Starting a small hedge fund

New user, co-founder of a 2-person small Asset Management firm utilizing a trading algorithm for long-short equity. Looking for advice on networking, fundraising, partnerships, etc. Newly relocated to NYC.

 

I'm doing something almost identical (coincidence?)

I will say, it's not as glamorous as it sounds.
Anything under $10M in AUM called a "fund" is laughed out the door.

That being said, it's a good experience. Just be careful of friendships and relationships, as things change (for the better or worse) when large sums of money are involved.

 
MonacoMonkey:
Anything under $10M in AUM called a "fund" is laughed out the door.
If you have a Sharpe of 4+ (like a high freak type of stuff), there is plenty of money chasing that type of strategies. Of course, in that case it makes little sense to take outside money.
I have a friend who lives in the country, and it's supposed to be an hour from 42nd Street. A lie! The only thing that's an hour from 42nd Street is 43rd Street!
 

You need $50mln and 3 years of track record. Otherwise you are on your own. Networking as you said will only get you friends of friends to invest but no institutional money will look at you. That said keep on making good returns and those friends of friends will keep on giving to you and at some point you will be getting there! The $50mln threshold can be lowered, but that's a good standard ball park. The 3 years however is invaluable - from my perspective you can get lucky for a year or two and I wouldn't trust you, at three years you must be doing something right?

Also how did you setup tax wise? There are a few decisions you make today that will carry on for a long time. What broker you use - I assume that you are not large enough yet to have a PB relationship with a bank (PB will help you raise in the future once you are big enough for them).

Actually you gave so little details in your initial post I don't even know why I bother answering.

 

You will get introductions to financing at the $50m mark. I see you work for a FOF and I can understand how a large pension fund might not look at small hedge funds, but once you hit 50 and you have 3 years you will be able to raise. Maybe not California teacher's money but certainly large private banking clients. Unless something has changed in the last 4 years but I doubt it.

 
Best Response

Replying to multiple comments above:

So we actually started about a year and a half ago. Very modest, with about $600k. We are a little over $1mm at this point. My HNW network is not great, but my partner's is pretty good. We're not expecting a real institutional allocation (pension/RIA/endowment/foundation) anytime soon. What we are looking for is more leads on how to develop HNW networks, as well as any existing hedge funds that do seeding of emerging managers. I've made some attempts thru connects at Blackstone, Tudor, Booth Bay, Clinton, Discovery...maybe a couple others, but couldn't get anywhere. Granted, we were dealing with only a ~1-year track record at that point but it was very solid.

No Bloomberg. No FactSet. Before we launched, we spent a LONG time getting comfortable with free or low-cost data vendors, knowing that we could not afford $20k/year for a terminal in the early years. We utilize a combination of Excel vba, SQL, Python, and plain old CSV downloads to search for, scrape, and process our data. It is obviously less efficient than it could be, but cost is too prohibitive for us at the moment.

We use Interactive Brokers only due to cost. Their cap intro is non existent for someone our size, and overall their customer service is a joke. We've been looking at smaller alternative brokers (Apex, Triad) but not there yet.

Taxes are annoying. All our trades are short-term, and we use an SMA structure. Want to move to a fund structure but again, cost is prohibitive at this point. Also, we found out long after the fact that our lawyers didn't give us the best advice re: structure. If we had to go back and do it all over again, we would have shopped around more options for legal, and probably paid the additional cost to set up a proper fund structure.

 

Fundraising will be the biggest challenge. I have an associate who started a small fund 10 years ago, posts far-above average returns for HFs, and has immense difficulty raising capital. Once you get the capital, you're on auto-pilot.

Serving my community-adjusted EBITDA
 

Yes, of course. Many financial advisers allocate to private funds, including internally managed funds. But advisers that also manage private funds (directly or through affiliates), as well as '40 Act funds for that matter, have additional disclosure obligations. You probably shouldn't assume you can seed your own hedge fund through PWM relationships unless you're actually qualified to be running money in the first place.

