Unconventional Hedge Fund Path
My ultimate career goal is to be a hedge fund manager and so for a while my plan has been to follow a conventional path, for example, start off as a sell side analyst, then move to the buy side, and 20 years later I might achieve my goal.
What about taking a more unconventional route? I could set up a retail trading account under an LLC and put a couple thousand into it without setting it up for accepting investors. For a year or so I could build a track record and after some time spend some money getting an operating memorandum and LP agreement and other legal work so that I could accept investors.
I feel like this might be a viable option for me because I've had people over the years ask me to invest their money for them and so I think I could raise a few hundred thousand with a good track record.
My strategy would be a concentrated value/growth portfolio. Only investing in companies with wide moats and a durable competitive advantage. I've made countless mistakes as a kid speculating in options, penny stocks, etc and I'm now sold on the Buffett methodology. I feel it's a very practical strategy and it's easy to pitch as well as understand.
I realize if I pursued this path and it did work that I wouldn't make any money for a very long time, and that if I was truly successful, my pocket book would feel it for years down the road. I would do this because the stock market is my passion and I want to be the guy calling the shots.
I only have about three semesters until I graduate and I'm just thinking about how I can reach my dream. Is this a viable option?
If managing money is truly your passion, my recommendation is to go for it. The better question is when.
There is a tradeoff between ease of attracting investors and the opportunity cost of going it your own. Think of it as a function of experience: the longer you work in the industry, the more developed your investment philosophy will be, the more market experience you will have, the more contacts you will meet, and perhaps most importantly, the more capital of your own you will have. All these things make it easier to launch a successful vehicle. At the same time, the longer you work for someone else and the more money you make, family and financial obligations you accrue, and comfort you develop putting off your aspiration, the harder it can be to make a major change. At some point you have to bite the bullet and take a risk.
In your shoes, the questions I'd be asking myself are whether I had enough real world experience immediately after graduating to be successful, whether I'd have the discipline to defer my dream in order to realize it, and whether I'd have more to learn from someone else for a few years first. You don't need to wait 20 years and be completely conventional, but you still might benefit from a few years of buyside and/or sellside experience, just to see things firsthand.
I wanted to do the same, but you really have to think about your future. You may think you know stuff know, but there's still a ton to learn if you want to get into some of the more complicated/creative investments out there. Hedge funds want people you can provide immediate value. Can you say that just trading alone will provide enough value for a $1bn AUM fund? Isn't it better to say (and to have the knowledge) that you worked at a BB working on deals, getting a better understanding of corporate actions and really knowing how businesses operate?
Thanks for the input. Let's say I do it and I'm able to raise a few hundred thousand in a year or so after exhausting my limited rolodex. I guess the question is where would I go from there? Just hope that word of mouth gets around? I guess I could get a job as an analyst somewhere that has a similar quality growth strategy and try to grow my fund on the side.
Yeah, you really need to think through your business plan, which includes figuring out how you will attract assets. Maybe that means establishing a track record over 3-5 lean years and then trying to tap institutions (note: not at all easy). Maybe you need to expand your rolodex before you get started. Fees on a few hundred thousand will not cover your overhead; you need a plan (and enough of a financial cushion) in place to pay your bills in the meanwhile. Launching a fund is starting a business; you need to plan accordingly. It's not really something you can do on the side, and most employers wouldn't let you anyway. But once you're at a point where you can bear the costs, then I think you should pursue your dreams. From the sound of it, you're not quite there yet.
Every kid is convinced that his situation is special. Nobody wants to work their way up anymore, they want to invent a way to get there that doesn't really exist. Start-up culture, I hate it.
Fair enough Sir Trades, I deserved that, I'm asking questions only I can answer.
Agreed with BlackHat and Sirtradesalot. Yeah, you may do well for awhile with a PA. But if you actually get a job in IB/research/trading/ whatever, pursue CFA, and work with other people in the industry, you'll quickly realize how little you know. Completely regardless of how smart you are, experience and on the job skills go much further in this industry.
You also have to look at how the industry actually works for hiring. Who would a hedge fund more likely hire; A kid from even a mid tier bank with IB experience or ER? Or someone with no real professional experience and a good track record with a PA? I can't think of an instance where they (or I, if I'm ever in that position) would ever feel comfortable hiring the latter.
If you want to build a track record, build a professional one.
Paths to HF (Originally Posted: 04/04/2011)
There are a few different ways to get to a hedge fund (and it obviously depends on the type of fund), but what are the most typical OTHER THAN traditional investment banking or getting an MBA?
Sell-side research? Starting on the buy-side in a long-only shop? Trading?
You forgot one:
SEARCH FUNCTION
Here you go monkey1001 http://lmgtfy.com/?q=site%3Awallstreetoasis.com+path+to+hedge+fund
sucking the MDs dick on a regular basis.
Alternative HF path (Originally Posted: 06/11/2012)
Hi Guys
Can anyone tell me whether a position like investment grade research/high yield research with a top ranked team in North America at a top BB I-Bank (for an undergrad) would be helpful in gaining entry to HF industry pre/post MBA. (I have an offer) With such a position I assume there will be possibilities in L/S credit HFs or Distressed Debt HFs. Equity Funds would be a long shot. Am I right? Also what about getting into Multi Strategy, Event driven or Global Macro funds? Thanks.
You should be fine, there's plenty of credit based hedge funds. If you're interested in a more quantitative field you may want to look into treasuries and investment grade where the liquidity is ideal for different types of arbitrage.
Focus on your current opportunity and kill it. Stop thinking about exit opps before you even start.
Thanks for the reply. Guess I was curious to know whether the position will give me an advantage over traditional IB profiles.
unfortunately, it doesnt based on what i see
we still like M&A/sponsor/ lev fin guys a lot more than the ER guys. Each shop may be different though because my place is consisted of all ex-bankers
@ Ricqles: isn't IG/HY research quite different than ER. Or are they considered all the same by HFs?
sorry I meant for all sellside research guys. ER to me is kinda general term for that
Okay. But Do the Distressed Debt focused HFs also favor bankers?
from what i see, yes, especially boutique restructuring (Moelis, roth, Lazard, BX , etc) or lev fin / sponsor guys.
I don't know why though, it's just that i havent seen one from research background yet. Maybe there's a firm out there that specific hires research guys
Possible paths into HF (Originally Posted: 04/06/2014)
Hey guys,
I am trying to figure out what the best path is towards my goal of getting an investment analyst position at a hedge fund (Distressed, opportunistic strategies that make money across the cap structure or fundamental LS strategies) in the next 3-5 years.
A bit about my background: I am starting MBA at a good finance school next fall (HSW), have CFA, and have been in investment consulting for the past three years.
Here are a few options I am thinking of and want to see your thoughts on them.
Option 1- Straight to Hedge Fund after MBA:
Option 2 - MBA -> I Banking -> HF
Option 3 - MBA -> ER -> HF
In terms of my preference, assuming odds of Option 1 are not good, I prefer Option 2 to 3 if they give me the same chance of getting into a HF later on, as i banking gives me more optionality and I think personality-wise it is a better fit for me. But if Option 2 is not likely, then I’m happy to go with Option 3.
Welcome your thoughts on this.
If your ultimate goal is HF, option 3 makes the most sense, especially if it's buy-side ER at a AM firm. Yes, pre-mba bankers are recruited to HFs, but I don't have much visibility on post-MBA bankers getting hired. My impression is that it's harder post-MBA as a banker because HFs will see you more as a career banker and hiring is less structured at that level. They may ask why you didn't consider a public markets role out of school if you go down that route.
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