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You need $50mln and 3 years of track record. Otherwise you are on your own. Networking as you said will only get you friends of friends to invest but no institutional money will look at you. That said keep on making good returns and those friends of friends will keep on giving to you and at some point you will be getting there! The $50mln threshold can be lowered, but that's a good standard ball park. The 3 years however is invaluable - from my perspective you can get lucky for a year or two and I wouldn't trust you, at three years you must be doing something right?
Also how did you setup tax wise? There are a few decisions you make today that will carry on for a long time. What broker you use - I assume that you are not large enough yet to have a PB relationship with a bank (PB will help you raise in the future once you are big enough for them).
Actually you gave so little details in your initial post I don't even know why I bother answering.
I'm assuming your resources are limited at the moment so something like a Bloomberg terminal is probably prohibitively expensive for you and your partner... my question is how do you obtain access to financial data?
Replying to multiple comments above:
So we actually started about a year and a half ago. Very modest, with about $600k. We are a little over $1mm at this point. My HNW network is not great, but my partner's is pretty good. We're not expecting a real institutional allocation (pension/RIA/endowment/foundation) anytime soon. What we are looking for is more leads on how to develop HNW networks, as well as any existing hedge funds that do seeding of emerging managers. I've made some attempts thru connects at Blackstone, Tudor, Booth Bay, Clinton, Discovery...maybe a couple others, but couldn't get anywhere. Granted, we were dealing with only a ~1-year track record at that point but it was very solid.
No Bloomberg. No FactSet. Before we launched, we spent a LONG time getting comfortable with free or low-cost data vendors, knowing that we could not afford $20k/year for a terminal in the early years. We utilize a combination of Excel vba, SQL, Python, and plain old CSV downloads to search for, scrape, and process our data. It is obviously less efficient than it could be, but cost is too prohibitive for us at the moment.
We use Interactive Brokers only due to cost. Their cap intro is non existent for someone our size, and overall their customer service is a joke. We've been looking at smaller alternative brokers (Apex, Triad) but not there yet.
Taxes are annoying. All our trades are short-term, and we use an SMA structure. Want to move to a fund structure but again, cost is prohibitive at this point. Also, we found out long after the fact that our lawyers didn't give us the best advice re: structure. If we had to go back and do it all over again, we would have shopped around more options for legal, and probably paid the additional cost to set up a proper fund structure.
I have experience and have two close friends who started their own funds. Both came from a lot of pedigree, including 10 years of experience at brand name funds. Both told me that if they could not line up $10mm, they would not launch. Both wound up launching with $15-25mm. One raised it entirely through his network. The other took a seed deal. Both were focused on building institutional quality firms. Fast forward four years, and one is running $150mm and the other is running $250mm. But AUM did not start to inflect from capital raising until after reaching $75mm or so, even after hitting it out of the park every year from the start.
Pocket it, tell him you shorted a penny stock and now he owes you 100K. Then start one of these on the side.
Boom your friends 8k just became your 250k. Total transaction fees: $0 http://www.wallstreetoasis.com/forums/trader-starts-online-begging-camp…
don't consider yourself a fund. consider yourself in incubation still. what I would do if I were in your shoes is focus 100% on the investment side of things for a couple more years, because you won't get any serious help with fundraising with such a small asset base and a short track record.
once you get a 3y number, get GIPS audited. I would be willing to look at someone with a 3y track record even if small, but I don't think there's a single investor outside of your family that will take you seriously so early on. build relationships now so that when you hit your 3y number, you don't waste those people's time.
What Type of Hedge Fund Would You Start? (Originally Posted: 04/25/2012)
This could be a real doozy of an interview question, especially for those of you who want to interview for private equity. It’s a good way to gauge how you interpret current market forces, as different hedge fund strategies are more or less successful in certain climates. It’s also a good way to turn the interview into an intelligent discussion and help you discover what your personal investing/trading style is like.
Of course, there are many possibilities. I know a lot of these are also defined in the WSO Finance Dictionary, but they are definitely something to think about.
Let’s suppose that the safe, “multi-strategy” answer can’t be used. How would you answer the "What Type of Hedge Fund Would You Start?" question in an interview? See below for my five answers.
Absence of "running my own hedge fund" topics (Originally Posted: 12/27/2015)
It seems like we've gone an abnormally long period without someone posting thread about joining a friend to run their own "hedge fund", typically using a few million a family money and investing in vanilla public equities.
What are we to make of this? Is this a sign of where the market is at?
Has this form of irrational exuberance now been replaced by "Should I go into banking or tech?" threads?
why do i get the feeling that martin shkreli might have been the author of one of the 'started my own hedge fund' threads?
This is why you don't give a kid access to his trust fund until age 25 and then the rest at 35.
Assuming this isn't a troll, you have no experience in any of those endeavors or any clue about how any of those businesses work. I'd do two things in your situation, go about the 'regular' path to finance and banking if you can and see where that takes you. One day - once you've gotten your shit together - he might be a prospective investor when you go out on your own. I can't think of any downsides of having affluent friends that "go way back."
Second, I would encourage your friend to become Dan Bilzerian 2.0 and invite you along for the ride. You could be "Turtle" from Entourage and carry his luggage. It isn't glamorous but at least you're getting laid and you'll have some stories to tell. Remember at the end of Season 8 when Turtle walked away with millions from that tequila deal? All he did was carry around some luggage and ride that lottery ticket to the finish, but I digress.
In case the above didn't sink about your lack of experience. You've got one client (potentially), how are you going to land a second with no credentials, experience or track record behind you? Even if you exclude all of those problems, I've got the strong suspicion that when you meet with the lawyers or the first bills start to come in (or he sees what they will be), he's going to back out. If by some miracle he doesn't, his entire family will try and convince him (with good reason) to drop the pursuit.
You implied that the strategy was working. You were down 11% last last year. There are a million quants working now constantly updating their models.
Truth is there is a reason no one wanted to back. You don’t have a strategy. You can blame low vol but maybe it doesn’t work in high vol now either.
You honestly need to change your algo in live time. Just running simulations won’t work anymore.
My best advice is get a sign off from your partner to mutually use the ip. And if this is what you want to do career wise then try to get a job at a firm that specializes in this.
It’s hard enough to raise with something that is working. It’s impossible with negative returns.
Your other choice is to just try to keep updating model and hope you pull off a couple plus 20-40% years and then raise. But right now I don’t see anything to invest in. It’s not just bad market.
There you go again, assuming you know the whole story.
We were flat last year through early May. At that point, ~30% return over the initial ~12-month period since launch. Allocators didn't say no because of poor returns. They stonewalled because of length of track record and the volatility profile.
Had a painful drawdown from May-July. Made a major update to the strategy in late July, reducing our short exposure by 40%, and modifying some of the overall factor exposures. Original strategy was dollar-neutral at all times, now has a long bias. Up 8% since then.
Have not pitched to an institutional allocator since we began losing traction mid-last year. Waiting for more of a rebound and a less bullish environment. Does that make me stupid trying to solicit advice on fundraising in the meantime?
Oh so now it's "hard enough to raise with something that is working"? I thought it was a piece of cake just a few posts ago.
Truth is, you're likely just trolling. Find a better hobby, because I think your "best advice" sucks.