Starting HF career at a New / Small Fund
Have an opportunity to join a recent (past couple years) HF launch that manages $500M+ AUM. Background is IB / and some PE. Founders come from much larger funds and seems like training will be good. Question is how hard is it to move from smaller funds / less well known names in the HF space. Is branding as important as it is in PE? What are the key diligence items I should figure out?
Starting your hedge fund career at a smaller or newer fund can be a great opportunity, but there are some key considerations to keep in mind. Here's what you need to know:
1. Moving from Smaller Funds to Larger Funds
2. Key Diligence Items to Investigate
Before joining, you should thoroughly evaluate the fund and its potential for your career growth: - Founders' Background: Since the founders come from larger funds, assess their track record, reputation, and ability to attract capital. Their experience and network can significantly impact the fund's success and your learning opportunities. - Investment Strategy: Understand the fund's strategy and whether it aligns with your interests and skills. Is it a single-manager fund or a multi-manager platform? What’s the focus—long/short equity, macro, credit, etc.? - Training and Mentorship: Confirm that the training will be robust. Smaller funds can sometimes lack structured training programs, so ensure the founders are committed to developing junior talent. - AUM Stability: $500M+ AUM is a solid start, but investigate the stability of the capital. Is it primarily from long-term investors (e.g., pensions, endowments) or more volatile sources like HNWIs or family offices? - Compensation Structure: Smaller funds often have more volatile pay structures. Understand how bonuses are determined and whether they are tied to fund performance or individual contributions. - Exit Opportunities: Assess whether the fund’s strategy and your role will allow you to build a transferable skill set and track record. This is crucial if you plan to move to another fund or start your own in the future.
3. Additional Considerations
Final Thoughts
Joining a smaller fund can be a fantastic stepping stone, especially if you’re given meaningful responsibilities and the chance to develop an investment identity. Focus on building a strong track record and sourcing ideas, as these will be your most valuable assets in the hedge fund world.
Sources: The Hedge Fund Experience - Good, Bad, Ugly, https://www.wallstreetoasis.com/forum/hedge-fund/the-hedge-fund-experience-good-bad-ugly?customgpt=1, Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role
Besides fund performance, it's important to have a sense of investor concentration (do they have 100 LPs each $5m, or does 1 single LP hold $400m which is a big risk if they bolt).
Might also want to know average fees paid to figure out fund economics. Is every investor paying 2+20, or is there major discounting going on.
Thanks for the reply! I know they have 2-3 larger seed LPs who I think make up at least 50% of capital. I figured that was normal if they were going to leave their old finds?
If you have a good 2+2 background, do not do it. Start with a big fund first...then take your risk.
Thanks for the reply. Have a 2+2 background but my current options are really a tier 2 pod (Walleye/Jain/XP) or this. I’m more risk inclined and I’ll have points in the fund which I really like. The founders also come from a much bigger fund and had a great track record.
I’m more interested in understanding how hard it would be to move to those bigger funds / pod shops down the line if this fund doesn’t scale. I assume my training would be better at this start up fund than the average tier 2 pod PM
Would it be harder to move from 1 year a fund like this vs from PE?
Don't do this. Join a pod.
Even than avg tier 2 pod? I guess my thought process is that pods are always hiring so should be easier to go from start up fund to pod vs the other way if this fund doesn’t work out?
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