What Emerging Hedge Fund Managers Can Do To Boost Their Chances Of Success With STP’s David Goldstein

While 2024 was slow for hedge fund launches, this year has brought a renewal of activity, although new managers face some significant hurdles when launching their funds.

In an interview with Hedge Fund Alpha, David Goldstein, director of fund services at STP Investment Services, shared some tips for emerging managers as they come up against those barriers.

STP is a leading service provider which technology-enabled services specializing in middle, back-office, and compliance solutions for institutional managers, wealth managers, emerging managers, and private fund advisers. The company has recently reached $500 billion in assets under administration.

Mistakes many new managers make

Unfortunately, emerging managers tend to make the same mistakes when entering the market. For example, they tend to launch a hedge fund and expect the checks to start coming in, but Goldstein said that’s generally not the case.

“So I think people have to gage their expectations from a capital raising perspective, because it's just tough,” he said. “… It's a very tough capital raising environment. So I think that it’s a long-standing perception that if a manager says they are launching with $100M, it realistically means $10M.”

Many new managers also go into the market looking for service providers by price shopping, which Goldstein said isn’t the right way to choose providers. Saying that this is probably the most common mistake he’s seen, he noted that if managers cut corners, it means a cut in service and potentially reduced quality.

“And really, my biggest piece of advice I always give to managers is do it right the first time from the start, because it's just going to save you time and money going forward,” Goldstein added.

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Leading causes of hedge fund failures

Emerging managers should also be aware of the top reasons for hedge fund failures so that they can avoid them. Unsurprisingly, the number one reason is underperformance.

“If you're not outperforming the market, or you're not meeting what you've outlined to potential investors from the start, then you know that could potentially kill any new hedge fund,” Goldstein emphasized.

He also said making mistakes when choosing service providers can derail a hedge fund from an administration perspective, including audits and hacks.