How to go about starting a fund?

I'm currently in CEGEP (pre university in Canada) hopefully getting to a target school and my dream has always been to open up my own fund, private equity or hedge fund not sure what because I have both a passion for the public markets and the idea of optimization, managing and fixing up a business on a pe deal sounds amazing. But idk how to go about it. Can I be the main guy with associates under me or do I really need partners ? How hard is fundraising assuming you do great before and develop a reputation? Can it be worth it in the long run vs being an associate since 95% of PE deals end up being good? Is PE really a thing only in America or can you go about building your
Own thing in Asia or Latin America (Europe don't have as much a free market spirit in my opinion), etc. So far I have too ideas in mind
1) IBD M&A 2 years -> PE 2 years -> MBA -> start fund while in school

2) IBD M&A 2 years -> PE 2 years -> MBA -> PE/HF 8-10 years until I move up as a VP or partner and have a large enough network to start my own fund.

What do you guys think? All help is appreciated

Cheers

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Comments (10)

Jun 25, 2018 - 8:21pm

Fund economics don't work unless it's at least $30mm - $50mm. That's running a pretty tight ship too...

I looked into it and just opted to use my own cash and work with two or three others that can add value to deals as well. Way easier to get deal flow since you go after deals that are too small for normal PE.

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Jun 25, 2018 - 8:29pm

Thanks a lot man. Just a couple questions for you.

1)How hard is raising 30-50 million you think? Assuming you have a great reputation in your associate years.
2) Isn't it risky to partner up knowing that you might disagree on stuff and might create tension inside the firm ?
3) what do you mean by deal flow ?

Jun 26, 2018 - 7:41am
  1. Raising money depends on way too many factors to really get into on a forum post but the biggest thing is who you raise from. Raising from 100 people and maintaining those relationships VS one large LP is completely different. Obviously depends on the structure of the fund, market timing, etc...

  2. Not if you know the guys well. I've had zero disagreements with the other guys I work with over years and years because we're not emotional and are all data driven. The most we do is argue over the methodology used to collect our data and how valid it is.

  3. Pretty basic but this is literally the hardest part of VC + PE is finding companies to invest in/buy. High quality, proprietary deal flow = $$$.

You 100% won't be able to start a fund while in school as mentioned in the OP. The smaller the fund the more hands on and growth focused you really have to be as there's less stratification between management and the frontline...this means you need a ton of ops experience which you won't really obtain in two years.

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Jun 26, 2018 - 6:50pm

You cannot be serious. Planning your life out many decades in advance is a ridiculous pastime (not to be confused with having goals and executing against them for 3-5 years... as always, correct time horizon is massive).

Furthermore, any advice anyone gives you about fundraising is virtually guaranteed to be useless/irrelevant with respect to the market and opportunity set you will face IF even 3 steps of that glorious road map to riches you have goes as planned.

Go get drunk, laid and build social skills. Lift heavier things. Probably the best way to prepare for fundraising anyways.

"well thank god your feelings aren't a fucking priority here"
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Most Helpful
Jun 27, 2018 - 12:54pm

One:

Fundraising is immensely harder than you think. It's not a matter of "I did awesome as an associate, now I'm going to go talk to capital sources". It's a matter of:
* identifying competent professionals with a similar mindset to yours and developing a working relationship for at least five years
* making sure your track record overlaps nearly entirely with whoever else will be in your GP entity
* preparing robust marketing materials that communicate your team's shared background, investment methodology, history of performance following that methodology, sourcing mechanisms, and pipeline
* maintaining three years of runway (usually $3-5m minimum) to personally fund the GP entity while you're off on the first fundraising process

Two:

It's hard to be a solo GP in private equity. You are the walking definition of what's called 'key man risk'. If you got hit by a bus, dropped out of the sky in an airplane crash, or got caught in a sexual harassment lawsuit, the entire firm turns off.

Institutional investors generally like to see three-person GP teams. Two-person teams get funded, but there's always a litany of questions you'll endure.

Three:

I'm not certain what you mean by "95% of PE deals end up being good", but if you actually think that only 5% of executed deals perform poorly, I have some disappointing news for you.

