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Four college kids started a hedge fund. Should I invest?
 

bankerella's picture
IB
(King Kong, 1,863
 
Points)
 on 10/8/12 at 10:00pm
kid-money.jpg

One of the biggest problems with having large corporations as clients is that there’s so much crap you’re not allowed to invest in actively in order to prevent any potential allegations of insider trading. There’s also a bunch of rules and paperwork that, honestly, few bankers have time to keep track of.

As a result, a lot of bankers just stick their money in ETFs (or a nice piece of Hamptons real estate) and forget about it. (I admit it, most of my money’s in ETFs right now.)

But let’s face it, we all know that you haven’t made it until you pay more in capital gains tax than in ordinary income tax. Passive investment is boring and is largely for betas and scrubs whose 401(k) is their largest source of liquid capital ( psssh!).

So as you start to accumulate capital, if you want to get those big returns, you eventually have to find someone to manage things on the personal investment front for you.

This isn’t easy. No-name firms and individuals deliver inconsistent results and are sometimes shady. Bulge bracket firms deliver consistently shitty results and are consistently shady. And you're never gonna get personalized attention unless you've got $50m+ (which I don't have) or you are one of the larger clients in a small shop.

To this end, I've been doing a little due diligence lately, and thanks to this article (http://nymag.com/daily/intel/2012/10/worlds-most-o...) I uncovered a real gem that I wanted to share with you guys.

Presenting Lumina Investments (http://www.luminainvestments.com/), a group of college kids from UNC (but UNC Wilmington, not UNC Chapel Hill). And one guy from East Carolina University. (I always thought the Carolinas were divided into North and South, but I admit being a tad fuzzy on those southern states.)

Anyway, Lumina provides “global macro event-driven investing,” which sounds like a pretty good idea. Of course, they’re not the only global macro shop out there. So what are Lumina’s points of differentiation?

Well, one of their goals is “performance during macro events,” which I take to mean that when something is going on in the world, they try to make money on it. That’s the kind of thinking I want in the guys who are managing my money. So far, so good.

But that’s not all. They also aim for “capital preservation during non-event environments”. By “capital preservation”, I assume they mean that they don’t come to work on slow news days. I would hazard a guess that they switch over to “capital preservation” mode during midterms and finals as well. Overall, I approve of this. If the guy who manages my money doesn’t know how to make money in a steady market, I don’t want him trying.

But more importantly, I can’t find a single thing on their website I disagree with. Listen to the CEO, Elliot Carol, who says in big screaming quotes on the front page: “Right now, macro events are driving the market. We believe this is the new normal.”

Now, anyone who was around 10/20 years ago would probably also say that it was the old normal. But let’s not split hairs. This is a pretty sage statement for a 21-year-old.

Let’s check out the head of investor relations, who says, “When it comes to investor relations, Lumina’s primary goal is to maximize transparency between our investors and the investment team.” Now here’s a man who knows what investor relations is. Nicely played.

I read the quote where they admit to having less than a million dollars under management, so I was still a little wary of handing these kids my money until I saw that two of them have passed the Series 65. There’s a picture of them wearing actual suits (and even gold tie clips). And there is a Firm CRD number proudly displayed at the bottom of every page. So you know these kids are serious. At least serious enough to have paid the $300 CRD fee to FINRA.

You gotta admit, these kids are douching way above their weight. I wouldn't be surprised to see this level of douching out of Dukies or UNC-Chapel Hill, but Wilmington? I bet panties are dropping all up and down the Carolina coast. (Hopefully not all of them are size XXL from WalMart.)

The only problem is that I can’t tell exactly what Lumina Investments is. Apparently the director of research and investments, Zach Cefaratti, said to the reporter, "We’re not playing around here. This is a serious hedge fund, doing serious and big things. This isn’t a joke."

But after the story, the firm said on Twitter: “To clarify, Lumina isn't a hedge fund, it's an IA firm. We don't turn on the lights w/o asking our compliance guy.”

