Starting a small hedge fund
New user, co-founder of a 2-person small Asset Management firm utilizing a trading algorithm for long-short equity. Looking for advice on networking, fundraising, partnerships, etc. Newly relocated to NYC.
New user, co-founder of a 2-person small Asset Management firm utilizing a trading algorithm for long-short equity. Looking for advice on networking, fundraising, partnerships, etc. Newly relocated to NYC.
+42 | Compiled Bondarb's Comment History | 9 | 2h | |
+37 | T2 Hedge fund or T1 LO/AM? | 13 | 13h | |
+31 | Non-GAAP Income Statement | 6 | 2d | |
+23 | How do you get up to speed as a consultant on finance? | 5 | 21m | |
+22 | Thoughts on MMF | 17 | 4h | |
+21 | MLP portfolio manager guaranteed payouts? | 19 | 5h | |
+20 | Top LO AM culture, comp, exit opps, etc. | 4 | 3d | |
+18 | How to Structure Bonus Comp for Analyst | 5 | 1d | |
Joining buy-side directly at boutique AM or ER at BB for HF future? | 9 | 6d | ||
+16 | Cost of leverage at MM funds / pod shops? | 14 | 10h |
Career Resources
Probably don't have any useful advice for you but would love to hear about your background.
Fairly nontraditional...spent 8 years out of college working for a bulge bracket, about half was in fixed income/structured credit valuation, the other half in more of a strategy & consulting+ quantitative analytics role on the banking side. My partner is mostly from a banking background but also knows coding pretty well
Interesting stuff. Have you done any fundraising already or are you working with only your and your partner's assets at the moment? Have you talked to any fund of funds?
Interested to hear about this coming along as well, have two friends that started up a fund just over a year ago
I'm doing something almost identical (coincidence?)
I will say, it's not as glamorous as it sounds.
Anything under $10M in AUM called a "fund" is laughed out the door.
That being said, it's a good experience. Just be careful of friendships and relationships, as things change (for the better or worse) when large sums of money are involved.
Haha, glamorous is definitely not the word for it...
$10mm is a pretty arbitrary number. $10M-100M would also be laughed at.
Hey. I currently run the world's smallest algo equity fund inside a multibillion fund. Would love to go out on my own.. care to share how it all got started?
You need $50mln and 3 years of track record. Otherwise you are on your own. Networking as you said will only get you friends of friends to invest but no institutional money will look at you. That said keep on making good returns and those friends of friends will keep on giving to you and at some point you will be getting there! The $50mln threshold can be lowered, but that's a good standard ball park. The 3 years however is invaluable - from my perspective you can get lucky for a year or two and I wouldn't trust you, at three years you must be doing something right?
Also how did you setup tax wise? There are a few decisions you make today that will carry on for a long time. What broker you use - I assume that you are not large enough yet to have a PB relationship with a bank (PB will help you raise in the future once you are big enough for them).
Actually you gave so little details in your initial post I don't even know why I bother answering.
That $50m stat is a pre2008 number. Most institutions have raised the asset bar significantly, I've seen policies at $400m minimum.
Plenty of PBs will handle smaller accounts, these are introducing primes essentially, running front office for another clearing or prime firm. Triads got a great client service team.
You will get introductions to financing at the $50m mark. I see you work for a FOF and I can understand how a large pension fund might not look at small hedge funds, but once you hit 50 and you have 3 years you will be able to raise. Maybe not California teacher's money but certainly large private banking clients. Unless something has changed in the last 4 years but I doubt it.
using trading algorithm? like a quant trader but only in US equity?
I'm assuming your resources are limited at the moment so something like a Bloomberg terminal is probably prohibitively expensive for you and your partner... my question is how do you obtain access to financial data?
Capital iq, ipreo, Zacks, barchart..
Replying to multiple comments above:
So we actually started about a year and a half ago. Very modest, with about $600k. We are a little over $1mm at this point. My HNW network is not great, but my partner's is pretty good. We're not expecting a real institutional allocation (pension/RIA/endowment/foundation) anytime soon. What we are looking for is more leads on how to develop HNW networks, as well as any existing hedge funds that do seeding of emerging managers. I've made some attempts thru connects at Blackstone, Tudor, Booth Bay, Clinton, Discovery...maybe a couple others, but couldn't get anywhere. Granted, we were dealing with only a ~1-year track record at that point but it was very solid.
