How to start a private investment company

Private investment is the lifeblood of the global economy. Getting into the competitive field of private investment management will be a challenge, but with dedication, knowledge and no small amount of luck, you and your clients will be successful.

Determine what you'll be investing in. Figure out if your investment company is going to focus on a particular niche of some marketplace, or if you're going to try to invest in almost everything. The most typical asset class private investment companies transact in are stocks and bonds, but many have also branched out into commodity futures, foreign exchange and a variety of option strategies.

Organise your company. If you're the owner/operator, this is relatively easy. You have to decide what areas you're going to invest in and properly allocate your capital according to your areas of focus. If you're going to start off with a larger operation, including several employees, think about organising your company along departmental lines. Have a department for stocks, a department for bonds, commodities, currencies, as well as a department for investor affairs and other administrative issues, each headed by a senior subordinate.

Choose your legal entity. Most investment companies are organised as either a C corporation, S-Corporation, Limited Partnership, or Limited Liability Company. Also confer with your accountant about what kind of tax status to elect. For example, if you form as an LLC, you can either be taxed as an LLC or as a sub-chapter S corporation.

Register with the appropriate regulatory agencies. Most private investment companies have to register with the Securities and Exchange Commission, but if your company specialises in financial products outside of stocks, it's possible that you might have to register with the Commodity Futures Trading Commission and National Futures Association in addition to (or instead of) the SEC. An accountant specialised in investment management should be able to get you registered with all the right agencies, but you might also need to bring in a securities attorney.

Get investors. Investors can be comprised of either individuals or institutions. Investors are usually required to be wealthy, with a net worth of at least £1.3 million or an annual income in excess of £195,000. Be sure to follow regulatory disclosure requirements from the SEC or CFTC, and be very honest about the risks and rewards your investment strategy entails.

Most recent