimum investment amount that you will accept from any new investor in
the Fund. (e.g. $1,000,000) Keep in mind, your fund’s Private Placement Memorandum
(PPM) will often contain language that allows investors to become a Limited Partner in the
Fund for a lesser amount than the stated minimum at the “General Partner’s discretion”.
As a new launch, you will often accept lesser initial investments from accredited investors
to gain their trust and build a track record in the hopes of receiving a larger allocation.

Subscription Frequency: This determines how often you will accept new investors into the Fund. It is generally
accepted that subscriptions will be accepted on a monthly or quarterly basis.

Lockup: There are two (2) types of lockups that are generally used by Investment Managers, they
are a Hard Lockup and a Soft Lockup.

Hard Lockup: This is an agreement between the Limited Partners and the General Partner that the
Limited Partner(s) will not have the ability to withdraw partial or the full amount of their
Capital Account prior to a minimum lockup. (e.g. 1 year)

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Soft Lockup: This is an agreement the Limited Partners and the General Partner that the Limited
Partner(s) will have the ability to withdraw partial or the full amount of their Capital
Account within the Initial Lockup Period (e.g. 1 year), if they do so, will often have to pay a
penalty on the amount of capital they redeem. (e.g. 3%) Given the turmoil in the global
capital markets in 2008, and the subsequent “gating” or “suspension of redemptions” of
investor capital by many large hedge funds, investors have demanded that more
favorable terms be provided by their hedge fund managers. Investors would rather pay a
small penalty and know that they can get their money back versus being gated.

Redemption Notice: A notice period which requires the Limited Partner to give written notice to the Investment
Manager of their intent to redeem a partial or full amount of their Capital Account from
the Fund. Traditionally, a redemption notice is 30, 45, 60, 90 days prior to a redemption
period.

Redemption Provision: A period for which the Investment Manager is allowed to close out positions in an orderly
fashion so as not to disadvantage the remaining Limited Partners to accommodate the
redemption of a partial amount or full amount of a Limited Partner’s capital account.
Traditionally, redemption provisions are often a monthly or quarterly time period. Coupled
with the redemption notice, the redemption provision could read “Quarterly with sixty (60)
day prior written notice”.

Redemption Provisions should be carefully crafted and based primarily on the average
holding and disposition periods for securities in the investment strategy. Given the turmoil in
the global capital markets in 2008, investors have demanded that more favorable terms
be provided by their hedge fund managers.

Gate Provisions: This is restriction placed on a hedge fund limiting the amount of withdrawals from the Fund
during a particular redemption period. The “gate” is predetermined by the Investment
Manager and is fully disclosed in the PPM. The purpose of the gate is to prevent a “run on
the fund”, which could cripple its operations, as a large number of withdrawals from the
Fund would force the manager to sell off a large number of positions. A gate is much less
severe than a Suspension of Redemptions.

Management Fee: This is an asset based fee charged on a monthly or quarterly basis. Traditionally, Investment
Managers have charged a management fee that would be between one percent (1%)
and two percent (2%).

Incentive Fee: The Incentive Fee is a performance based fee that is a percentage of realized and
unrealized gains of the Fund’s assets payable on an annual basis. Traditionally, Investment
Managers charge a twenty percent (20%) incentive fee to investors in addition to the
Management Fee.

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Accounting

During the prelaunch stages, you will work closely with your Accounting Firm along with your Legal Counsel to review and
assist in the formation of the Fund’s partnership agreement and private placement memorandum.
Among others, the following services will be provided by your Accounting Firm:

■ Estate Planning at launch is recommended while the business has little or no value versus in the future where there
may be considerable tax consequences to alter the ownership structure while the business is worth considerably
more.

■ Year-end audit of financial statements prepared in accordance with accounting principles generally accepted in
the United States of America (GAAP) or International Financial Reporting Standards (IFRS)

■ Tax Preparation for the General Partner and Management Company entities along with initial consultation with
Legal Counsel to determine the best corporate structure for tax efficiency across the entire fund structure.

