Setting up Shop, How do you pay bills?
I'm not setting shop I'm Still a student actually but I've always wondered for the people that go all in and attempting to set up their own PE or REPE fund and all fundraising and initial setup fees, how do you guys survive ? Savings? Living off partners comp? Etc. I mean you still have to pay bills, kids, do you live frugally? Etc
I have setup my own HF, It's manageable if you plan beforehand and execute properly.
Easy to say when your parents provided money to trade...
Yeah, maybe. At least, I didn’t buy illicit substances from you, Pablo “espresso bar”.
When you set your own fund up you typically have accomplished a lot and have a strong asset base. Remember, the guys running the fund are expected to invest a substantial amount of their own money too...
That’s correct, mostly.
Going off your posting history, how would you know? Not trying to be malicious or mean here, so please forgive my blunt phrasing but you said yourself you're literally someone that dropped out of school, then lost his parent's money trading. When have you started an HF or PE fund?
Every partner I know at PE funds (I dont deal with HF guys) has invested in his own fund. It would be a huge red flag when trying to solicit investors.
Yes, I have “setup” my fund structure with all the entity formation, regulatory stuff and accounts.
Just because you have an LLC and a trading account it does not make your little operation a hedge fund.
It's still very different working with your family versus a real fund structure that might have things like parallels for tax purposes to optimize for specific LPs, way more reporting requirements, etc...
All, as a public service announcement, HFT is a 19 year old high school dropout who lost his parents' money trading. He does not know what it takes to start an actual fund.
Real funds are typically started by people who have a long track record of experience and have been highly successful. The most common path that I've seen to founding a fund is that a partner (in PE) or PM (in HF) is sought out by a/the LP(s) of their existing fund and offered a cornerstone investment to start a new fund. Getting a lawyer to set up a LLC is very easy. Getting institutional investors to stake you is not.
And yeah, it’a totally okay to be investigative and ask questions. Cheers.
How old are these GP's usually?
I have a few friends at start-up funds. Generally, people don't start these unless they have an established pedigree (e.g. former PM at Balyasny), or some sort of flagship niche they can build into (e.g. water infrastructure specialist).
Most people with this skillset have a healthy nest egg saved up; and no-one would start a new business (or fund) without enough money to go at least a year without pay.
General rule of thumb is to keep expenses and headcount as low as possible. Office space on 3rd Ave instead of Park; maybe use a Regus office instead of your own office space for a while. No seamless or black cars until the fund is running on its own management fees. Share a few Bloombergs instead of everyone having one. You get the idea. Your biggest expense should be the people you hire, and you should pay near-market because the fund will be built off their backs.
I know (and don't think very well of) a fund that hired a controller from another fund to be the CFO, but didn't pay him any money at all, not even grocery money, and promised him a slice of the fund when it raised. Of course, the fund folded, both partners left to other lucrative jobs, and he was left scrambling for a new one after feeding his kids from his savings for a better part of a year.
People join these funds because you can have freedom and a slice of the carry pie much earlier than anywhere else, in exchange for higher career risk.
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