 

Thanks! This is more in an attempt to help a friend who is retiring find alternatives for his PWM book and at the same time help a friend who already manages a small fund (and has for almost a decade under a larger fund company) and is looking for creative ways to grow AUM.

I am certainly not qualified to do this on my own at this point.

 

I see limited upside and possible jailtime/blacklisting if you do this. you see, if a fund is not on the firm's platform (and a startup fund will most likely not be on the platform), the firm doesn't get paid.

therefore, you're in competition with your employer, and that's not good. tempaccount is sort of right, and his advice applies if and only if the fund you're managing is on your firm's platform. I see a lot of conflicts of interest here (soliciting existing clients to invest outside of the firm in a fund where you have a beneficial interest), I wouldn't do this. the whole thing stinks to me.

 

I understand that it's different from the old platform, but I didn't read that as he wants to leave the bank. in your OP, you asked if he could do the HF and run the PWM business simultaneously, and to that my answer is an unequivocal no.

if he wants to leave the bank, then yes, in theory he could solicit PWM clients, but he could not do both simultaneously.

 

I know of an AM/PWM firm that has an internal hedge fund. It can be done.

However, I'm fairly sure the mandates of the HF and the AM have NO overlap in viable assets, so that is likely the reason why it isn't a problem for the same managers to be running both simultaneously.

 

Bloomberg reports: Asian Hedge Funds as Much as 42% Cheaper to Run, Survey Says

Running a hedge fund in the Asia-Pacific region can be as much as 42 percent cheaper than in the U.S. and Europe, helped by lower-than-average compensation, according to a survey by Citigroup Inc. (C)

Small funds started in the region struggle to achieve profitability and expand assets, the fourth-largest U.S. bank cautioned. Ninety-five, or 57 percent, of the 167 regional equity long-short hedge funds which began trading with less than $50 million still manage less than that amount after an average of 5.3 years in existence, it added, citing data from Singapore-based Eurekahedge Pte.

“A critical success factor in the launch of a hedge fund is the size of assets under management at launch,” Citigroup said in the regional supplement to its Business Expense Benchmark Survey. “Small fund launches in Asia have demonstrated a statistically reduced chance of accelerated assets under management growth.”

The $2.5 trillion Global Hedge-fund industry is facing pressure to cut fees to attract investors amid rising costs of complying with regulations and client demand. The average Asian hedge-fund startup raised $8 million this year, down from $25 million seven years ago before the 2008 global financial crisis dented investor interest, according to Eurekahedge data provided in early November.

Fees Declining

Management fees charged by hedge funds globally have fallen to as low as 1.58 percent for all but the largest companies, from the previous standard of 2 percent, as startup managers have been pressed to offer discounts to early investors. A hedge fund on average needs to manage at least $300 million to break even, the Citigroup global survey released late yesterday found.

In Asia, operating expenses of a $100 million hedge fund are 20 percent lower than in the U.S. and Europe. The gap widens to 42 percent for a hedge fund managing $500 million and 39 percent for those with assets of $1.5 billion, it added.

Asian hedge funds may break even at $135 million, relying solely on a 1.5 percent management fee, Citigroup estimated.

“It is likely that, initially, any excess cash may need to be reinvested into the business to ensure an institutional-grade infrastructure is in place” to help expand assets, the survey said. “Historically, U.S. investors have held the view that Asia-Pacific managers under-invest in operational and technology infrastructure.”

The survey sampled 124 hedge-fund managers in North America, Europe and Asia with combined assets of $465 billion.

To contact the reporter on this story: Bei Hu in Hong Kong at [email protected]

To contact the editor responsible for this story: Andreea Papuc at [email protected]

Find out more about Bloomberg for iPhone: http://m.bloomberg.com/iphone/

Sent from my iPhone

 

Yep, fundraising is very hard. My buddy still works and his PA alone is $1mm . No doubt he can get $3mm total from friends+family if he really tried but hasn't wanted to scrape and scrounge.

