Starting a Hedge/Private Equity/Investment Fund and Raising Capital?
(Senior Monkey, 91
Points)
on 6/15/11 at 8:46pm
How does one usually do it successfully? Are most fairly experienced in the industry before they launch their own fund? How about contacts? Thanks.
Experience enough to know the
Experience enough to know the answer to those questions.
"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to become the means by which men deal with one another, then men become the tools of other men. Blood, whips and guns or dollars."
I think investors look for
I think investors look for two things:
1.) Experience.
2.) Capital commitment to the fund.
The real question is whether you honestly believe you can beat the market- and whether it's a reasonable assumption to believe you're qualified to have that figured out. Four or five years in S&T and sticking in all of your savings (which should be substantial) should be a strong signal.
Work hard, play hard.
IlliniProgrammer wrote:
Four or five years in S&T and sticking in all of your savings (which should be substantial) should be a strong signal.
Does the same hold for IB experience? How you get people to invest in your fund, via fundraisers?
The majority of new funds are
The majority of new funds are started by people who are coming from a leadership/risk-taking role in an existing fund (prop desks as well but that's not likely to be relevant to anyone who has to ask this question). Those people by and large have a) a track record and b) connections to various "gate-keepers" and capital allocators like fund-of-funds, family offices, private banks/wealth management groups, and rich individuals, etc from their previous jobs.
Besides these relationships, many new funds are seeded by the principals' former employers or by hedge fund seeding funds, who often take equity in the management company and/or reduced fees in addition providing investment capital.
There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
Walkerr wrote: Does the same
Does the same hold for IB experience? How you get people to invest in your fund, via fundraisers?
I dunno, you could always find the Boy Scout troop in some rich neighborhood and offer a 1% commission on investments to help pay for tents and camping gear. :D
In S&T and research, you develop a reputation and people eventually seek YOU out. I am not sure how it works in IBD. IBD might be good for a niche fund like risk arbitrage, but just based on experience and skillsets, it's going to be a bit harder for a banker to make a compelling case to investors than for a salesperson, trader, or research guy.
Not saying it isn't doable, just saying the PE/VC route would be a bit easier for a banker starting his own fund. Bankers claim that HFs hire them as traders and I believe them, so that might be another way to get some experience in as a trader.
The more intelligent money will be looking for a signal that you know what you're doing and you can make them money. A track record in research is one way to do it. A track record managing a trading book- ideally as a prop trader betting on market directions- is another way to do.
Partially disagree with Kenny in that the HF route, while helpful, may not be absolutely necessary. It comes down to your reputation as a stock picker/risk taker and how many rich people know you. There's a lot of ways to build that reputation, including the hedge fund route, but it generally takes a few years.
Work hard, play hard.
IP you are consistently
IP you are consistently negative about banker's hedge fund roles and I have to say I don't see it in my circle of friends, acquaintances and colleagues (note that I was not a banker or a trader). You say that bankers are only suited for "niche roles" like risk arb but that is completely contrary to the real-world breakdown between fundamental, quant, and macro strategies. Big parts of the hedge fund world are related to bottoms-up, financials-driven strategies that attract bankers and research analysts. I actually know fairly few traders in non-execution roles, though I know that macro and commodities funds as as well as certain highly-structured strategies require more of a trader skill-set.
I agree with you that someone moving directly from a corporate finance role will have a hard time starting a fund, but that's not what most people do. People leave for the buyside and learn the portfolio/position management elements there.
I also disagree that people really view running a non-prop book or making buy/sell recs at a bank are really analogous to running a fund-that's why people go to the buyside as an analyst, trader, junior PM, etc and build a truly relevant performance history.
You're welcome to provide a list of the recent fund launches by sell-side and I will provide a list of the recent buy-side launches-I can guarantee there are more funds whose founders have buyside experience.
There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
Here's an interesting article
Here's an interesting article on how Howard Marks of Oaktree got HIS start running money:
To summarize, he was in research but was floundering, and got a chance to run a prop fund focused on convertible bonds.
http://www.bloomberg.com/news/2011-06-17/biggest-d...
There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
Interesting thoughts
Interesting thoughts Kenny.
Isn't it more common for a banker to switch to buy-side and possibly start his own fund after a couple of years buy-side experience?
Not just a banker, ANYONE.
Not just a banker, ANYONE. The vast majority of fund launches come from existing buyside PMs, with the notable exception being prop trading desks which are essentially extinct now, or will be.
There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
sartoris wrote: How does one
How does one usually do it successfully? Are most fairly experienced in the industry before they launch their own fund? How about contacts? Thanks.
Not too rip you apart or anything, but these are things you need to know before even considering starting a fund. Most of all you need to know the legal structure behind it. Your definitely going to need a Series 7 certification if you plan on managing equities. Its not an easy task, its why only a few individuals are able to accomplish such a feat.
Here's how one guy did
Here's how one guy did it:
Grandmaster capital is a brand new hedge fund out of San Francisco. The founder and portfolio manager was a portfolio manager at Clarium before venturing out on his own. Clarium provided him the startup capital (I believe it was $50m) to get started.
Valueinvesting, Not to rip
Valueinvesting,
Not to rip you apart or anything but learn what the fuck you are talking about before giving advice. A Series 7 license is not a prerequisite for stating a HF (unless you choose to register).