Do I take the safe bet after grad?

MarkBaum's picture
Rank: Senior Gorilla | 906

Hey monkeys,

So I'm wrapping up my finally year in university and have been proposed with two very interesting opportunities.

Start my own fund or take a $250k all-in comp ball-park range.

A little primer. I've been very blessed to work with some very high net worth individuals and have been mentored by a lot of them in other stuff. In my past 2 years I've worked as a prop trader under a large desk and have been given real-risk and a small book in addition to the main book. I've notched a name for myself and a lot of these mentors have interest in raising me capital and deploying in some interesting spaces where I have a discernible edge.

My question is, what risks am I overstating/understating in starting a small fund (Most infra is already set up) $50m and what are some risks down the line?

Comments (37)

Sep 30, 2019

I think that you should work for a fund for a little bit before starting your own. The risks are obvious: you don't know what you don't know yet. Sometimes in order to be the best you can be and avoid huge mistakes that can wipe out your fund immediately, you need to learn from really solid fund managers. Especially since you're so young. Work for someone else for a few years then go out on your own.

Caveat: this is advice for if you're fundamental-specific investing and not really trading. I don't know anything about trading as that's a quant game where experience matters less.

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Sep 30, 2019

Hey mate,

Appreciate the response. The truth is, my role for the past 2 years has been more of a full time role than an actual intern experience. I know this doesn't qualify as enough of an experience to be practical but it's just I think my edge is just definable over a short horizon ~ 2-3 years max. I think I just want to optimize for max EV in this case. I hear you though, it's been eating away at me for a while haha.

Sep 30, 2019

Gotcha. If you're confident about it then go for it. Worst case scenario is it doesn't work out, and there's plenty of funds or banks who would hire you after that. Risk-Reward is better in this case as you're young and confident.

I worked for a family office in Dallas all throughout college and now am at an IB in NYC. I've learned a ton in my IB experience that's going to serve me well when I transition into my HF role in the spring. That's my personal plan but in your case hey if you have the opportunity to do what you love go for it and don't let anyone like me to tell you otherwise. I'm probably just a little older than you so what do I know.

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Funniest
Sep 30, 2019

Whoever is offering a kid fresh out of school $50M is definitely room temp IQ. Take their money and give the fund a shot. I can assure you being known as the guy that fucked up a $50M fund will get you a lot further in life than being a cog that worked for someone else for 2 years.

Sep 30, 2019

Haha,

It's easy to always pass off people on this site as greedy rats but thankfully both my potential LPs have a long track-record in their industries. Fairly famous people as well. I can maybe become the new Arbalet Capital.

Oct 1, 2019

Not to throw a damper on your parade, but Arbalet failed. Their 30 year old CIO spun out her own fund, joined millenium as a PM, and she got axed earlier this year. She now runs her own family office. My guess is returns were not very good during her trading lifespan.

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  • Associate 2 in CorpDev
Oct 1, 2019

OP, PM me - I've got some good investment ideas for you

wink wink

Oct 1, 2019

.

Oct 1, 2019

This happens more often than you might think. I met a professor who told me that about one student will come to him every year or two with the intention to start his/her own fund. Now, these are typically much smaller than 50 MM AUM (my understanding was usually < 5MM), but these kids typically do pretty well. You have to be a true savant to find yourself in this position. All I am trying to say is to assume the people providing the capital are low IQ is a bad blanket statement. The prof I am referring to invested in a number of these kids and helped them through the start up process, and is definitely in the red overall.

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Oct 4, 2019
m_1:

room temp IQ

I'm going to use this phrase for the rest of my life. @m_1 Shit my future sons are going to hear this, generations of lhamil13's will hear it. I've got a mentally handicapped sister. Have always been looking for a way to call people dumb but not say retarded.

Also PSA, the word retarded makes special people sad. Use it less in your day to day. I'll buy you a beer.

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Oct 4, 2019

No problem. I am doing God's work.

Oct 11, 2019

invest $50M into COCAINE and HOOKERS

Sep 30, 2019

How in God's name is someone letting you manage $50M? No offense, but Jesus......