Outside of alpha generation over 2+ years, you also need tight financial controls and that requires spending money. No institutional and very few HNW's will trust someone without a CFO, KYC, auditor, etc. Especially given all the scandals from shops stealing $50k from people and running a ponzi for a few years before getting big enough and running away with everything.

 

Lumina is back!

"It’s safe to say they are making money – well over six figures, Carol said, leaning back in his chair and adjusting his suit jacket."

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 

I wish them the best of luck. I would actually love it if they were successful.

That being said, if there was a way to short the success of their fund, I would be be hitting every position limit I could shorting them.

 
SirTradesaLot:
I wish them the best of luck. I would actually love it if they were successful.

That being said, if there was a way to short the success of their fund, I would be be hitting every position limit I could shorting them.

They made the mistake of publicizing the fund and if they fail it will be pretty unfortunate for their future career prospects.
 
ky0ung:
if they bought 4.5 million pounds of wheat at 60 pounds per bushel, that means they only would have bought 75,000 bushels? Isn't that only like 15 contracts?
22.5 lots is about what they got If they are Euronext Wheat (No. 405) Futures WHT futures

a single lot/contract is 100 tons 200 thousand pounds is 100 tons in pounds 45/.2(represents 200 thousand pounds)=22.5

If I am doing it right I'm not really sure if they traded CBOT or Euronext ones.

 

Well, they're probably getting smoked on that wheat trade, missed the massive drought fear phenomena by about 6 months.

Regardless, I think it is commendable that they're actually sustaining their efforts despite the bullshit they've been getting. Even if they 'fail', I think it is absurd to think that they will forever remain tarnished goods and have their future prospects completely brought to a closure, especially considering roughly 90% of traders fail within their first year. If anything, I think the lessons they would have learned on fund management, trading and hopefully public relations would be invaluable moving forward, particularly considering their age.

 
Macro Arbitrage:
Well, they're probably getting smoked on that wheat trade, missed the massive drought fear phenomena by about 6 months.

Regardless, I think it is commendable that they're actually sustaining their efforts despite the bullshit they've been getting. Even if they 'fail', I think it is absurd to think that they will forever remain tarnished goods and have their future prospects completely brought to a closure, especially considering roughly 90% of traders fail within their first year. If anything, I think the lessons they would have learned on fund management, trading and hopefully public relations would be invaluable moving forward, particularly considering their age.

I wish I could be as supportive of these guys as you because, in some weird way, I do admire the balls. But these guys come off as attention seeking, pompous no nothings in every interaction they have had with the media. We should be paying attention to kids like this... http://abcnews.go.com/Health/Wellness/early-medical-education-florida-m… ...rather than some kids who were handed a bunch of money, created a fancy website, slutted themselves out to the media and started calling themselves portfolio managers.

With that said, I'll keep following for the hilarity...

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 
Macro Arbitrage:
I think it is commendable that they're actually sustaining their efforts despite the bullshit they've been getting. Even if they 'fail', I think it is absurd to think that they will forever remain tarnished goods and have their future prospects completely brought to a closure
Agreed. They're just goofy kids, it's not like they're doing something immoral. They won't be tarnished goods. It's not like they're actually famous or even known in most financial circles (outside of WSO, that is).

If nothing else, maybe they can sell some hats and t-shirts with Lumina Investments printed on it and get some ironic WSO users to buy it from them.

 

I wish these guys the best of luck and hope they make it. Though they don't seem to be keeping with the industry norm of maintaining a low-profile. Gotta love the last line in the article. "It’s safe to say they are making money – well over six figures, Carol said, leaning back in his chair and adjusting his suit jacket."

 

[quote=TeddyTheBear]His dad is David Caroll, who is head of Wells Fargo's Wealth Management business.

https://www.wellsfargo.com/about/corporate/executive_officers/carroll

In 2011, he made $8 million in total compensation.

http://www.forbes.com/profile/david-carroll/[/quote]

The Wells Fargo guys last name is 'Caroll', whereas our boy from Lumina is 'Carol", so they probably aren't related.

