For a manager without previous fund management experience or ready access to initial investor capital, an incubator fund provides a cost effective way to begin building a marketable performance record using the manager’s personal funds. An incubator fund allows a manager to fine-tune the trading strategy while creating a marketable track record.
We ask hedge fund managers five main questions to determine who can invest in their fund. Many prospective fund managers mistakenly believe that the “accredited investor” standard is the only required investor accreditation standard for their investors. This standard is typically based on financial threshold, which, for individuals, must have a $1 million individual or joint net worth (excluding the primary residence), or $200k annual income ($300k with a spouse), for the previous two years, with the expectation to meet or exceed this standard for the current year. However, with the recently updated expansion to the accredited investor definition, an individual may qualify as this investor standard, regardless of net worth, dependent upon meeting other specific requirements. Read our article discussing these updates here.
Hedge fund strategies encompass a broad range of risk tolerance and investment philosophies within a wide array of investments, including debt and equity securities, commodities, currencies, derivatives, real estate, and other investment vehicles. The horizon of hedge fund investment strategies has seen unprecedented expansion in recent years. Hedge fund investment terms are driven in large part by the fund’s strategy and its level of liquidity. To learn more about forming and operating a hedge fund, we encourage you to read our eBook, Forming and Operating a Hedge Fund.