But, regardless of what they are, the press believes in this "serious hedge fund" and the "serious and big things" they are doing. At least, the hometown press does. A quote on Lumina’s webpage from the Greater Wilmington Business Journal says, “Both innovative and conservative, these young men believe that their strategy will create long-term success.” So the hometown paper reports that these kids believe in themselves. You can't get much more glowing praise than that.

But what do folks from the big city think? Well, no less a personage than Kevin Roose (New York Times alum, writing for New York Magazine) says, “We don't typically provide investment advice, but trust us on this one: Get on the ground floor, if you still can.”

At first I had a suspicion that Roose’s quote was meant as sarcasm since it was the last line of a not-exactly-glowing article, but I was reassured once I saw that Lumina had stuck the whole quote on its front page as an endorsement from New York Magazine.

I don’t typically take investment advice from journalists, but maybe Roose is onto something. These kids have a really unusual combination of traits. Youth. Passion. A website designer. A passing familiarity with investment buzzwords. The balls to wear contrasting collars while still in college. And a near-total lack of self-awareness that promises, if not outsized returns, at least an outsized opportunity for entertainment.

I’m thinking of calling them up this week and asking what their minimums are. It might be worth it to become a client just so I can watch the fun. What do you monkeys think?

See my other WSO blog posts
Tags:

Comments

FeelingMean's picture

I think you should do it.

VC
(Gorilla, 651
 
Points)
 on 10/8/12 at 3:38pm

I think you should do it. This was a great write-up by the way.

"That dude is so haole, he don't even have any breath left."

Determined's picture

What frustrates me most is

 
Points)
 on 10/8/12 at 3:50pm

What frustrates me most is their simple lack of ability to present themselves in a serious manner. Being young/inexperienced is no excuse for poor presentation. If they spent a little more time thinking about how to pitch their strategy and how to portray the details on their site, people wouldn't be laughing at them as hard.

I'm all for taking risks and making mistakes, but without common sense the risks and mistakes can dig a deep hole that's difficult to get out of.

Talent is hitting a target no one can hit.
Genius is hitting a target no one can see.

F. Ro Jo's picture

A little late to the party

 
Points)
 on 10/8/12 at 3:52pm

A little late to the party 'rella.

UFOinsider's picture

Ha Hahahaha HAHAHAHAHAHA BWAA

O
(Human, 10,347
 
Points)
 on 10/8/12 at 3:53pm

Ha

Hahahaha

HAHAHAHAHAHA

BWAAAAHAHAHAHAHAHA

Bernie Madoff's grandkids?

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

Mr.Saxman's picture

I feel bad for their

IB
 
Points)
 on 10/8/12 at 3:54pm

I feel bad for their relatives.

Dunkin Donuts Banker's picture

This is gold.

IB
 
Points)
 on 10/8/12 at 3:56pm

This is gold.

http://www.youtube.com/watch?v=_rS-qZTuZaA&feature...!

Bobb's picture

Elliot looks like a smug

AM
 
Points)
 on 10/8/12 at 3:58pm

Elliot looks like a smug douche

neomanxllp's picture

Sometimes I can't tell if

 
Points)
 on 10/8/12 at 4:00pm

Sometimes I can't tell if you're trolling or not bankerella...

FeelingMean's picture

Dunkin Donuts Banker: This is

VC
(Gorilla, 651
 
Points)
 on 10/8/12 at 4:01pm
Dunkin Donuts Banker:

This is gold.

http://www.youtube.com/watch?v=_rS-qZTuZaA&feature=player_embedded#!

LOL
Old man: (Not Listening) "Great!"

Stopped it there...

"That dude is so haole, he don't even have any breath left."

BlackHat's picture

Some other neat thoughts

HF
 
Points)
 on 10/8/12 at 4:10pm

Some other neat thoughts about Lumina:
1) They have $2 under management but the investment minimum is $100,000
2) The actual 2 owners of the fund aren't mentioned... ever
3) They never identify what asset classes they invest in
4) This has to be kind of common for douchebags... how'd they get so much media exposure?
5) Is this the best Wilmington can do?