No Bloomberg. No FactSet. Before we launched, we spent a LONG time getting comfortable with free or low-cost data vendors, knowing that we could not afford $20k/year for a terminal in the early years. We utilize a combination of Excel vba, SQL, Python, and plain old CSV downloads to search for, scrape, and process our data. It is obviously less efficient than it could be, but cost is too prohibitive for us at the moment.
We use Interactive Brokers only due to cost. Their cap intro is non existent for someone our size, and overall their customer service is a joke. We've been looking at smaller alternative brokers (Apex, Triad) but not there yet.
Taxes are annoying. All our trades are short-term, and we use an SMA structure. Want to move to a fund structure but again, cost is prohibitive at this point. Also, we found out long after the fact that our lawyers didn't give us the best advice re: structure. If we had to go back and do it all over again, we would have shopped around more options for legal, and probably paid the additional cost to set up a proper fund structure.
take over PWM book->Carve out assets->launch a HF (Originally Posted: 09/21/2015)
Is it legal/possible to take over a PWM book and carve out $X million to launch/become a partner in a HF?
For example, say the book is 500 million, a handful of clients agree to reallocate $25 million to a start-up hedge fund - can you run the PWM business and the $25 million hedge fund at the same time? (or alternatively roll that into another start-up hedge fund and become a partner in that fund while continuing to run the PWM business?
All of the above assuming the clients qualify to invest in HF.
Fundraising will be the biggest challenge. I have an associate who started a small fund 10 years ago, posts far-above average returns for HFs, and has immense difficulty raising capital. Once you get the capital, you're on auto-pilot.
bump :)
Yes, of course. Many financial advisers allocate to private funds, including internally managed funds. But advisers that also manage private funds (directly or through affiliates), as well as '40 Act funds for that matter, have additional disclosure obligations. You probably shouldn't assume you can seed your own hedge fund through PWM relationships unless you're actually qualified to be running money in the first place.
Thanks! This is more in an attempt to help a friend who is retiring find alternatives for his PWM book and at the same time help a friend who already manages a small fund (and has for almost a decade under a larger fund company) and is looking for creative ways to grow AUM.
I am certainly not qualified to do this on my own at this point.
If the guys is in PWM at a place like Merrill or UBS, absolutely not. If he's running his own shop, then presumably it would not be a problem.
sfbroker thebrofessor
I see limited upside and possible jailtime/blacklisting if you do this. you see, if a fund is not on the firm's platform (and a startup fund will most likely not be on the platform), the firm doesn't get paid.
therefore, you're in competition with your employer, and that's not good. tempaccount is sort of right, and his advice applies if and only if the fund you're managing is on your firm's platform. I see a lot of conflicts of interest here (soliciting existing clients to invest outside of the firm in a fund where you have a beneficial interest), I wouldn't do this. the whole thing stinks to me.
The PWM friend wants to leave the bank he's at and go off on his own - it would be away from his old platform. He's looking for options outside of just joining an independent wealth management shop.
I understand that it's different from the old platform, but I didn't read that as he wants to leave the bank. in your OP, you asked if he could do the HF and run the PWM business simultaneously, and to that my answer is an unequivocal no.
if he wants to leave the bank, then yes, in theory he could solicit PWM clients, but he could not do both simultaneously.
I know of an AM/PWM firm that has an internal hedge fund. It can be done.
However, I'm fairly sure the mandates of the HF and the AM have NO overlap in viable assets, so that is likely the reason why it isn't a problem for the same managers to be running both simultaneously.
If anyone knows of firms similar to the one CEP knows of and is willing to post some names, I would really appreciate it.
Thanks for all of the help so far guys!
Quandl is cheap FWIW
Starting A Hedge Fund Is Getting Next To Impossible (Business Insider) (Originally Posted: 12/09/2013)
http://www.businessinsider.com/hedge-fund-barriers-to-entry-rise-2013-12
Thoughts?
The vast majority of HFs out there are not capturing any alpha. Why pay 2/20? Or whatever the going rate is now.
Then don't do it? Since you are undercapitalized.