■ Examination report of investment performance statistics to assist investment managers in marketing and
packaging their track record

Fund Administration

In choosing a Fund Administrator, you will want to choose a firm that has a breadth of experience in working with all types
of investment strategies and that can service different asset classes on a global basis. Many of the Fund Administrators will
provide a comprehensive, turnkey solution for new launch managers including, but not being limited to:

■ New Client Onboarding ■ Technology

■ Online Reporting Portal ■ Investment Manager Reporting

■ Shareholder Services ■ Blue Sky Registration

■ Portfolio Reporting ■ Record Keeping for the Fund

■ Performance Calculations ■ Liaise with Auditors for Annual Audit

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Prime Broker
A new launch hedge fund manager should consider the following characteristics that a prime broker can provide:
Multiple Custodian Choices:
Securities Lending:
Financing:
Technology:
Portfolio Analytics/Reports:
Trading:
Trading Technology:
Business Consulting Services:
Client Service:
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Many new launches are often constrained by working with the large prime brokers due
to smaller asset base, so many new launches obtain high quality prime brokerage
through an introducing broker (IB) relationship. The IB introduces hedge fund managers
to the custodian(s) and provides the middle/back office roles on behalf of the
custodian. The hedge fund’s securities remain at the custodian where they provide
custody, clearing and execution of trades. Because the IB aggregates accounts on
behalf of the Custodian, the large minimum levels often required by the large prime
brokers do not come into play. Often a hedge fund manager can become “multi-
primed” at a small asset level to adhere to “best practices” often required by
institutional investors.
Depending upon your investment strategy, you may require your prime broker will need
the ability to provide securities lending across many different asset classes and
geographies.
Depending upon your investment strategy, you may require various types of financing
to achieve your objectives. You will want to choose a prime broker that has knowledge
and experience in these areas and are capable of providing the type of financing you
require.
The prime broker should have an online portal where all of your trade data is captured
and provides robust portfolio analytics and reporting. Ideally, the portal should be able
to gather trade files from all prime broker/custodial relationships so aggregated reports
can be produced to calculate performance and risk analytics.
Your prime broker, through their online portal and/or real-time technology, should be
able to provide Profit & Loss, Performance Attribution and Risk Analytics.
Depending upon your investment strategy, you may require an Electronic Trading
model or a full-service Outsourced Trading desk. It is important that your prime broker
has a robust offering of both, Electronic and Outsourced Trading across multiple asset
classes.
Your prime broker should be able to provide multiple Execution Management Systems
(EMS) that encompasses trading across multiple asset classes on a global basis. There is
not a “one size fits all” and having options to choose from should provide your team
with the right solution.
Your prime broker should be staffed with professionals that understand your business
and can implement solutions across all of the key areas of your business. As you
continue to read through this guideline, you’ll see there are a number of key areas
outside of the Investment Process that you will need to address which may include, but
not be limited to: assistance in choosing primary service providers (legal, audit/tax, fund
administrator), physical plant and infrastructure, real estate, IT managed services,
insurance, human resources, staffing, middle/back office services and marketing
collateral. Solutions should not only address the current problem bought also be
scalable if the organization executes their business plan and grows to a larger size.
Your prime broker should be “right sized’ to meet your needs as a new launch and as
you grow and become a large hedge fund with multiple custodial relationships. You do
not want to feel like a “number” as a client, you should work with professionals that
understand your business and have the experience growing with new launch hedge
funds like yours.
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3. Choose Secondary Service Providers

Once the Primary Service Providers have been chosen, you will then move on to the Secondary Service Providers that, in
many cases, will provide equally important services as your primaries.