I hate victims who respect their executioners

Follow BH & Co. on Twitter: @DumbLuckCapital
twitter.com/DumbLuckCapital

CaR's picture

Not a bad way for a few 21

O
(Gorilla, 643
 
Points)
 on 10/8/12 at 4:13pm

Not a bad way for a few 21 year old virgins to gets some friend requests on facebook. I'd give them my pension

I tell you, we are here on Earth to fart around, and don't let anybody tell you different.
Kurt Vonnegut

notamonkey's picture

This is exactly what all

HF
 
Points)
 on 10/8/12 at 4:13pm

This is exactly what all macro investors are like. I've never met an intelligent (or successful) one in my life; these kids fit right in.

Buying undervalued businesses never goes out of style.

All I care about in life is accumulating bananas

duffmt6's picture

BlackHat: Some other neat

IB
(Neanderthal, 2,327
 
Points)
 on 10/8/12 at 4:15pm
BlackHat:

Some other neat thoughts about Lumina:
1) They have $2 under management but the investment minimum is $100,000
2) The actual 2 owners of the fund aren't mentioned... ever
3) They never identify what asset classes they invest in
4) This has to be kind of common for douchebags... how'd they get so much media exposure?
5) Is this the best Wilmington can do?

UNC-W is a pretty underrated party/beach school. So it has that going for it...

"Social cohesion and puritanical morality place roughly on my list of concerns between whether I'll pick up jock itch at the gym this week (not likely, since I don't go the gym) and whether it'll rain in Christchurch, New Zealand next Tuesday."
-Eddie

WSOusername's picture

"No-name firms and

 
Points)
 on 10/8/12 at 4:22pm

"No-name firms and individuals deliver inconsistent results and are sometimes shady. Bulge bracket firms deliver consistently shitty results and are consistently shady."

I laughed. Also, I've signed up for their newsletter each time I've seen this mentioned in a WSO thread... so I'm currently at three.

GBS

iRX's picture

Interesting... I suppose I

IB
(Orangutan, 260
 
Points)
 on 10/8/12 at 4:22pm

Interesting... I suppose I can dig the strategy. I would never give my money to a 21-yr old kid. They haven't been around the block. They haven't lost money and learned from it. They will end up making all the rookie mistakes, and my money won't be their guinea pig.

SlikRick's picture

I just feel sorry for UNC...

CO
 
Points)
 on 10/8/12 at 4:30pm
madmoney15's picture

Why is everyone hating on

(Orangutan, 325
 
Points)
 on 10/8/12 at 4:32pm

See my WSO Blog

Press0's picture

If this thread was serious

 
Points)
 on 10/8/12 at 4:41pm
duffmt6's picture

Press0: If this thread was

IB
(Neanderthal, 2,327
 
Points)
 on 10/8/12 at 4:44pm

"Social cohesion and puritanical morality place roughly on my list of concerns between whether I'll pick up jock itch at the gym this week (not likely, since I don't go the gym) and whether it'll rain in Christchurch, New Zealand next Tuesday."
-Eddie

neomanxllp's picture

madmoney15: Why is everyone

 
Points)
 on 10/8/12 at 4:45pm
Press0's picture

duffmt6: Press0: If this

 
Points)
 on 10/8/12 at 4:49pm
Ben Shalom Bernanke's picture

"Bulge bracket firms deliver

AM
(King Kong, 1,423
 
Points)
 on 10/8/12 at 4:52pm
notamonkey's picture

whitemamba1309: madmoney15:

HF
 
Points)
 on 10/8/12 at 4:53pm

All I care about in life is accumulating bananas

madmoney15's picture

Ackman didn't have

(Orangutan, 325
 
Points)
 on 10/8/12 at 5:11pm

See my WSO Blog

madmoney15's picture

notamonkey: whitemamba1309:

