These are the 24 steps required to start a billion dollar hedge fund from scratch -

1. The first thing you’ll need to get out of the way is obtaining the required regulatory designations and licenses. Assuming your in the US, you’ll be required to complete roughly six exams in total, three of which will be administered by FINRA and the other three by the NASAA. For the FINRA exams, these include — Series 6; Series 7; & Series 3. For the NASAA exams, these include — Series 63; Series 65; & Series 66.
2. If you dont have a college degree in finance or commerce, it would also serve you well to enroll in the CFA program too. Having a high pedigree designation like this allows clients to have comfort in overlooking you not having a degree, and will make it much easier to raise money when your ready to start accepting checks. The CFA is no walk in the park though, so be ready to put in a lot of work on this step.
3. After you have your designations, your going to have to create a power point presentation on your fund, that outlines the benefits you can provide that others wont be able to. In other words, you need to create a ‘pitch book’ that helps you to convince people to invest with you.
4. The next thing you’ll need is an entity incorporated as a Limited Partnership (L.P.).
5. At this point, your gonna wanna do whats called a “soft road show”. In other words, since the steps after this one will cost lots of money via legal fees, you want to make sure you have at least some money committed to your fund after the structure of the fund is built. It would be a shame spending +$100,000 on legal fees to set up the fund, if no one subscribes to it afterwards. So spend some time on this step gauging your audience (target market), with the aim of getting some committed dollars for when the fund is set up.
6. Assuming you get ~$4million in commitments (because the enterprise wouldn’t be profitable otherwise) you’ll then need to form a compliance department that the SEC can regularly correspond with. This entails hiring a Chief Compliance Officer (CCO), which is a MUST HAVE, as this is a highly regulated industry. Convincing a high quality CCO to join your new firm will be no easy task, but will be easier if you have a tight pitch and some committed dollars — which is why the creation of the pitch book & soft road show comes first.
7. You will now have to register your firm with the SEC. Delegate that to your new CCO.
8. You’ll then need to hire lawyers to create an offering memorandum (OM) that outlines the goals & objectives of your hedge fund, for prospective clients. You will also need your lawyers to formulate a subscription document (Sub Doc), so that people can subscribe to your fund (give you money).
9. In parallel with step #8, your gonna need to rent some office space because that will help you to raise money. People are not going to give you millions of dollars to invest, if you meet them at Dunkin Donuts. Million dollar clients expect luxury. No one wants to hunt with an ugly dog.
10. Then your going to need to create a relationship with a custodian (like Fidelity), where all the money will be physically (albeit electronically) held. You will also need to create a legal document which clients will have to sign, outlining the fees you intend on charging. Fidelity or whatever custodian you choose will require this document, in order to allow you to collect fees from the account on a pre-determined schedule.
11. Following that, you’ll need to hire a third party back office provider (like Empaxis) who will provide a mark to market price on the net asset value of your fund on a monthly basis.
12. Then, you’ll have to engage and hire a third party auditing firm which clients can call upon when doing due diligence on you for piece of mind purposes.
13. Once all that is done, your now finally ready to accept money from clients! You will have to call upon the folks that provided you with commitments, and assuming 50% are still good to go, you’ll be running a $2M fund right out of the gate.
14. Now the real work begins. You will have to post a few months of great performance, and then go out on another road show to raise more money. And now you have a few months of audited returns to back you up.
15. And then you rinse and repeat step #14. After a year (assuming your performance is stellar) you go out on another road show. Raise more money.
16. Then do it again another year later.
17. At this point your fund should be over $20M in assets.
18. Now you can hire your first full time sales guy. And if the fund is good, it shouldnt be a very hard sell. But now instead of having to convince prospects yourself, you have a guy who does that for you full-time and all you see is the money come through the door.
19. Couple more years go by like this, and you should be around $50M in assets now. So you do another road show. And this should be the big one for you. Because you now have over 3-year audited track record, and have worked hard to beat the market every year while having over $50M under management. So you can finally approach family offices and institutions. Most will still tell you to get lost, because your still very small, but some will get your story and will write very large checks since they have billions of dollars which they are required to invest. So maybe you raise $100M on this road show.
20. Now you can bring your back office administration in house by hiring your own team. Youll also need to hire a CFO and a VP finance, along with a few other key roles — such as a couple more sales guys, and a COO perhaps.
21. At this point your getting pretty rich. So you then you employ step #14 again, and simply do your job by creating great returns for clients. All the while your sales guys are pounding the pavement. And from both organic and new money growth, you should be able to cross the $500M threshold within the next 5 years.
22. Then you hire some more people to fill in whatever gaps exist within your service model at this point.
23. Now you do another road show, with over 10 year audited track record, and you should be able to cross the $1 Billion AUM mark.
24. At this point, you pretty much reached the end of the road. You can sit pretty and oversee your staff. Make sure they do a good job for your clients and you play golf with the biggest clients every other month or whatever.

And that’s how you start a billion dollar hedge fund from scratch.