For anyone who wants the full report:
http://www.citibank.com/icg/sa/flip_book/a1/2013_Business_Expense_Bench…
Bloomberg reports: Asian Hedge Funds as Much as 42% Cheaper to Run, Survey Says
Running a hedge fund in the Asia-Pacific region can be as much as 42 percent cheaper than in the U.S. and Europe, helped by lower-than-average compensation, according to a survey by Citigroup Inc. (C)
Small funds started in the region struggle to achieve profitability and expand assets, the fourth-largest U.S. bank cautioned. Ninety-five, or 57 percent, of the 167 regional equity long-short hedge funds which began trading with less than $50 million still manage less than that amount after an average of 5.3 years in existence, it added, citing data from Singapore-based Eurekahedge Pte.
“A critical success factor in the launch of a hedge fund is the size of assets under management at launch,” Citigroup said in the regional supplement to its Business Expense Benchmark Survey. “Small fund launches in Asia have demonstrated a statistically reduced chance of accelerated assets under management growth.”
The $2.5 trillion Global Hedge-fund industry is facing pressure to cut fees to attract investors amid rising costs of complying with regulations and client demand. The average Asian hedge-fund startup raised $8 million this year, down from $25 million seven years ago before the 2008 global financial crisis dented investor interest, according to Eurekahedge data provided in early November.
Fees Declining
Management fees charged by hedge funds globally have fallen to as low as 1.58 percent for all but the largest companies, from the previous standard of 2 percent, as startup managers have been pressed to offer discounts to early investors. A hedge fund on average needs to manage at least $300 million to break even, the Citigroup global survey released late yesterday found.
In Asia, operating expenses of a $100 million hedge fund are 20 percent lower than in the U.S. and Europe. The gap widens to 42 percent for a hedge fund managing $500 million and 39 percent for those with assets of $1.5 billion, it added.
Asian hedge funds may break even at $135 million, relying solely on a 1.5 percent management fee, Citigroup estimated.
“It is likely that, initially, any excess cash may need to be reinvested into the business to ensure an institutional-grade infrastructure is in place” to help expand assets, the survey said. “Historically, U.S. investors have held the view that Asia-Pacific managers under-invest in operational and technology infrastructure.”
The survey sampled 124 hedge-fund managers in North America, Europe and Asia with combined assets of $465 billion.
To contact the reporter on this story: Bei Hu in Hong Kong at [email protected]
To contact the editor responsible for this story: Andreea Papuc at [email protected]
Find out more about Bloomberg for iPhone: http://m.bloomberg.com/iphone/
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profitability/breakeven aum estimates are way too high.
I agree. I can name a couple people on here that have done it with way less.
think it is fairly accurate. You can do it cheaper but not with real infrastructure, service providers, compliance program, etc.
Moving to Asia is your best bet for lowering costs, think Hong Kong.
Charlotte student launches hedge fund (Originally Posted: 01/04/2013)
http://www.charlotteobserver.com/2013/01/04/3764921/charlotte-student-l…
Uh oh
Yep, fundraising is very hard. My buddy still works and his PA alone is $1mm . No doubt he can get $3mm total from friends+family if he really tried but hasn't wanted to scrape and scrounge.
Outside of alpha generation over 2+ years, you also need tight financial controls and that requires spending money. No institutional and very few HNW's will trust someone without a CFO, KYC, auditor, etc. Especially given all the scandals from shops stealing $50k from people and running a ponzi for a few years before getting big enough and running away with everything.
looks like they successfully attracted some initial capital
Lumina is back!
"It’s safe to say they are making money – well over six figures, Carol said, leaning back in his chair and adjusting his suit jacket."
Even if these kids were financial geniuses they lack any skill at interviewing, pr, or investor relations.
I wish them the best of luck. I would actually love it if they were successful.
That being said, if there was a way to short the success of their fund, I would be be hitting every position limit I could shorting them.
If I hear the word passion one more time...
The american hyperbole....
"He jets around the world to attract investors to his hedge fund company."
Yea, these guys are pulling money through their parents/friends/family.
Ahaha they called it a hedge fund company
I am sure the firm is run well, they are all managing partners.
But, good for them and I hope they do succeed.
if they bought 4.5 million pounds of wheat at 60 pounds per bushel, that means they only would have bought 75,000 bushels? Isn't that only like 15 contracts?
a single lot/contract is 100 tons 200 thousand pounds is 100 tons in pounds 45/.2(represents 200 thousand pounds)=22.5
If I am doing it right I'm not really sure if they traded CBOT or Euronext ones.
Haha these kids.
So if I get my grandma to front me $100,000 and I let it sit in my Merrill account, did I just start a hedge fund?