"Whenever you feel like criticizing any one, just remember that all the people in this world haven't had the advantages that you've had." -F. Scott Fitzgerald
 

People are always going to doubt young investing talent. Whether they are right or not, I agree with what some people above have said: stay low on the radar and let your performance speak for you.

Here's another example of a guy who's fairly young for his what he does (activist investing): http://www.businessweek.com/articles/2012-12-20/ryan-morris-28-year-old…

He's been at it since at least 2009, and this is the 1st I'm hearing of him.

"Do not go gentle into that good night"
 

Ryan's returns running Meson Capital speak for themselves. Down -8.0% in 2010, Down -24.4% in 2011, Down -8.2% in YTD 2012 through 9/30/12.

This was in the comments of the BusinessWeek article. If those returns are accurate, he simply benefited from a well timed fund launch. It appears he is running long only and his returns are truly terrible given that the market has done nothing but moved higher every year. The article is quite flattering but it seems that he is earning a living by getting on small cap boards not buy making money for his investors. This is actually a pretty cool way to make a living, if you can get on small boards like this but the article makes it seem like he is quite successful when his returns are horrible. No idea how you raise outside money when you've been down for three straight years while the market has been up substantially. Of course maybe those return numbers are incorrect.

 
lotsofquestions:
Ryan's returns running Meson Capital speak for themselves. Down -8.0% in 2010, Down -24.4% in 2011, Down -8.2% in YTD 2012 through 9/30/12.

This was in the comments of the BusinessWeek article. If those returns are accurate, he simply benefited from a well timed fund launch. It appears he is running long only and his returns are truly terrible given that the market has done nothing but moved higher every year. The article is quite flattering but it seems that he is earning a living by getting on small cap boards not buy making money for his investors. This is actually a pretty cool way to make a living, if you can get on small boards like this but the article makes it seem like he is quite successful when his returns are horrible. No idea how you raise outside money when you've been down for three straight years while the market has been up substantially. Of course maybe those return numbers are incorrect.

I think you might be looking at a bad source in the article it says he was up 753% Here is his annual letter http://www.mesoncapital.com/letters/2009_Q4_MCP_Annual_Letter.pdf
 

I think that was the point of the people in the comments, he got in at the very bottom of the market and killed it for that one year and now that you don't have hundreds of stocks moving up 1,000%+ in a year he has massively underperformed. So do you look at that one year or do you look at the next three years of horrible returns? In my sector there where countless stocks that have gone from the $1-$5 dollar range in 2009 and are now well into double digits. This is why not everyone is begging to invest with him, he has consistently NOT made money after one year driven predominantly by timing. Kudos to the guy for launching a fund and getting on boards but the article says they started with $50k, so in his year up 753% he was most likely managing virtually no capital, now he is massively below high water marks given three straight years of underperformance, tough situation.

 

In his 2009 letter after 753% return he states he now has "2/3 of a million" in AUM. Therefore all of the money he has raised is under water. Sucks for him but the cool part is if he can just stay on boards he can still earn a living despite not necessarily being a good investor.

 

I have experience and have two close friends who started their own funds. Both came from a lot of pedigree, including 10 years of experience at brand name funds. Both told me that if they could not line up $10mm, they would not launch. Both wound up launching with $15-25mm. One raised it entirely through his network. The other took a seed deal. Both were focused on building institutional quality firms. Fast forward four years, and one is running $150mm and the other is running $250mm. But AUM did not start to inflect from capital raising until after reaching $75mm or so, even after hitting it out of the park every year from the start.

 

Unless a fund is oversubscribed, fund raises tend to start slow and cross a Rubicon at some point that takes them to the finish line fast.

