How do you go about figuring out if a fund is reputable or not? There’s a million smaller funds that performance is tough to gauge. I usually go by PM tenure and job history but any other common ways?
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I'm assuming that you aren't in the industry but things I would look at, in no particular order:
- PM / team background. PM is most important but I can also tell a lot by the people they hire. Does the other analyst have an A, B, or C background?
- Staff turnover. High turnover is a red flag. This tells me that something is not right (poor economics, difficult boss, bad learning environment, etc.)
- Track record. I like to see what is driving returns. For example, maybe they were good early on but have sucked in the last few years. Maybe they had a great 2020 but other years are middling.
- AUM in relation to how long the fund has been around. If a fund has been around a long time but is still subscale, it means that they will most likely continue to have issues scaling in the future despite what the founder tells you.
- Fundraising strategy, if any.
- LP base. Who are their anchor investors? Ideally, you'd like to see stable endowments/foundations vs. more "fast money" types.
- 13F holdings. What sectors does this fund invest in? Does this fund invest in a way that is aligned with how you invest? If a fund has 15 names, it probably means that they spend a long time on a single name. Is that something that is interesting to you? Or do you find it more interesting to turn over more rocks?
If you are in the industry, then obviously leverage your personal network to get info. But that is pretty much all you can do....
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