Well, they're probably getting smoked on that wheat trade, missed the massive drought fear phenomena by about 6 months.
Regardless, I think it is commendable that they're actually sustaining their efforts despite the bullshit they've been getting. Even if they 'fail', I think it is absurd to think that they will forever remain tarnished goods and have their future prospects completely brought to a closure, especially considering roughly 90% of traders fail within their first year. If anything, I think the lessons they would have learned on fund management, trading and hopefully public relations would be invaluable moving forward, particularly considering their age.
I wish I could be as supportive of these guys as you because, in some weird way, I do admire the balls. But these guys come off as attention seeking, pompous no nothings in every interaction they have had with the media. We should be paying attention to kids like this... http://abcnews.go.com/Health/Wellness/early-medical-education-florida-m… ...rather than some kids who were handed a bunch of money, created a fancy website, slutted themselves out to the media and started calling themselves portfolio managers.
With that said, I'll keep following for the hilarity...
If nothing else, maybe they can sell some hats and t-shirts with Lumina Investments printed on it and get some ironic WSO users to buy it from them.
I read Lumina Investments' investment philosophy, and it looks like they took the wiki definition of "Modern Portfolio Theory," and used a thesaurus to make it sound cool. Fucking Wilmington.
I wish these guys the best of luck and hope they make it. Though they don't seem to be keeping with the industry norm of maintaining a low-profile. Gotta love the last line in the article. "It’s safe to say they are making money – well over six figures, Carol said, leaning back in his chair and adjusting his suit jacket."
His dad is David Caroll, who is head of Wells Fargo's Wealth Management business.
https://www.wellsfargo.com/about/corporate/executive_officers/carroll
In 2011, he made $8 million in total compensation.
http://www.forbes.com/profile/david-carroll/
[quote=TeddyTheBear]His dad is David Caroll, who is head of Wells Fargo's Wealth Management business.
https://www.wellsfargo.com/about/corporate/executive_officers/carroll
In 2011, he made $8 million in total compensation.
http://www.forbes.com/profile/david-carroll/[/quote]
The Wells Fargo guys last name is 'Caroll', whereas our boy from Lumina is 'Carol", so they probably aren't related.
Hmm, yea I just saw a bunch of comments mentioning it. Not related at all then.
People are always going to doubt young investing talent. Whether they are right or not, I agree with what some people above have said: stay low on the radar and let your performance speak for you.
Here's another example of a guy who's fairly young for his what he does (activist investing): http://www.businessweek.com/articles/2012-12-20/ryan-morris-28-year-old…
He's been at it since at least 2009, and this is the 1st I'm hearing of him.
I'd bet that he has some very wealthy friends and family.
Ryan's returns running Meson Capital speak for themselves. Down -8.0% in 2010, Down -24.4% in 2011, Down -8.2% in YTD 2012 through 9/30/12.
This was in the comments of the BusinessWeek article. If those returns are accurate, he simply benefited from a well timed fund launch. It appears he is running long only and his returns are truly terrible given that the market has done nothing but moved higher every year. The article is quite flattering but it seems that he is earning a living by getting on small cap boards not buy making money for his investors. This is actually a pretty cool way to make a living, if you can get on small boards like this but the article makes it seem like he is quite successful when his returns are horrible. No idea how you raise outside money when you've been down for three straight years while the market has been up substantially. Of course maybe those return numbers are incorrect.
Wait a minute. 753% ?!?!? That cannot be right. Wouldn't every high net worth individual in the world be begging to be a partner?
I think that was the point of the people in the comments, he got in at the very bottom of the market and killed it for that one year and now that you don't have hundreds of stocks moving up 1,000%+ in a year he has massively underperformed. So do you look at that one year or do you look at the next three years of horrible returns? In my sector there where countless stocks that have gone from the $1-$5 dollar range in 2009 and are now well into double digits. This is why not everyone is begging to invest with him, he has consistently NOT made money after one year driven predominantly by timing. Kudos to the guy for launching a fund and getting on boards but the article says they started with $50k, so in his year up 753% he was most likely managing virtually no capital, now he is massively below high water marks given three straight years of underperformance, tough situation.
In his 2009 letter after 753% return he states he now has "2/3 of a million" in AUM. Therefore all of the money he has raised is under water. Sucks for him but the cool part is if he can just stay on boards he can still earn a living despite not necessarily being a good investor.