The first investors tend to be HNW people who trust the manager/are most lax on due diligence (~$1mm each), followed by smaller institutions/foundations/family offices (~10-30mm each). At some point, you hit a critical mass where the huge institutional investors like insurance companies and state pension plans will come in (100+mm/each), and at that point the fundraise tends to end relatively quickly. But I have noticed that the big money tends to like waiting until enough other people have skin in the game before making a commitment - they know there will be a seat at the table for them.

This is all in the context of a ~$1bn fundraise. I know that's about 1000x what you're talking about right now, but I wouldn't be surprised if the same principles apply to a micro fund. If I were you, my instinct would be to net a lot of small family/friends, then leverage that to get bigger HNW people that you don't know personally, then leverage all of that to try landing one or two small time institutions, and then build up from there.

Array
 

First of all, You will need an Investment strategy that is better than the other ones out there in the market. Because if you don't have a solid investment plan investors will not give you money to manage. Will cost you Minimum of 50k for Setting up all the legal structures, Lawyers and Accountants fees. Then you need to raise capital. I would say instead of starting a hedge fund, Work on your investment strategy, Start trading and when you start to make money trading then think about starting a Fund.

 

don't consider yourself a fund. consider yourself in incubation still. what I would do if I were in your shoes is focus 100% on the investment side of things for a couple more years, because you won't get any serious help with fundraising with such a small asset base and a short track record.

once you get a 3y number, get GIPS audited. I would be willing to look at someone with a 3y track record even if small, but I don't think there's a single investor outside of your family that will take you seriously so early on. build relationships now so that when you hit your 3y number, you don't waste those people's time.

 

Would probably do global small-cap L/S across the capital structure. That should give a good manager a chance to capture alpha in under followed names and would be more or less cycle agnostic as you could participate in equity, distressed debt / restructuring, PIPEs, etc. Obviously, the skill set required to do that well is not easy to acquire since most people are equity or credit only in limited geographies. I only know of a handful of firms that do that and can claim strong performance, so my guess is there is room for one more. Like some of the posters above, I am pretty skeptical of L / S equity in larger cap ranges (anything north of a billion in cap is usually pretty efficient).

 
Ravenous:
Would probably do global small-cap L/S across the capital structure. That should give a good manager a chance to capture alpha in under followed names and would be more or less cycle agnostic as you could participate in equity, distressed debt / restructuring, PIPEs, etc. Obviously, the skill set required to do that well is not easy to acquire since most people are equity or credit only in limited geographies. I only know of a handful of firms that do that and can claim strong performance, so my guess is there is room for one more. Like some of the posters above, I am pretty skeptical of L / S equity in larger cap ranges (anything north of a billion in cap is usually pretty efficient).

this

 
Ravenous:
Would probably do global small-cap L/S across the capital structure. That should give a good manager a chance to capture alpha in under followed names and would be more or less cycle agnostic as you could participate in equity, distressed debt / restructuring, PIPEs, etc. Obviously, the skill set required to do that well is not easy to acquire since most people are equity or credit only in limited geographies. I only know of a handful of firms that do that and can claim strong performance, so my guess is there is room for one more. Like some of the posters above, I am pretty skeptical of L / S equity in larger cap ranges (anything north of a billion in cap is usually pretty efficient).

great stuff! one silver banana for you sir

 

Fixed income arbitrage - picking pennies from in front of a steam roller.

But seriously, I had a similar question for a FoF/Family office type role and said I would not start one. If you look at the very best managers they tend to be extremely experienced with real product knowledge - most juniors aren't there yet; over confidence and 'blagging' can be dangerous in finance. You only need to look at the performance of a lot of the recent goldman spin offs for evidence of this. In finance there are enough BSD's around that think they are going to be the next Soros, humility can be the way to go. There is more than one way to skin a cat, so depending on the role and your seniority maybe a bit of critical self awareness could go a long way before blustering in to the obvious answer - depends to a large extent on the role of course.