(Orangutan, 325
 
Points)
 on 10/8/12 at 5:13pm

See my WSO Blog

bankerella's picture

Press0: If this thread was

IB
(King Kong, 1,863
 
Points)
 on 10/8/12 at 5:20pm

See my other WSO blog posts

hockey1316's picture

Ok to get things straight two

CO
(Gorilla, 504
 
Points)
 on 10/8/12 at 5:22pm
madmoney15's picture

hockey1316: Ok to get things

(Orangutan, 325
 
Points)
 on 10/8/12 at 5:31pm

See my WSO Blog

cheese86's picture

Madmoney...which one of the

HF
(Gorilla, 576
 
Points)
 on 10/8/12 at 5:39pm
CaR's picture

Pretty hilarious that you're

O
(Gorilla, 643
 
Points)
 on 10/8/12 at 5:54pm

I tell you, we are here on Earth to fart around, and don't let anybody tell you different.
Kurt Vonnegut

virtu333's picture

It boggles my mind how dumb,

IB
(Baboon, 127
 
Points)
 on 10/8/12 at 5:44pm
hockey1316's picture

madmoney15: hockey1316: Ok

CO
(Gorilla, 504
 
Points)
 on 10/8/12 at 6:05pm
CaR's picture

hockey1316: madmoney15: h

O
(Gorilla, 643
 
Points)
 on 10/8/12 at 6:13pm

I tell you, we are here on Earth to fart around, and don't let anybody tell you different.
Kurt Vonnegut

Cruncharoo's picture

madmoney15: 2. Just because

CO
(Gorilla, 686
 
Points)
 on 10/8/12 at 6:19pm

This to all my hatin' folks seeing me getting guac right now..

olafenizer's picture

They should have just skipped

IB
(King Kong, 1,005
 
Points)
 on 10/8/12 at 6:29pm

See my other WSO blog posts

Get_Yield's picture

It's settled...Bankerella is

IB
(Chimp, 9
 
Points)
 on 10/8/12 at 6:31pm

"Anything less than the best is a felony"

huanleshalemei's picture

bankerella: But that’s not

(Gorilla, 518
 
Points)
 on 10/8/12 at 6:35pm

The Auto Show

ladubs111's picture

sorry Bankerella your late on

IA
 
Points)
 on 10/8/12 at 6:53pm
Jamess1's picture

Bad day for a team picture.

CF
 
Points)
 on 10/8/12 at 6:57pm

Blue horseshoe loves Anacott Steel

madmoney15's picture

hockey1316: madmoney15: h

(Orangutan, 325
 
Points)
 on 10/8/12 at 7:03pm

See my WSO Blog

madmoney15's picture

Cruncharoo: madmoney15: 2.

(Orangutan, 325
 
Points)
 on 10/8/12 at 7:14pm

See my WSO Blog

madmoney15's picture

CaR: Pretty hilarious that

(Orangutan, 325
 
Points)
 on 10/8/12 at 7:40pm

See my WSO Blog

BTbanker's picture

I like your style,

IB
 
Points)
 on 10/8/12 at 7:58pm

"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan

balls.mahoney's picture

hockey1316: Ok to get things

IB
(Orangutan, 282
 
Points)
 on 10/8/12 at 9:06pm
sonibubu's picture

hockey1316: Ok to get things

AM
(Baboon, 172
 
Points)
 on 10/8/12 at 9:07pm
BTbanker's picture

sonibubu: hockey1316: Ok to

IB
 
Points)
 on 10/8/12 at 9:43pm

"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan

gamenumbers's picture

Ackman actually started a

IB
(Gorilla, 678
 
Points)
 on 10/8/12 at 9:57pm
linoxgill's picture

Lol. I was waiting for this

O
(Monkey, 32
 
Points)
 on 10/8/12 at 10:00pm

finance is the science of goal architecture.

The Kid's picture

Honest/serious question ...

O
(Gorilla, 635
 
Points)
 on 10/8/12 at 11:01pm
jgc2122's picture

Next a few high school kids

 
Points)
 on 10/9/12 at 12:01am

"If Henry Ford had asked people what they wanted, they would have said faster horses." -Steve Jobs

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