Outsourced Compliance Consultant

This can be in conjunction with your Legal Counsel, but engaging a high quality outsource compliance firm can assist you in
developing and maintaining a compliance program for your firm that is in line with “Best Practices” for the hedge fund
industry. Even if you are not required to have to register with the SEC or State Regulatory Body, it is a generally accepted
best practice to manage your business with a “Culture of Compliance” and have many of the components in place as if
you were registered. Some of the key benefits you receive from working with an Outsourced Compliance Consultant are
outlined below:

■ Annual reviews ■ Mock examinations

■ Compliance controls testing ■ Policy & procedure development

■ Specialized compliance reviews ■ On-site SEC examination support

■ Employee trading review ■ Insider trading reviews & training

■ Regulatory compliance reviews ■ Set-up of appropriate compliance infrastructure

Outsourced Risk Management & Advisory

Engaging a high quality outsourced risk management and advisory firm can help you protect and grow assets, obtain a
higher level of trust from investors, and be a cost-effective tool to managing risk for your fund(s). Some of the key areas that
an outsourced risk management and advisory firm would provide would be:

■ Exposure Reporting ■ P&L time series & attribution analysis

■ Stress testing/scenario analysis/VaR ■ Capital allocation simulations

■ Risk budget/volatility sizing ■ Investment strategy allocation

■ Limit exception monitoring

Insurance Broker (Property & Casualty Insurance/Bonding)

Engaging an insurance broker will help get your business properly insured through the following types of coverage, which
may include, but not be limited to:

Business Owners Policy (BOP) Errors & Omissions (E&O) Directors & Officers (D&O)

Employment Practices Liability Fiduciary Liability General Liability

Workers Compensation Umbrella Liability Travel Accident

Key Man Life Property Fidelity Bond

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Outsourced Human Resources

Engaging a high quality outsourced Human Resource Department or Professional Employer Organization (“PEO”) allows you
to focus on your core competencies and provides administrative relief from many employer-related responsibilities, so you
can concentrate on your Investment Strategy, which is what provides you with your competitive advantage.
You get more out of your business when you get more out of your people. Traditionally, people have been viewed as
liabilities or expenses, instead of tangible, bottom-line assets. Successful business owners have learned, however, that their
employees have a direct impact on their profitability.
Strong human resources practices have the potential to increase your company’s productivity and profitability, but HR
management can become a giant task which often demands considerable resources. (time, effort, money) Legal and
regulatory compliance has become an overwhelming task, and time spent on administrative obligations is time spent away
from growing your business. A PEO can provide payroll services, commuting plans, group health insurance, group life
insurance, and 401k benefits. All of which are key components for a person looking to join your firm.

IT Managed Services

Information Technology (IT) will play a major role during prelaunch and throughout the lifetime of your business. Some of the
items to consider are listed below:

■ Network Services: should provide redundant, firewall protected, high speed, managed communications services
to leading Market Data providers and the Internet

■ Hosted Systems Services: should include a “highly available” e-mail platform (with spam filtering), multiple file
sharing servers, server and workstation monitoring and maintenance, and an IT Help Desk that is available
whenever you need them

■ Telecommunications Services: should include hosted VoIP phone service, allowing managers to work from
anywhere with an Internet connection

■ Disaster Recovery/Business Continuity Plan: which are tested periodically for accuracy and allow managers to
“check the box” on their due diligence questionnaires (‘DDQs’). A sample DRBC plan can be provided upon
request.

The most widely accepted reference to Disaster Recovery and Business Continuity was the AIMA Guide to Sound Practices
for Business Continuity for Hedge Fund Managers (www.aima.org) that was created in June 2006.
The guide covers the key topics of:

■ Identification of risk

■ Identification of systems, processes and the enterprise system

■ Definition of recovery requirements

■ Development of the Disaster Recovery & Business Continuity Plan

■ Testing and providing the plan to ensure they work

■ Ongoing maintenance and updating of the plan.

Internalizing vs. Outsourcing IT: often driven by a firm’s AUM and operating budget, for new launches, we view it as a
compelling choice to outsource this function to a high quality IT service provider and allocate more of their budget to the
staffing of key team members that will drive the Investment Process. By outsourcing, it allows you to “right size” your business
today and for the future since you are relying on a larger partner who is in the business of IT which allows you to concentrate
on your core competencies, managing money.