Ryan Morris is on VIC, his ideas have NOT worked out. I'm not sure if its luck or skill but it is what it is.
If he bought Wheat in Nov, he is definitely down.
There is a reason he only went to UNCW, despite his dad being quite wealthy and successful.
Launching a small hedge fund (Originally Posted: 11/28/2015)
Suppose that i have a friend that will give me $8,000 to invest in the stock market and I want to start a hedge fund. What are the legal or startup cost of the most simplest legal structure? Is there any way that those cost could be less than $500?
If you know a book or a website that can answer my question feel free to post it too. Thanks!
I have experience and have two close friends who started their own funds. Both came from a lot of pedigree, including 10 years of experience at brand name funds. Both told me that if they could not line up $10mm, they would not launch. Both wound up launching with $15-25mm. One raised it entirely through his network. The other took a seed deal. Both were focused on building institutional quality firms. Fast forward four years, and one is running $150mm and the other is running $250mm. But AUM did not start to inflect from capital raising until after reaching $75mm or so, even after hitting it out of the park every year from the start.
Thanks for all the insight. I have two friends that started a $10-20M fund with mostly friends and family. I'm curious how they made the jump from the $10-20 range to $50-100. I understand that at a certain size you can talk to larger institutions, endowments, etc. But how do you make the jump in that intermediate stage?
That is consistent with what I've seen and heard...would love to pick their brains on the initial fundraising process
Pocket it, tell him you shorted a penny stock and now he owes you 100K. Then start one of these on the side.
Boom your friends 8k just became your 250k. Total transaction fees: $0 http://www.wallstreetoasis.com/forums/trader-starts-online-begging-camp…
Hey PM me and I'll see if I can set something up.
Unless a fund is oversubscribed, fund raises tend to start slow and cross a Rubicon at some point that takes them to the finish line fast.
The first investors tend to be HNW people who trust the manager/are most lax on due diligence (~$1mm each), followed by smaller institutions/foundations/family offices (~10-30mm each). At some point, you hit a critical mass where the huge institutional investors like insurance companies and state pension plans will come in (100+mm/each), and at that point the fundraise tends to end relatively quickly. But I have noticed that the big money tends to like waiting until enough other people have skin in the game before making a commitment - they know there will be a seat at the table for them.
This is all in the context of a ~$1bn fundraise. I know that's about 1000x what you're talking about right now, but I wouldn't be surprised if the same principles apply to a micro fund. If I were you, my instinct would be to net a lot of small family/friends, then leverage that to get bigger HNW people that you don't know personally, then leverage all of that to try landing one or two small time institutions, and then build up from there.
To start a fund properly, its going to cost about 30k
I'll tell you how if you give me 2% AUM and a 20% incentive fee for each step I give you in buzz feed format.
First of all, You will need an Investment strategy that is better than the other ones out there in the market. Because if you don't have a solid investment plan investors will not give you money to manage. Will cost you Minimum of 50k for Setting up all the legal structures, Lawyers and Accountants fees. Then you need to raise capital. I would say instead of starting a hedge fund, Work on your investment strategy, Start trading and when you start to make money trading then think about starting a Fund.
Do you even know what a hedge fund is?
Letter of direction.
High school senior? Or college freshman
don't consider yourself a fund. consider yourself in incubation still. what I would do if I were in your shoes is focus 100% on the investment side of things for a couple more years, because you won't get any serious help with fundraising with such a small asset base and a short track record.
once you get a 3y number, get GIPS audited. I would be willing to look at someone with a 3y track record even if small, but I don't think there's a single investor outside of your family that will take you seriously so early on. build relationships now so that when you hit your 3y number, you don't waste those people's time.
What Type of Hedge Fund Would You Start? (Originally Posted: 04/25/2012)
This could be a real doozy of an interview question, especially for those of you who want to interview for private equity. It’s a good way to gauge how you interpret current market forces, as different hedge fund strategies are more or less successful in certain climates. It’s also a good way to turn the interview into an intelligent discussion and help you discover what your personal investing/trading style is like.
Of course, there are many possibilities. I know a lot of these are also defined in the WSO Finance Dictionary, but they are definitely something to think about.
Let’s suppose that the safe, “multi-strategy” answer can’t be used. How would you answer the "What Type of Hedge Fund Would You Start?" question in an interview? See below for my five answers.
