Hedge Fund SWOT Analysis

There are a number of absolute strengths as a relates to managing a hedge fund. Foremost, these enterprises are generally able to produce profits in any given environment. This is the nature of a hedge fund, and many investors seek out these investment vehicles simply because they can produce substantial income and capital appreciation even during bear markets and economic recessions. One of the key strengths of managing of hedge fund as well as at the operating costs are typically very low. Only a handful of people are needed to manage even a large-scale hedge fund. The profitability of these businesses can also be substantial given that most hedge fund management companies take a fee equal to 1 to 2% of total assets managed coupled with a fee of 20% on all profits generated. This can be a highly lucrative business for someone that is very familiar with how to profit in any type of market. The startup costs for a new hedge fund range from $100,000 to $500,000 (for infrastructure).

For weaknesses, hedge funds have a number of regulations that they must adhere to on an ongoing basis. Most hedge fund managers are required to have securities licenses including the series 65 license. A qualified compliance attorney must be hired in order to ensure that the hedge fund is complying with all security and exchange commission regulations as well as among other state-based securities commissions.

For opportunities, the fastest way that most hedge funds grow it simply by acquiring additional capital from their already existing group of investors. Some hedge funds will maintain a number of different series in order to provide different types of returns for different types of investors. This is really the only way that these businesses grow. Additionally, many hedge fund managers will reinvest their portion of their profits back into the fund in order to produce higher returns in subsequent years.

For threats, hedge funds are continually undergoing changes as it relates to their regulations and laws that guide their activities. Again, a qualified compliance officer or a third-party attorney that is familiar with securities compliance must be hired in order to ensure that the hedge fund is operating with the letter of the law at all times. Additionally, depending on the type of investments made – economic recessions can drastically impact the profitability of these businesses. As such, a qualified hedge fund manager need to have a number of strategies in place in order to ensure that profitability occurs at all times. For a hedge fund manager that has an extensive track record of producing profits on a yearly basis the ongoing competitive issues are relatively low.