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4. Physical Plant & Infrastructure

Looking for office space can be a time consuming process. We recommend working with a high quality commercial real
estate broker that knows the market, the vacancies, and can help you filter down a long list of neighborhoods to a short list
of actual offices to suit your needs. To determine your space needs, you’ll want to consider how many employees you’ll
have at launch and also one (1) year from launch if you execute your business plan and the configuration of the office
(trading desk, private offices, conference room, communications closet/room, kitchenette, reception, etc..). Matching
your configuration needs might be a challenge given your budget, so you will want to rank the items above to determine
what your necessities are and which are optional.

There are generally two (2) options that a firm will choose from, 1) Short-Term Executive Office Suite or 2) Mid-to-Long Term
Office Lease.

Short-Term Executive Office Suite:
These are excellent options for a small firm that has an uncertain asset base and
not a great deal of transparency on Year 1 revenues. The lease terms are often 12
months or less, provide a fully furnished and IT hosted infrastructure and are
located in major cities around the world. Some of the larger operators allow you
to use other locations if you are traveling to other cities/countries with advanced
notice. We believe the Executive Office Suite is an excellent alternative if your
space requirement is less than 1,000 square feet

Mid-to-Long Term Office Lease:
This could be either a sublet or a direct lease with a landlord.
The sublet may provide a shorter term lease option (e.g. 2 – 5 years) than a direct
lease and also may provide office space that is already furnished and built out
with IT infrastructure. We feel a sublet is a great opportunity if your space needs
are between 1,000-5,000 square feet and that the manager have good visibility
on the current and future asset base.
A direct lease will often require a considerable build out, need to be furnished
and IT infrastructure built and installed. Outfitting an office could take three (3) to
six (6) months and be a considerable cost. We have found that most managers
will not seek a direct lease unless they need 5,000+ square feet and are looking for
at least a five (5) year lease. We do not recommend this option unless the
manager has a significant asset base and strong recurring revenues to support this
expense.

Although you would be working with an experienced commercial real estate broker, we highly recommend that you
consult your Legal Counsel before signing any lease.

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5. Human Resources: Staffing

There are two (2) main types of employees that a firm will employ, 1) Front-Office Employees and
2) Middle/Back Office Employees. Both are very different and yet all play an important role in managing
your firm.

Front-Office Employees: This will include employees directly associated with the investment process which
may include, but not be limited to: Founding Partner(s)/Portfolio Manager(s),
Analysts and Traders.

Middle/Back Office Employees: This will include “silos” of people and their related functions and can be very
detailed. However, for this exercise we summarized those functions into the
Accounting and Operations function which will often be headed up by a CFO and
COO, respectively.

Chief Financial Officer (“CFO”):
Will have responsibility of overseeing the financial functions for the general partner
entities, management company and fund(s). In addition to being responsible for the
financial matters of the operating companies, the CFO will be responsible for the
daily cash/position reconciliation of the fund(s). Depending upon the size of the firm,
the CFO might execute this function themselves, delegate to an internal Controller
with Fund Accounting expertise or outsource this function to a third party like a Fund
Administrator for Daily NAV. The CFO will collaborate with the COO to execute the
overall business plan of the firm as determined by the Founding Partner(s).

Chief Operating Officer (“COO”): Will have the responsibility of overseeing the operations for the general partner
entities, management company and fund(s). This will include working with the
primary and secondary service providers along with daily fund operations (e.g.
trade reconciliations), marketing, and investor relations along with collaborating
with the CFO to execute the overall business plan of the firm as determined by the
Founding Partner(s).

