Hey guys, I have the option to join a start up hedge fund after I leave b-school. It hasn't launched yet, and has raised almost $200MM in assets right now. The team is very strong, and the PM has had a great track record at the blue chip fund he left to start this one. We have not discussed comp figures yet.
My concerns are that they have been trying to fund raise for over a year now, and have only taken on $200MM. I don't know what their pipeline looks like. It's a pretty low AUM base given the team size (I would be 4th investment guy, and with back office, it adds up to 8 people), which makes comp very tight. I expect no bonus until assets increase, but do need a solid base to pay off student loans/to survive. For those of you that are more knowledgeable in startup funds, do you have any insight into other things I should consider, questions I should ask the team, etc, as I make my decision? Is this an overly risky proposition?
To be honest, USD 200m AUM on a 4-person investment team isn't bad at all. It's a decent starting point, especially if the PM is from a very good background with a great track record. Sometimes PMs intentionally wait out the initial period and decide against incremental fund raising - therefore, I'd make sure that they're actually trying to fund raise. Might be a moot point given that you already said that, but I thought it's worth pointing out. The reason why some funds might take their sweet time to raise AUM is because of the kind of investor base they want to accumulate - everyone would rather have very sticky capital and non-early investor fees and those guys that will stick with them for the long-run.
I would probably discuss your progression within the fund - i.e. whether the PM ever plans on making other guys / you more senior and give you a sleeve of the fund. Also would ask where does the PM see the optimal size of the fund both in AUM, coverage and headcount. Would also discuss compensation in the form of trying to mathematically tie it up with your own performance (as long as it's measured in transparent fashion) or the overall fund's performance rather than having it completely discretionary. This will provide ample incentive to stick around and wait for the fund to ramp up on the performance / AUM side. However, as with any start-up HF, the most important thing(s) is by far a) whether you believe in the PM succeeding and delivering in the short-run, since a year or so of sub-par performance can put clamps on the fund quickly and b) if the existing money is sticky enough or is it a single investor seed that's a bit light on commitment.