As the economic recovery begins to draw new money into the hedge fund space, the number of new fund managers is on the rise. Studies have shown that these rookie managers tend to outperform their more experienced counterparts – but the newcomers have their work cut out for them in the current environment, as the financial crisis has resulted in a more guarded investment community.

To launch an institutional money management firm in this environment with limited staff and resources, new managers should focus on making investors feel confident that the firm’s business operations are solid. Fundamental operational issues play a key role during the operational due diligence visit. The following tips will help ensure success on all fronts.

Bring in experience
Hire an experienced employee to manage the business. This knowledgeable employee – who usually has a title of CFO, COO or controller – must be empowered by the hedge fund manager to implement industry best practices. Accordingly, the hedge fund manager should carefully consider the credentials, level of experience and skill set that an ideal business manager would bring to the table. First and foremost, the business manager must possess a technical understanding of a wide range of financial instruments, appreciate the roles of the various service providers and have the ability to interface with clients and manage client requests. The bottom line is that this key non-investment hire should give investors the confidence and peace of mind that a capable person is running the business. In addition, hiring a CFO, COO or controller helps to separate duties within the firm and allows the hedge fund manager to focus his time and energy on portfolio management.