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6. Middle/Back Office Operations (MBO)

As discussed in the Accounting & Operational Functions above, there are key daily responsibilities associated with operating
a fund management firm. New hedge fund managers are often budget-constrained due to a smaller asset base then their
larger, more seasoned brethren. Outsourcing your middle/back office operations to a high quality partner takes care of the
day-to-day responsibilities which allows you to concentrate on your core competencies of managing money. It has
become a generally accepted model for emerging hedge fund managers and one that institutional investors have grown
accustomed to and feel comfortable with, especially given the independent nature of the MBO relationship.

Some of the MBO functions/services that can be provided are listed below:

■ Daily profit and loss (P&L) reporting

■ Trade capture and reconciliation, real-time (“flash”) P&L, performance measurement, confirmation of over-the-
counter (OTC) derivatives trades, and management of reference and corporate actions data

■ Post trade but pre-settlement activities including trade processing/support (confirmation and allocation), position
and trade reconciliation

■ Value-added services including foreign exchange (FX) and cash management, collateral management, the
functions of performance reporting (middle office), and attribution analysis (front-office)

■ Reporting corporate action processing, straight-through processing (STP) workflow management, data
management

■ Establish and manage relationship with fund administrator for daily, monthly and annual reporting

■ Selection and implementation of all internal systems including portfolio management, accounting, trading and risk
management

■ Development of reporting systems for internal and external distribution, including Shadow Books and Records

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7. Enterprise Risk Management

An Enterprise Risk Management (ERM) review will include the review of a firm’s enterprise-wide infrastructure, reporting and
governance, and recommend customized ways to enhance and align business efficiency and reporting capabilities.

Enterprise Risk Management Solutions:

■ Analyze an investment management firm’s complex system of interrelated business units

■ Implement system-wide solutions encompassing analytics, operational infrastructure, and compliance policies and
procedures

Operational Risk Assessment

ERM Solutions create compliance policies and procedures to fit a firm’s organizational structure and business goals, and
meet all external regulatory requirements.

Through the course of its analysis, the ERM team will:

■ Identify internal divisions of labor and responsibilities to optimize policies and procedures

■ Create a code of ethics and personal trading, including governance and policy guidelines

■ Review data capture and maintenance procedures, including the handling of material nonpublic information

■ Coordinate the information flow among front, middle and back offices, and third parties, and devise customized
reporting procedures

■ Review procedures for documenting valuation to ensure standards are clear, adequately disclosed and
supported, and appropriately documented

■ Review the overall allocation of expenses, including disclosures in PPM, LPA, and Financials

Risk Audit

ERM Solutions develop tools, training material, and annual audits that fit a firm’s technology, infrastructure, and reporting
requirements. The ERM team works with internal and third-party staff to oversee implementation and operation.

Implementation of technological tools:

■ Customized data warehouse

■ IT hosting

Annual internal audit reviews:

■ Compliance manual updates

■ Systems and procedure checks

■ Disclosure reviews

■ Trading reviews

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Document Review & Preparation

ERM’s Document Preparation services enable firms to review and enhance external reporting processes and outputs. ERM
assist in the creation of risk management slides for marketing presentations, and in filling out the appropriate sections of
required forms and documents.

Document Preparation:

■ Review and enhance external reporting

■ Assist in creating risk management slides for marketing presentations

■ Assist in filling out the appropriate sections of Due Diligence Questionnaires, Private Placement Memorandums, and
Investor correspondence

Preparation and maintenance all required reports and reconciliations:

■ Daily profit and loss (P&L) reporting

■ Trade capture and reconciliation, real-time (“flash”) P&L, performance measurement, confirmation of over-the-
counter (OTC) derivatives trades, and management of reference and corporate actions data

■ Post trade but pre-settlement activities including trade processing/support (confirmation and allocation), position
and trade reconciliation

■ Development of reporting systems for internal and external distribution, including Shadow Books and Records

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8. Capital Raising

Having a well-thought out and organized marketing strategy is a key component prior to beginning the process of raising
capital. A number of factors will affect how the strategy is determined including the type of investors that a firm will target.