Quant Macro with a focus on FX.
Do we really need more 2 and 20 L/S equity funds?
Are you saying you think L/S equity is more saturated than quant FX? What are you going to trade, 20 FX pairs??
10 majors and about 70 EMFX pairs. The beta among L/S equity funds fills me with disgust.
A big one
L/S doesn't mean market neutral, so L/S firms can have exposure to risk factors like beta.
Distressed Debt (acquiring positions large enough to influence the bankruptcy procedures) : Some very clear value investment propositions in this field
Same here.
Would probably do global small-cap L/S across the capital structure. That should give a good manager a chance to capture alpha in under followed names and would be more or less cycle agnostic as you could participate in equity, distressed debt / restructuring, PIPEs, etc. Obviously, the skill set required to do that well is not easy to acquire since most people are equity or credit only in limited geographies. I only know of a handful of firms that do that and can claim strong performance, so my guess is there is room for one more. Like some of the posters above, I am pretty skeptical of L / S equity in larger cap ranges (anything north of a billion in cap is usually pretty efficient).
this
great stuff! one silver banana for you sir
FI arb hedging with FX options
global macro - fx, rates, commodities
Why, multi-strategy of course.
one that makes money duh
i would create a fund that only invested in Sega, leverage it 10x, and call it "Sonic the Hedgefund".
An FX LS arb XS TD MEr Beta Alpha Omega Macro Fund. Specializing in ctfsooc (confusing the fucking shit out of clients).
Fixed income arbitrage - picking pennies from in front of a steam roller.
But seriously, I had a similar question for a FoF/Family office type role and said I would not start one. If you look at the very best managers they tend to be extremely experienced with real product knowledge - most juniors aren't there yet; over confidence and 'blagging' can be dangerous in finance. You only need to look at the performance of a lot of the recent goldman spin offs for evidence of this. In finance there are enough BSD's around that think they are going to be the next Soros, humility can be the way to go. There is more than one way to skin a cat, so depending on the role and your seniority maybe a bit of critical self awareness could go a long way before blustering in to the obvious answer - depends to a large extent on the role of course.
capital structure arbitrage
ma bishes hedge ma lawn wit a long shot trimmer - something swagon would say
anyways, i always liked Soros's investment style of basically betting against the central banks..pretty damn ballsy
ITF, special situations. This way I can do whatever the fuck I want when it comes to investing and not be bound to traditional investing archetypes.
For maximizing returns, I would say distressed with a control focus. If management is screwing up, replace them...and if you buy near liquidation value, your downside is low.
Activism Mothafuckas
In any case you need to look outside of the box of traditional funding and get creative as traditional routes are going to be cut off (I know a few friends attempting something similar).
FWIW - From a structure point of view I recommend at least considering a Virgin Islands based Incubator Fund structure as a starting point, from a cost/compliance point of view it looks feasible than other structures.
Absence of "running my own hedge fund" topics (Originally Posted: 12/27/2015)
It seems like we've gone an abnormally long period without someone posting thread about joining a friend to run their own "hedge fund", typically using a few million a family money and investing in vanilla public equities.
What are we to make of this? Is this a sign of where the market is at?
Has this form of irrational exuberance now been replaced by "Should I go into banking or tech?" threads?
I don't really miss the threads, but it's not as easy to throw darts and beat your average active manager this year, unless your darts hit amzn, googl, nflx and fb, so maybe these kids got crushed by doubling down on MLPs and oil drillers so they've been keeping quiet.
Well since you're asking, I want to start my own PE firm. I'll probably just cold call a lot of people and ask for capital invest. My projects say that I should be able to gather $10MM in 12 months. I'm going to only work with small 10 people insurance agencies. What color should my first Ferrari be?
color doesn't matter, just the vanity plate
Ballers drive Lambo's. With that purple metallic chrome paint. You'll never make it if you're aiming for a Ferrari.
If its not red, you don't really drive a Ferrari.
Mine is red.
why do i get the feeling that martin shkreli might have been the author of one of the 'started my own hedge fund' threads?
As for the actual topic at hand, I read some article that had some crazy correlation between ultra high net worth families and what generation their kids are in. It turns out that a lot of them tend to group up around the same 7 or so years in every generation. One of the reasons for this was presented was tied to the industrial revolution. It kind of seemed dubious to me but then again it could be possible.