 
  1. Distressed debt; limited downside. And if you buy a large enough chunk, you can have a say in company strategy and can implement it, which personally i find interesting
  2. Value in small (possibly medium) cap; I'm long-term orientated and believe in minimizing trades to cut costs. One thing i would take into account, if possible, is to identify consumer psychology trends to identify companies that will benefit in the future from shifts in product preferences (could be a separate strategy)
 

In any case you need to look outside of the box of traditional funding and get creative as traditional routes are going to be cut off (I know a few friends attempting something similar).

FWIW - From a structure point of view I recommend at least considering a Virgin Islands based Incubator Fund structure as a starting point, from a cost/compliance point of view it looks feasible than other structures.

 

Well since you're asking, I want to start my own PE firm. I'll probably just cold call a lot of people and ask for capital invest. My projects say that I should be able to gather $10MM in 12 months. I'm going to only work with small 10 people insurance agencies. What color should my first Ferrari be?

"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller. "Live fast, die hard. Leave a good looking body." - Navy SEAL
 
undefined:

Well since you're asking, I want to start my own PE firm. I'll probably just cold call a lot of people and ask for capital invest. My projects say that I should be able to gather $10MM in 12 months. I'm going to only work with small 10 people insurance agencies. What color should my first Ferrari be?

Ballers drive Lambo's. With that purple metallic chrome paint. You'll never make it if you're aiming for a Ferrari.

 

As for the actual topic at hand, I read some article that had some crazy correlation between ultra high net worth families and what generation their kids are in. It turns out that a lot of them tend to group up around the same 7 or so years in every generation. One of the reasons for this was presented was tied to the industrial revolution. It kind of seemed dubious to me but then again it could be possible.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 

What's wrong with starting an investment club or a family office and focusing on other investment opportunities? I know the Real Estate Crowdfunding thread became heated quickly but you can invest in Lending Club, Reamerge, Fundrise, Realty Shares, and others and still make a decent return.

You don't always have to start a hedge fund and invest in equities. Heck even lending money out to small business owners can earn you a decent return if you have banking or underwriting experience and exposure to credit analysis.

 

I think the tech boom is killing it. The kids that ask about starting their own hedge fund usually chase a quick buck, not thinking long term. In tech you can absolutely make a lot of cash, really fast, if you find some decent niche and actualize it quick enough.

So, yeah, why aim for a pipe dream, when you can realistically create "uber for

 

I was thinking Hedge Fund, I know bit about them but not anything to extensive. Do you recommend a different type of investment bank? Im a bit uneducated in the different types of banks. Sorry for the confusion this post was done on the fly.

 

This is why you don't give a kid access to his trust fund until age 25 and then the rest at 35.

Assuming this isn't a troll, you have no experience in any of those endeavors or any clue about how any of those businesses work. I'd do two things in your situation, go about the 'regular' path to finance and banking if you can and see where that takes you. One day - once you've gotten your shit together - he might be a prospective investor when you go out on your own. I can't think of any downsides of having affluent friends that "go way back."

Second, I would encourage your friend to become Dan Bilzerian 2.0 and invite you along for the ride. You could be "Turtle" from Entourage and carry his luggage. It isn't glamorous but at least you're getting laid and you'll have some stories to tell. Remember at the end of Season 8 when Turtle walked away with millions from that tequila deal? All he did was carry around some luggage and ride that lottery ticket to the finish, but I digress.

In case the above didn't sink about your lack of experience. You've got one client (potentially), how are you going to land a second with no credentials, experience or track record behind you? Even if you exclude all of those problems, I've got the strong suspicion that when you meet with the lawyers or the first bills start to come in (or he sees what they will be), he's going to back out. If by some miracle he doesn't, his entire family will try and convince him (with good reason) to drop the pursuit.

 

Nice, I see where you come from on the experience thing. I understand that as of now and even when I graduate college I will be pocket lint when it comes to the level of experience needed to start a small bank. I don't really understand your Dan B. reference. My friend has a lot of money and he wants to throw it toward something worthwhile and he wants to make more money. Not hookers and guns.