Investment Strategy/Style Description

What is your background?

■ The education of the founding partner(s)

■ The professional experience of the founding partner(s)

■ The founding partner(s) experience managing money in this strategy

What is your investment strategy?

■ What securities will you invest in? (Equity, Options, Fixed Income, Futures, Commodities, Forex)

■ What geographic locations will you invest? (US, EUR, Global)

■ Is your strategy Sector/Industry specific? (Tech, Healthcare, Financial, Energy, etc..)

■ What is your bias? (Long/Short, Market Neutral, Long biased, Short biased, etc..)

■ What is your target annual return net of your estimated fees?

■ What is your target annualized volatility? (e.g. Standard Deviation)

Fund Raising: Types of Investors

a) Friends/Colleagues/Family Round
■ They know the founding partner(s), trust them and believe in them
■ Suitability and Accredited Investor Status remains in place.

b) High Net Worth Individuals

■ Often a Quicker Sales Process (< 6 months usually)
■ Often a “stickier” investor than a fund of funds (FOF) or institution
■ Not as onerous on due diligence, no reliance on a committee, etc..

c) Family Offices (ultra-high net worth individuals)

■ One of the larger groups that invest in hedge funds globally
■ Often a “stickier” investor than a FOF or institution
■ Often use the “10% Rule” like a FOF
■ Larger FO’s have more Rigorous DD (6-12 mo’s)
■ Larger FO’s (> $500mm) behave like Fund of Funds with Due Diligence and Investor Committee.

d) Strategic “Seed Investors” and/or Incubators

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■ Equity in GP or Revenue Sharing for initial trading capital contribution

■ Seed amounts are generally $20mm - $100mm
■ Rigorous Due Diligence (3-12 mo’s)

e) Fund of Funds
■ They control one of the largest pools of hedge fund investment capital
■ 10% Rule (e.g. they often will not allocate larger than 10% of AUM)
■ Rigorous Due Diligence (3-12 mo’s) with Investor Committee.

f) Institutional Investors (Pension Plans, Private Banks, Insurance Co.’s)

■ They also control one of the largest pools of hedge fund investment capital
■ 10% Rule (e.g. they often will not allocate larger than 10% of AUM)
■ Rigorous Due Diligence (3-12 mo’s) with Investor Committee.
■ Often will use a third party Consultant to assist with Manager Selection.

Marketing Collateral

Pitchbook/Marketing Deck
■ A summary of the firm’s qualitative and quantitative characteristics which will include firm history, organizational
chart, team member biographies, description of the investment strategy, current fund performance, prior track
record of principals (if applicable), case studies (long and short), description of fund terms, service providers and
risk disclosures.

■ Ideally the pitchbook should be less than 25 pages

One Page Fact Sheet

■ A monthly summary of key characteristics of the Fund including a description of the investment strategy, monthly
net performance, risk/reward analysis, peer group analysis, benchmark analysis, current AUM, service providers
and contact information.

Due Diligence Questionnaire

■ A large percentage of sophisticated allocators will request that a manager complete a Due Diligence
Questionnaire (DDQ)

■ The most widely accepted DDQ has been produced by the Alternative Investment Manager Association, known
as AIMA (www.aima.org).

■ Given the amount of information required and the necessary time to complete a DDQ, it is recommended to
complete the DDQ in advance of your launch and make updates on a quarterly basis.

Quarterly Investor Letter

■ A quarterly investor letter provides investors and prospective investors and opportunity to further understand the
manager’s investment process, current views on the global economy, analysis of the most recent quarter’s fund
performance, attribution of returns (long or short) and fund exposures. (gross exposure, net exposure,
sector/industry exposure, asset allocation)