You read that from Outliers it sounds like
What's wrong with starting an investment club or a family office and focusing on other investment opportunities? I know the Real Estate Crowdfunding thread became heated quickly but you can invest in Lending Club, Reamerge, Fundrise, Realty Shares, and others and still make a decent return.
You don't always have to start a hedge fund and invest in equities. Heck even lending money out to small business owners can earn you a decent return if you have banking or underwriting experience and exposure to credit analysis.
maybe HF's reputation took hit because of big financial scandals (Madoff ponzi...?), you don't know how it's run and you don't know the number of shares, opening lot of space for scams
http://www.wallstreetoasis.com/forums/launching-a-small-hedge-fund
This was about 2 weeks ago. Have no fear - these threads are still going strong!
Another one here from two months ago: http://www.wallstreetoasis.com/forums/how-to-raise-capital-to-start-a-h…
Seems to me like there's still plenty of irrational exuberance out there...
https://www.youtube.com/embed/Sagg08DrO5U
I think the tech boom is killing it. The kids that ask about starting their own hedge fund usually chase a quick buck, not thinking long term. In tech you can absolutely make a lot of cash, really fast, if you find some decent niche and actualize it quick enough.
So, yeah, why aim for a pipe dream, when you can realistically create "uber for
Pm me if interested
Classic Post: Should I start a Hedgefund with 16 million (Originally Posted: 11/19/2014)
Ok, I realize that kooks just like me post about this "I want to start a hedge fund" shit on the daily. However, my story is a bit different. Don't worry I will keep this short.
So I have a friend who is getting 16m when he turns 18, he can do anything he wants with the money. He told me and I pitched him the idea of starting a small private bank once we graduate college. Surprisingly he was intrigued by this idea. My friend (Nicholas) is interested in running a business and he is aware of my steady fascination with investing. He is willing to supply the funds to start the bank. I'm a bit taking aback by his enthusiasm considering this is a hard industry to break into. Nicholas is very excited to start this private bank and more than ready to throw down the capital, however I am appropriately skeptical.
Does this sound like a good idea? A bit far fetched wouldn't you say.
Thanks, Liam
So are you starting a private bank, starting a hedge fund or running a different business? I'm confused...
I was thinking Hedge Fund, I know bit about them but not anything to extensive. Do you recommend a different type of investment bank? Im a bit uneducated in the different types of banks. Sorry for the confusion this post was done on the fly.
This is why you don't give a kid access to his trust fund until age 25 and then the rest at 35.
Assuming this isn't a troll, you have no experience in any of those endeavors or any clue about how any of those businesses work. I'd do two things in your situation, go about the 'regular' path to finance and banking if you can and see where that takes you. One day - once you've gotten your shit together - he might be a prospective investor when you go out on your own. I can't think of any downsides of having affluent friends that "go way back."
Second, I would encourage your friend to become Dan Bilzerian 2.0 and invite you along for the ride. You could be "Turtle" from Entourage and carry his luggage. It isn't glamorous but at least you're getting laid and you'll have some stories to tell. Remember at the end of Season 8 when Turtle walked away with millions from that tequila deal? All he did was carry around some luggage and ride that lottery ticket to the finish, but I digress.
In case the above didn't sink about your lack of experience. You've got one client (potentially), how are you going to land a second with no credentials, experience or track record behind you? Even if you exclude all of those problems, I've got the strong suspicion that when you meet with the lawyers or the first bills start to come in (or he sees what they will be), he's going to back out. If by some miracle he doesn't, his entire family will try and convince him (with good reason) to drop the pursuit.
Nice, I see where you come from on the experience thing. I understand that as of now and even when I graduate college I will be pocket lint when it comes to the level of experience needed to start a small bank. I don't really understand your Dan B. reference. My friend has a lot of money and he wants to throw it toward something worthwhile and he wants to make more money. Not hookers and guns.
This hedge fund is not my goal. I'm shooting for a regular finance career.
But this is what i think ArcherVice: Why not? This man has 16 million in cash, we both really want to do this, and there is no harm in trying and going balls out on this idea. Also, I have nothing to lose; it isn't my money.
it's amazing, but some of the wealthiest and smartest people in the business world are inept at financial/estate planning. a simple exercise with a good broker & attorney would've let them know "yaknow, probably not a good idea to give an 18 year old $16mm"
I wouldn't worry about it. At your age you'll forget about this idea / get bored of it pretty quickly, even more so if you even start to look at the documentation and regulatory burden.