The failure rate is dramatically higher than that (as defined by capital loss rather than capital gain).

Yes, it's worth being a partner rather than associate because you enjoy 10-30x more favorable economics. A Senior Associate or Vice President probably has 150-500 bps of the total carry pool. The two or three guys who founded the place are each earning 20-40% of the total carry pool (that's 2000-4000 bps).

Four:

Private equity exists in both Asia and South America. Emerging markets private equity has a lot of attention. The return profiles are often higher because businesses haven't been run in such an institutionalized way as is common in mature markets, so the responsiveness to basic operational improvements can be greater.

Established mid- to late-career professionals with great academic and professional pedigrees and some kind of personal tie to a country or region (usually that they grew up there before leaving to launch their early career) can have success with a fundraising strategy of "I'm going back to bring my wealth of experience from Morgan Stanley and Carlyle to bear on the [home country] middle market segment."

///

Overall, the conventional advice would be that starting your own find after four years of work experience plus during your two-year MBA period would be laughable.

I'm not one to dissuade people from pursuing their dreams, but I'd point out all the challenges you'll face (see above). You could certainly try it, but be warned that the cost of failure is non-trivial.

You'll endure some reputational harm. People senior to you will grade you harshly for failing to assess how the space you're trying to operate in actually works. Your peer set may choose to socialize with you less.

If you try a second time 15 years later after failing with the first, people will still talk about your earlier attempt. Service providers (lawyers, fund administrators, placement agents, etc.) will all view it as a demerit on your record and that may impact their willingness to work with you.

I don't know your personal situation, but I recommend you work really hard in school to figure out whether you're interested in public or private marketing investing.

You can do that by speaking with as many people as you can get in touch with through your school's alumni database or the career center, LinkedIn, or info sessions that companies do on your campus. You can also do internships during the summer or the school year. The cool thing is that any internship you do during school you can choose to list on your resume or not. So if you cold email your way to a 10-hour/week position during the semester at a small long-only shop, who cares how prestigious it is, you can use it to learn more about what you feel is really the best fit for you.

You can then follow that up with an analyst role, which you should also be focused on leveraging as a learning experience. Use that as a basis for recruiting for the associate job you think best matches your long-term interest. Decide how long you want to stay there; some firms are an automatic two-and-out place, others aren't.

Then reevaluate where you want to be in the long run. This should be driven both by your aspirations and your skill-set or experience.

Enjoy school and try to maximize your learning outside of the classroom.

I am permanently behind on PMs, it's not personal.

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Jun 30, 2018 - 8:16pm

I wouldn't think too far ahead if I were you.

Network like hell and get a mentor from a local PE firm/pension fund manager (think Novacap, PSP or la Caisse for traditional PE, Axium or Fiera for Infra PE). Try grabbing coffee with local people and learn as much as you possible can from them.

And if you can, skip IBD altogether. Get PE internships at the previously mentioned firms and try landing a full-time offer. Building pitch books, running comps and putting CIMs together is fun stuff, but PE is where the really fun modeling takes place. And hours are better if you happen to enjoy spending time with your family.

Jul 1, 2018 - 1:28am

Looking to start a fund (Originally Posted: 08/25/2018)

Hello! New to the forum here at Wall Street Oasis.

I know this topic comes up a lot, but I'm looking to launch a hedge fund to invest in global equities. I currently live aboard and want to attract US investors looking to diversify.

I want to launch a hedge fund in the US but live in the country where I will be investing. I have to live here because I visit companies very often for research and follow ups, it is critical part of the strategy.

My strategy has no other competition as most of the funds here are very large and can't cater to US investors because of the language barrier.

I feel like my strategy can produce high returns on a AUM below $70 million and don't plan to accept any if it exceeds it.

I'm having trouble setting up the structure for this fund. I was wondering if anyone had seen or heard of similar situation as mine. And also if anyone knows any networking events in the US where I can meet investors for global equities.

I currently have 2 investors willing to put in small amounts but want to wait until I can have commitment of at least $15 million before launching. Is it common for small hedge fund to delay launch until certain amount of money has been promised?

Looking through the forums I know that a lot of guys here at very smart/talented and realistic. Any feedback would be great. Thanks a lot.

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