Entrepreneurship in Finance: Successfully Launching and Managing a Hedge Fund in Asia

275 Pages·2016·9.013 MB·English

by  Henri Arslanian (auth.)

HENRI ARSLANIAN

ENTREPRENEURSHIP

IN FINANCE
Successfully Launching
and Managing a
Hedge Fund in Asia
Entrepreneurship in Finance
Henri   Arslanian
Entrepreneurship in
Finance
Successfully Launching and Managing a Hedge
Fund in Asia
Henri   Arslanian
Adjunct Associate Professor
University of Hong Kong , Hong Kong
ISBN 978-3-319-43912-9 ISBN 978-3-319-43913-6 (eBook)
DOI 10.1007/978-3-319-43913-6
Library of Congress Control Number: 2016953826
© Th e Editor(s) (if applicable) and Th e Author(s) 2016
Th is work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the
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tion storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
Th e use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does
not imply, even in the absence of a specifi c statement, that such names are exempt from the relevant protective
laws and regulations and therefore free for general use.
Th e publisher, the authors and the editors are safe to assume that the advice and information in this book are
believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors
give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions
that may have been made.
Cover illustration: © Kiyoshi Takahase Segundo / Alamy Stock Photo
Printed on acid-free paper
Th is Palgrave Macmillan imprint is published by Springer Nature
Th e registered company is Springer International Publishing AG
Th e registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
Dedicated to my friend Michael Nardella (1982–2016) who contributed greatly
to this book, but tragically passed away before he could see it come to completion.
Th is one is for you buddy.
Preface and Ack nowledgements
M y grandparents used to have a sign in their basement in Montreal that said
in French, “Ne laissez jamais ce que vous êtes, être un obstacle à ce que vous
pouvez devenir”, which translates into: “Never let who you are today be an
obstacle to what you can become in the future.”
Th at quote has always stuck with me to this day, coming from a family that
survived the Armenian genocide and who had to start from scratch during the
last century, each generation starting over in a new country.
F rom my early days as a funds lawyer to my investment bank hedge fund
consulting days, I’ve met hundreds of individuals who wanted to launch their
own fund. However, the vast majority of these people ended up never doing
it. It was generally not because they didn’t have the ambition or the drive, but
often because there was simply no information available on how they should
begin. Th ey didn’t know where to start, whom to ask for advice or where to
fi nd the relevant information.
Th e fact that this information mismatch exists today is unacceptable as it’s
not only stopping new entrepreneurs from launching their own funds, but it’s
also negatively aff ecting the broader fi nancial industry as there are fewer new
launches and fewer individuals taking the plunge into entrepreneurship.
Many would still launch and almost inevitably fail not because of lack of
hard work or perseverance, but rather because of the lack of information and
knowledge that was available. Th is caused them to launch a business built on
a weak foundation and unable to become institutionalised thus putting them
on a route to almost certain failure.
A s an entrepreneur in the heart, I always wanted to help these individuals
and am very happy that this book will fi nally be able to empower many new
entrepreneurs to realise their dreams and launch their own fund.
vii
viii Preface and Acknowledgements
It is important to note that the information provided in this book has rarely
been made available, aff ordable or easy to fi nd in such a cohesive way. In addi-
tion, all the author’s proceeds from this book will be donated to the charity
Help For Children, also known as Hedge Funds Care, a charity that shows the
caring and giving angle of the hedge fund community that so few talk about.
Th is book is addressed to all of you who might be interested in starting an
entrepreneurial journey and launching your own hedge fund. It will give you
the important information you need and should hopefully not only put you
on the right path, but also empower you to ask the right questions.
I also hope that it will help many university students and various members
of the hedge fund ecosystem, from law fi rms to fund administrators, who want
to learn more about the process of launching a hedge fund. When I started
teaching my fi rst course on entrepreneurship in fi nance in the University of
Hong Kong’s Master in Finance program, I was shocked to see that there was
no book available that I could use as course material. I spent more than 200
hours of my spare time putting together slides and course material to teach
students how to launch a hedge fund, private equity or venture capital fund.
It was that gap that became another driver to wanting to see this book come
to fruition.
Writing this book was an intense journey with many ups and downs, some