Most likely.
Ya bud
Had a similar option to access a pot of money and invest on my own while at school. Spoke with a few professionals who worked for banks as traders and a couple of hedge fund guys.
Over the period of a few months I pitched a few stocks to them and they liked my ideas. I followed up over a few months and only when I got comfortable with them I mentioned I could invest on my own. All strongly suggested not playing around with the money. It wasn't rocket science to figure out why.
I instead went to work for a HF by cold calling (but didn't mention the money) and spent a year there only to realise it will take at least a few years of experience to actually start investing as a professional.
What good investors do is easy but I can bet its super difficult to make money. Hope this statement confuses you first and then makes you realise the importance of through research, experience, network and contacts first required before you invest a cent in your proposed venture.
I don't think anyone here is trying to discourage you but just making you realise it's too early to take such a step. See if you can work for a hedge fund. Once you find out who the good players are you might want to invest with them (even if in lots of 100-200K) which will get you speaking to the PM's. Down the line you never know you could work for a good firm because you then have relevant experience + money with you to invest as well.
Thank you for the advice.
Unless he's getting $100 million at 35, he's wrong to help his friend start a business/hedge fund. You have no market experience and neither does he. I'd look into a multi family office, as in budget how much he wants to blow on stupid shit, and then find a firm that will help him out with the rest.
Your friend should at the very least, not listen to his parents broker, they clearly didn't help with prudent estate planning
No, no, no. If you blow your friend's $16 million (and you will they way you are talking about a private bank), you aren't going to be friends for very long. Maybe see if you can start a futures account with $50k or something.
My suspicion is that your friend will at some point receive the good advice to not blow his whole nut on any hedge fund, let alone one managed by a high school kid who doesn't know the difference between a hedge fund and a private bank.
Perhaps you could (a) spend some time learning how to trade/invest (via value investors club, sumzero, etc), and (b) offer to manage some very small subset of his wealth during college, perhaps $500k, once you understand the format and strategy.
That said, there was some good advice in another topic recently regarding the abject lack of value that comes from frittering away your educational time trading. You're really better off killing a hooker with this guy so you have the relationship in t+10 years when it might matter, whilst focusing on schoolwork.
You also probably shouldn't use your real name as a forum name and then post dollar figures and real names of other people involved. Considering it takes about 2 seconds to google your name and find you on Facebook (a profile which isn't private), I wouldn't be thrilled if I was Nicholas and new you had put my name and net worth out on a public forum like this.
Classic WSO post.
If your friend was at all competent he would do what most people do with that net worth. Realize that you no longer have to work and do the best thing possible which is to become a LP and not a GP.
Spread the $16mm across top hedge funds and even PE firms for long-term capital appreciation. Consider low fee FoFs if risk averse or to get exposure to multiple funds since minimums are usually $1-5mm.
Maybe some liquid corporate AAA bonds as well and put the rest in real estate and live off the returns.
He has no reason to work but you do. Please learn the definitions of the firms within this industry first.
This is one of the best threads ever. Hedge funds/private banks as one, Dan B., Turtle's tequilla and killing a hooker all in one thread. Thank you all.
Yee man!
Yee man!
Yee man!
Funny thing, I actually have friend that has connections to an armagnac producer in France. They're selling distribution rights to the U.S for exactly $16M. It's gonna be the next vodka.
Have him take 10 million or so and invest in index funds. Vanguard SP 500, Vanguard Bond Fund and right now I would say Europe is cheap so something like VGK index fund. The rest you can try various ventures but by investing 10mm in index funds he won't really be able to go wrong. Can have massive failures and still be financially independent for life by living off the dividends.
PE Fund or Hedge Fund Harder To Start? (Originally Posted: 01/14/2008)
Assuming that you have overcome the hardest obstacle, which is attracting initial investors, and you have raised a small amount of capital, like $25 MM or so, which would you say is harder to start, a PE fund or a hedge fund? What would starting your own fund entail? Also, how long would it take for the fund to reach ~300MM in size ( I know this seems like a very abstract question which can vary greatly with performance, how many more investors will give you money, etc.- I just want a general outline of what is possible to happen).
Any reason you just haven’t talked to a prop fund? Some of those can run a few hundred million. You said it was algo based. That is the sort of thing they excel and rolling up.
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