I just scrolled through this quickly, but what is the 'edge' you're referring to above? If this is real my mind is truly blown, but in all seriousness congratulations if this is real. This is a complete home run (if real).

Can you walk me through some of your strat (serious)?

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Oct 1, 2019

I've spent a good amount of time trading full-time for the last two years, on-top of school. I follow all markets and have just found baseline inefficiencies. I'm a quantitative trader so a lot of my strats are based more on quant strats in undervalued/overvalued areas and some proprietary metrics/algos I use.

It's real, I've been very lucky to be in my spot with the people around me pushing me on. Feel free to PM.

Sep 30, 2019

Apart of the reason I am asking is because I've basically never seen someone your age at a HF with almost any decision making capacity

Sep 30, 2019

Take the money and run. No reason not to...

Even if you fall flat on your face, your investors are gonna pull everything before you lose it all (unless you do some really dumb shit). You're gonna learn a lot in the process and if all goes well, you'll see tremendous upside.

Go for it

Oct 1, 2019

Love hearing from the longer tenured guys here. Appreciate the words. In your opinion what're my outs in case of success or failure after 3 years?

Most Helpful
Oct 1, 2019

Success is pretty obvious. Even though you say you only believe your strategy will be useful for a few years, if you are worth anything, you will figure out a way to do something new. You will have opportunities to either increase your capital base with your existing investors, and potentially expand to their broader network.

Failure is less obvious, but if you have an opportunity out of undergrad for a $250k all-in package, then its clear that you are already doing well. That trend will not stop, so I would think you can tap that network, explain that you went off on your own and use that experience to interview as an even more compelling candidate. You can always go off on your own - if you just enjoy thinking about the world (most investors do), you will find something else you want to go after. It might still be in finance/investment world, or maybe its recycling chicken guts to make biofuel...who knows. B school is always an option. What I can say is that the friends of mine that went off on their own after school, both that had failure and success, are all doing very well now because you have to be a lot smarter to even think about going off on your own than to keep the safe path going. People that have done well always find a way to continue doing well...it rarely just stops. That being said, sometimes it takes some time to get back on your feet after failure, but motivated people can't stay still for long.

Take the opportunity and bet on yourself...you'll be happy you did.

Sep 30, 2019

Are you Bobby Axelrod?

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Oct 1, 2019

Setup the fund, structure it as a traditional 2/20, make sure you have a long lockup period on the capital, say that you're a super long only as part of your thesis, invest all $50M into index funds, earn 100k a year as the management fee doing nothing, after 10 years boast a better return than most HF over the same time horizon, get a job as a PM at insert massive HF name.

Jokes aside, if you actually have people willing to back you up to $50M and you're confident that you can make some money with it, go for it, as people have said, even if you lose some of it, that's a way more unique story for your next role than the kid coming out of 2 years of banking. Plus there's way more upside.

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Oct 2, 2019

Agreed, cheers.

Oct 1, 2019

How many people have the opportunity to do something like this? You're living my dream. Go for it and don't look back!

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Oct 1, 2019

take as much risk as you can handle for first 10 years of your career.. then take more

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Oct 2, 2019

I'd say this is my mentality for most things

Oct 2, 2019
MarkBaum:

I'd say this is my mentality for most things

as it should be

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Oct 1, 2019

I'd say go for it. It's a really unique opportunity and the optimal time to be taking the chance

Oct 7, 2019

take the money and put it all on black

Oct 7, 2019

This is either fake or you are just looking to get confirmation that going for the own fund is the right choice - should be quite obvious (unless the funding comes from family, then go for the $250k offer).

Opportunity costs only become higher with more experience...

Oct 10, 2019

Not fake and it seemed somewhat obvious what I'm leaning towards. I just wanted to understand my downside risk better.

Oct 20, 2019

Hey man just in case you end up taking the 250K offer, can you toss the 50M my way?

thots and prayers

Oct 20, 2019

Haha, most likely going for it.

Oct 20, 2019

Well in that case if you need a PM hmu, I have hf experience....

thots and prayers

Oct 24, 2019
Comment
Nov 3, 2019