This hedge fund is not my goal. I'm shooting for a regular finance career.

But this is what i think ArcherVice: Why not? This man has 16 million in cash, we both really want to do this, and there is no harm in trying and going balls out on this idea. Also, I have nothing to lose; it isn't my money.

 

I wouldn't worry about it. At your age you'll forget about this idea / get bored of it pretty quickly, even more so if you even start to look at the documentation and regulatory burden.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

Had a similar option to access a pot of money and invest on my own while at school. Spoke with a few professionals who worked for banks as traders and a couple of hedge fund guys.

Over the period of a few months I pitched a few stocks to them and they liked my ideas. I followed up over a few months and only when I got comfortable with them I mentioned I could invest on my own. All strongly suggested not playing around with the money. It wasn't rocket science to figure out why.

I instead went to work for a HF by cold calling (but didn't mention the money) and spent a year there only to realise it will take at least a few years of experience to actually start investing as a professional.

What good investors do is easy but I can bet its super difficult to make money. Hope this statement confuses you first and then makes you realise the importance of through research, experience, network and contacts first required before you invest a cent in your proposed venture.

I don't think anyone here is trying to discourage you but just making you realise it's too early to take such a step. See if you can work for a hedge fund. Once you find out who the good players are you might want to invest with them (even if in lots of 100-200K) which will get you speaking to the PM's. Down the line you never know you could work for a good firm because you then have relevant experience + money with you to invest as well.

 

Unless he's getting $100 million at 35, he's wrong to help his friend start a business/hedge fund. You have no market experience and neither does he. I'd look into a multi family office, as in budget how much he wants to blow on stupid shit, and then find a firm that will help him out with the rest.

Your friend should at the very least, not listen to his parents broker, they clearly didn't help with prudent estate planning

 

My suspicion is that your friend will at some point receive the good advice to not blow his whole nut on any hedge fund, let alone one managed by a high school kid who doesn't know the difference between a hedge fund and a private bank.

Perhaps you could (a) spend some time learning how to trade/invest (via value investors club, sumzero, etc), and (b) offer to manage some very small subset of his wealth during college, perhaps $500k, once you understand the format and strategy.

That said, there was some good advice in another topic recently regarding the abject lack of value that comes from frittering away your educational time trading. You're really better off killing a hooker with this guy so you have the relationship in t+10 years when it might matter, whilst focusing on schoolwork.

 

You also probably shouldn't use your real name as a forum name and then post dollar figures and real names of other people involved. Considering it takes about 2 seconds to google your name and find you on Facebook (a profile which isn't private), I wouldn't be thrilled if I was Nicholas and new you had put my name and net worth out on a public forum like this.

 
MilitaryToFinance:

You also probably shouldn't use your real name as a forum name and then post dollar figures and real names of other people involved. Considering it takes about 2 seconds to google your name and find you on Facebook (a profile which isn't private), I wouldn't be thrilled if I was Nicholas and new you had put my name and net worth out on a public forum like this.

Yikes.
 

Classic WSO post.

If your friend was at all competent he would do what most people do with that net worth. Realize that you no longer have to work and do the best thing possible which is to become a LP and not a GP.

Spread the $16mm across top hedge funds and even PE firms for long-term capital appreciation. Consider low fee FoFs if risk averse or to get exposure to multiple funds since minimums are usually $1-5mm.

Maybe some liquid corporate AAA bonds as well and put the rest in real estate and live off the returns.

He has no reason to work but you do. Please learn the definitions of the firms within this industry first.

 

Have him take 10 million or so and invest in index funds. Vanguard SP 500, Vanguard Bond Fund and right now I would say Europe is cheap so something like VGK index fund. The rest you can try various ventures but by investing 10mm in index funds he won't really be able to go wrong. Can have massive failures and still be financially independent for life by living off the dividends.

 

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