I’m an analyst at a well regarded L/S HF. I am close to a PM who has his own track working at another respectable SM L/S HF. We have a pretty similar investing style, have known each other for a long time and there is mutual alignment. We are both in our late 30’s. The two of us want to partner together and launch (he will be the CIO, and I would be a Co founder). We’ve put together the material (presentation, track, business plan, initiating portfolio) that we would need but don’t really know where to start. Like we happen to know a handful of seeders, who we will speak with but there are a lot of other seeders we’d like to get in touch with, but have no connect with. We’ve interacted with lps at our funds, but we can’t obviously talk to them because of non competes. We were thinking of approaching the cap intro teams at the prime brokers that we work with, but that leaves us at the risk of the word spreading, and we would not want that because both of us are in great seats, and worst case this doesn’t work out, we can continue to work at our current places (gotta support the family so can’t just quit) till the time we find an LP, and we aren’t in a hurry. Now we could reach out to seeders we don’t personally know via cold email, but not sure if thats the best approach? Any advice here? Like if I reach out to BAAM without a reference, they’d probably not respond? Both of us have a strong pedigree - ivy education (which obviously matters less these days) and working at very well regarded shops (like objectively well regarded shops from which multiple people have spun out) and we also have my friend’s track record. How do people start engaging with external investors when they are still employed elsewhere. Also, is there a list of seed capital providers that someone can share? Like we happen to know a few but I’m sure there are a lot more. We know a placement agent willing to help us but the terms quoted sound quite ridiculous, like they want a revenue share on a retainer. If we are going to take seed capital, which would anyway take up a revenue share, why would I engage a placement agent who also wants a revenue share to introduce me to seeders/ other lps. We can get in touch with a lot of people through our existing network, but we can’t approach them at this stage, or at least until we have visibility over the first 50mil, because that’s again quite risky. Like even at 50mil, we’d struggle to break even despite massive cut in comp but at least once we have some visibility into the first cheque, we can go all out with our network including seeking our employers support, because we will be certain of quitting. Bit of a chicken and egg situation. Purposely keeping our backgrounds a bit vague because it’s a small world :)
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hey there, I think you best bet is to reach to SMs who have done well recently. I have seen at multiple places I worked with, a SM founder would at some point reach a limit with their strategy but still keep investor relations. If you have the track record you are claiming, I think people would be eager to get you on board. the way it works is that the PM will give you seed money to play around and establish a track record, and from there leverage their network to get you investors. This is something I personally witnessed. the terms won't be generous as a start as you're using their infra, and investor relations but you can easily exit once you're sorted. Happy to Chat more so feel free to pm.
In all honesty, you have to ask yourself how seeders are going to perceive you guys if you seemingly lack the confidence to break with your current fund and take the leap of faith?
Like your track and pedigree are great, but you're still afraid of cutting ties because you might get nowhere? I think allocators like to see driven, hungry guys oozing confidence, and that's not what you're projecting.
I mean, if you're unsure of your own success, why should anyone else bet on you?
Sorry if sounds harsh, but in a way you're becoming an entrepreneur.. there's gotta be risks involved.
Re: Confidence - completely agree.
Along this dimension, one of the first questions you will likely get asked is how much each of your liquid net worth is and how much you will be investing in the fund. You mentioned "having to support the family so can't just quit" and that will lead to more questions from LPs / Allocators because that does not jibe with someone who produces large amount of P+L or who could easily get a PM seat in a hot second if it does not work out.
Based on what you've said so far (risk tolerance, level of experience, et al...), it doesn't sound like you're ready to take the plunge. PM me if you want more detail and best of luck either way.
I pm'd you.
The seeders you should approach depends on your length of track record (1yr, 5yr, 10yr), current aum, and style. It sounds like this is still very early stages, my suggestion is to establish a track record. Trade with whatever capital you have and show for at least 1 year that your style is investable (scales, reasonable risk limits). Then you will have the confidence to pitch your fund.
From own experience no one will take you serious unless you have left your current firm. Starting point, and will be relentless pitching thereafter.
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