Hey there - so there are a few threads around already on this topic, but I wanted to ask again for any additional info.
I am interviewing with a new L/S fund launch. The PM comes from a ~$5bn L/S fund that has been around for ~20 years. This new fund launched in August 2021, and posted 10% for that half of the year, and then +15% for 2022.
Currently it is just the PM, one analyst, and one CFO/COO. They launched with ~$120mn and have raised up to $350mn today, with hopes of getting to $500mn soon. Fees are 1.5/20, with a 5% hurdle rate.
They are looking to hire one more analyst. $100mn/IP at a minimum seemed pretty decent to me, and the returns also seemed quite impressive relative to their sector/market (not energy focused).
1) Does this seem somewhat legit of a launch?
2) Outside of the obvious strategy/process due diligence, what else should I be focusing on or inquiring about when I speak to them? Already asked about investor base and it seems decently diversified, limited to no FoF investors, and there is no seed/outside owner of the GP, just the LP base.
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if you do it and it doesn’t work out, you’ll struggle to land somewhere good. if you go somewhere good first and then go there and it doesn’t work out, you should be fine going somewhere good.
With those returns and that fee structure they should be raising more money. Most LPS want a three year track but someone should be giving them money even with shorter duration.
Are you saying I should inquire on their fundraising trajectory? What is your concern as to why they haven't raised more already (does it signal bad fundraising or lack of interest or something?)
You should absolutely ask about the fundraising history and future business plan, and they should be more than transparent with discussing that with you. Having taken a similar stab at joining a start up, which subsequently didn't work out, discussing their fundraising plan was a large part of the conversation before joining.
It all comes down to the PM. The 3 things that matter: whether your PM is good (based on initial track out of the gate, sounds like he’s likely pretty good), if he can fundraise (sounds like at least some ability), and how he values analysts (I.e. how generous will he be economically to people that join him early).
Based on everything you’ve shared, I would venture to say he probably has a good but not amazing background. It isn’t easy raising real institutional capital at scale if you’re running a “generic” fundamental long/short strategy if you don’t have a blue chip background. So the fact that he was able to raise >$100m without giving up GP economics suggests he is some combo of pretty good and has ability to fundraise. That being said, 2021 was likely a decent year to fundraise, so he had that on his side. The returns thus far seem quite strong in the context of the macro backdrop last two years. If he can actually fundraise, then in theory you guys should be able to scale quickly. Whether he can fundraise is a judgement call. Does he seem charismatic? Can he tell a story well? Is he thoughtful about how he wants to build and scale the business? The other thing to diligence is understand his process and what drove his performance thus far. How did he able to deliver that return stream and is his process sustainable or did he just happen to get lucky (maybe right sector focus etc)
This is the answer. I'd also add that startup funds should be looked at differently depending on the stage of your career, your age, etc. A startup fund wont provide the same career advancement opportunities that a larger fund does, so if you're early in your career and want to hop around firms to find something that is the best out there, that may be more difficult if you take the startup fund route. However, I don't know you so maybe a long term career at a startup funds is exactly what you want - nothing wrong with that at all. Essentially, it really comes down to exactly what was mentioned in this above comment, as well as the more qualitative measure that I outlined here.
Totally get it - i just got an offer from a sub $500mn L/S fund that has been around for +10 years but they just have always been small. Probably passing on that though. This new fund is a in a better location for me, but also I come from an non-traditional background. No IB experience, started in the wrong division at a BB in NYC, then worked at RIAs/ small LO AM firms for last 6 years as a fundamental equity analyst. So I am a bit older into my career, but always wanted to work at a L/S fund, and have been networking my ass off / preparing around the clock to do so.
(I.e. how generous will he be economically to people that join him early). How do you measure this? I am interested as I also have the same opportunity but have no idea what questions to ask, what kind of base to be looking for, how equity/any P/L split would look being one of the first analysts.
What is a fair ask for being the first analyst?
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