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 Member FINRA, SIPC

9. Timeframe to Launch a Hedgefund

DESCRIPTION # of Weeks 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Organizing the Firm & Fund
Choosing Primary Service Providers
US Legal
Offshore Legal (if applicable)
Audit & Tax
Fund Administrator
Prime Broker(s)
Choosing Secondary Service Providers
Outsourced Compliance
Outsourced Risk Management & Advisory
Insurance Broker (Business, Bonding, Health)
IT Consultant
Physical Plant & Infrastructure
Select Office Space Location (Permanent/Executive Space)
Negotiate Lease, Finalizing Terms
Executive Office Space: Move-in
Permanent Space: Buildout Plans/Begin Buildout
Permanent Space: Order Furniture, Delivery, Staging of Office
Permanent Space: IT Equipment Purchase, Delivery, Installation
Technology: IT Infrastructure/Ongoing Support
Determining Network Configuration & Requirements
Design the Network Configuration & Order Equipment
Equipment Delivery/Installation/Test Systems
Draft the Disaster Recovery & Business Continuity Manual and Test
Legal: Fund Formation
Domestic Fund
Form the GP, IM & Fund Entities
Fund Offering Documents (PPM, Agr of LP, Sub Docs)
Federal Registration with the Securities & Exchange Commission (SEC)
Operating Agreements for General Partner &
Investment Manager/Estate-Tax Planning Docs
Employment Contracts
Offshore Fund (e.g. Master Structure or Parallel Funds)
Form the Mgmt Co Entity, Master Fund Entity, Feeder Fund Entity
Fund Offering Documents (Offering Memorandums, Op Agrs for Mgmt Co's)
Staffing
Determine the overall employment structure for the firm
(front, middle/back office)
Recruitment of Firm Staff
Middle/Back Office Operations
Choose Middle/Back Office (MBO) Solution: Internal or Outsourced
Choose Realtime P&L/Portfolio Management System
Choose Execution Management System (EMS)
Prime Brokerage: New Account Documentation & Onboarding
New Account Document Completion & Submission to Prime Broker/Custodian
Prime Broker/Custodian Approval
Prime Broker/Custodian Systems/Technology/Reporting
Funding the Trading Accounts
Begin Trading

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 Member FINRA, SIPC

10. Summary

We hope you found this Prelaunch Guideline to be a value-added resource in developing your plans to launching your
hedge fund. There are a number of moving parts with starting a new business and at times, can seem daunting to
someone that has not been through the process. At Concept Capital Markets, we’ve helped hundreds of managers
launch new hedge funds and look forward to the opportunity to work with you and your team on your planned launch.

Please feel free to contact our experienced team members within our Prime Services Group and schedule an initial
consultation. (www.conceptcapital.com)

11. Contact Information

Concept Capital Markets, LLC

Prime Services Group

www.conceptcapital.com

1010 Franklin Avenue, Suite 303 10 Glenville Street, 3rd Floor

Garden City, NY 11530 Greenwich, CT 06831

527 Madison Avenue, 6th Floor 200 S. Wacker Drive, 31st Floor
New York, NY 10022 Chicago, IL 60606

2002 Jimmy Durante Blvd

Del Mar, CA 92014

12. Important Disclaimer

The information contained herein is based on sources believed to be reliable; however, we do not represent that this
information is accurate, current, or complete and it should not be relied upon as such. Opinions, estimates, and projections
within represents the individual author‘s personal opinions, and should not be construed as the opinions or investment
strategy of Concept Capital or its affiliated companies, share-holders, directors, officers and/or employees. Such opinion is
subject to change without notice. This material does not take into account the particular investment objectives, financial
situation or needs of individual investors. Before acting on any advice or recommendation in this material, the investor
should exercise in-dependent judgment as to whether it is suitable to his/her particular circumstances and, if necessary,
seek professional advice.

No part of this material may be reproduced, copied or duplicated in any form or by any means, or redistributed, without
Concept Capital‘s written consent. Concept Capital Markets, LLC is a registered broker dealer with the Securities and
Exchange Commission (SEC) and a member the Financial Industry Regulatory Authority (FINRA). All rights reserved. FOR
INSTITUTIONAL USE ONLY.

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