more unimaginable than others, and I learned a lot in the process. I always
wondered why there wasn’t a book on the market that explained how to
launch a fund. After writing it, and realising the time and eff orts it takes, I
realised why!
Th anking everyone who inspired me to write this book would be impos-
sible, but I would like to take the time to thank some individuals who really
stood up and came to help at times when the future of this book was uncertain.
T o Michael Nardella, Stefan Nilsson, Anna Stephenson, Ayyaz Ahmad,
Mark Wightman and Jeb Altonaga who contributed large parts of certain
chapters. Without their help, I can honestly say that this book would never
have seen the light of day and I am incredibly grateful for their support.
To Philip Tye, Marc Towers, George Saff ayeh and the entire team at EY,
Anne-Marie Godfrey and her team at Akin Gump, AnnMarie Croswell and
her team at Duff & Phelps/Kinetic Partners, Christoph Koeppel, Jim Singh,
Elaine Davis and Steve Bernstein for their comments, feedback and sugges-
tions on various chapters of this book. It is their priceless guidance and advice
that made this book truly unique.
T o the entire team at my publisher Palgrave Macmillan including Pete Baker,
Aimee Dibbens, Nicole Tovstiga and Alexandra Morton for their incred-
ible support during this journey. Th is book would have never been possible
Preface and Acknowledgements ix
w ithout their continuous support and backing. And to Ben Simpfendorfer for
his amazing advice and initial introduction to Palgrave, Mario Th errien for
all his encouragement as well as Christopher Dillon for his very useful initial
guidance on how to write a book!
To Michael Wykoff for his amazing patience and fantastic proofreading
and editing work and to my former student Agrata Gupta for her review of
various parts of the book despite her full-time investment banking job.
A lso, a big thank you to my former colleagues at UBS Investment Bank
across Asia and globally where I had the chance to put a lot of my knowledge
in action for many years and to everyone at Timothy Loh Solicitors who gave
me my fi rst opportunity in Hong Kong in this amazing industry.
T o my grandfather who has been a role model of courage and foresight. To
my dad from whom I learned the values of hard work and integrity. To my
mom who taught me the importance of intellectual curiosity and giving back.
To my parents-in-law, for their understanding and support on all the days
that I would be around them physically, but working on the book.
And, last but not least, to my amazing wife Lara Setrakian, for her patience
and understanding for the late evenings, entire weekends and holidays that
I was away from our family working on making this book a reality. And to
our amazing baby daughter Vera-Maria Arslanian, who was born during this
journey and with whom I will spend more time now that this book is fi nished!
And to you, dear reader, for your passion and interest in launching your
fund. Welcome to the world of entrepreneurship in fi nance!
Henri Arslanian
Adjunct Associate Professor
Th e University of Hong Kong
Contents
1 Introduction and Overview of the Asian Hedge Funds Industry 1
1 Introduction 1
1.1 What Is the Purpose of Th is Book? 2
1.2 Do I Need to Incorporate Everything Th at Is Set Out in 
Th is Book? 2
1.3 What About Other Types of Asset Management
Firms Like Long-Only Asset Managers, Private Equity,
Venture Capital or Even Family Offi ces? 2
1.4 Does Th is Book Only Apply to Funds Being Launched
in Asia? 2
1.5 How to Read Th is Book? 3
2 Hedge Fund Industry Landscape in Asia 4
3 Hedge Fund Ecosystem 6
2 Starting a Hedge Fund in Asia 9
1 Why Do You Want to Launch a Hedge Fund? 9
2 What Are the First Decisions? 10
2.1 Where to Launch? 10
2.2 Should I Launch My Own Business or Join a Platform? 11
3 Who Are Your Key Hires? 14
3.1 Chief Operating Offi cer 14
3.2 Broader Team 15
3.3 Organisational Chart 15
4 How to Put Together a Business Plan and Budget? 17
4.1 Business Plan 17
4.2 Budget 18
xi
xii Contents
5 How to Raise Capital? 20
6 How to Name My Business? 22
3 A Hedge Fund Startup Timetable and Budget 25
1 Launch Timetable and Phases 25
2 Budget 29
2.1 Introduction to Budgeting 29
2.2 Setting Up a Budget Spreadsheet 30
2.3 Fund Income and Expenses 31
2.4 Management Company Income and Expenses 32
2.5 Cash Flows 35
3 Budget Template 35
3.1 What Does the Sample Budget Show? 37
4 Location: Where to Set Up Your Hedge Fund Business? 39
1 Diff erence Between Management Company and Fund 39
2 Management Company Location 39
2.1 Hong Kong and Singapore 40
2.2 China 41
2.3 Japan and Korea 42
2.4 Australia 42
2.5 United States and United Kingdom 43
3 Fund Jurisdiction Choice 44
3.1 Cayman Islands and British Virgin Islands 45
3.2 Ireland, Luxembourg 46
3.3 Delaware 46
3.4 Mauritius 47
3.5 Hong Kong and Singapore 47
5 Regulatory Considerations: Do You Need a License? 49
1 Regulatory Requirements 49
1.1 Do I Need a License? 49
1.2 Licensing Requirements in Hong Kong 52
1.3 Licensing Requirements in Singapore 65
1.4 Setting Up a Research Offi ce in China 70
1.5 Impact of US Regulations on Asian Funds 73