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Starting a small hedge fund

pianoman11686's picture
pianoman11686 - Certified Professional
Rank: Baboon | banana points 109

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.

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Comments (263)

Oct 19, 2017

Probably don't have any useful advice for you but would love to hear about your background.

Nov 1, 2017

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

Oct 19, 2017

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?

Nov 1, 2017

Started with our own assets and a few close family / friends. Have raised very little since launch, despite knocking it out of the park last year. We've talked to a couple fund of funds, mostly west coast, but nothing serious. Been focused on HNW individuals b/c most institutions won't consider anyone with less than 3 year track record

Oct 19, 2017

Gotcha. Would also love to be updated on how you guys progress. Have had some fantasies lately of starting my own fund so would be curious to hear about how this goes.

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Oct 27, 2017

Do you have a pretty extensive network of high net worth people? If so, I say go for it. I have been involved in a start up hedge fund over the last 6 months or so and it has been very rewarding for the portfolio manager.

What I have seen though is that having a network of family and friends with money is absolutely necessary to getting started. Fund of funds and other groups like them won't even consider investing until you have a proven track record of quite some time.

Oct 19, 2017

Interested to hear about this coming along as well, have two friends that started up a fund just over a year ago

Oct 20, 2017

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.

    • 4
Nov 1, 2017

Haha, glamorous is definitely not the word for it...

Nov 1, 2017

$10mm is a pretty arbitrary number. $10M-100M would also be laughed at.

Jan 18, 2018
MonacoMonkey:

Anything under $10M in AUM called a "fund" is laughed out the door.

If you have a Sharpe of 4+ (like a high freak type of stuff), there is plenty of money chasing that type of strategies. Of course, in that case it makes little sense to take outside money.

Oct 20, 2017

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?

Oct 29, 2017

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.

    • 3
Oct 20, 2017

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.

    • 1
Oct 29, 2017

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.

    • 1
Oct 20, 2017

Exactly, you will get service from prime broker (intros) but doesn't mean those meetings are worth anything

    • 1
Oct 29, 2017

using trading algorithm? like a quant trader but only in US equity?

Oct 29, 2017

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?

    • 1
Oct 20, 2017

Capital iq, ipreo, Zacks, barchart..

Best Response
Nov 1, 2017

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.

Oct 30, 2017

take a look at Minard Capital -SF

    • 1
Nov 1, 2017

I would suggest you hit up some of the big law names in fund formation and see if they'll do work for you guys at a discounted rate/deferred payment. It's not impossible for funds to procure really top-notch structuring advice and the whole gamut of legal assistance through some combination of:

  • Connections
  • Excellent pedigree (former employee at an established fund/family office)
  • Unique investment style/returns

Keep in mind that there is an incentive for purveyors of legal advice to help out fledgling asset managers that they think have promise. Doing some setup favors on Fund I can lead to a strong relationship, which leads to more serious bills for the lawyers if you launch bigger funds later.

Regardless of what you do, SMAs (and I admit I'm not very familiar with these) seem like a very unorthodox and inefficient structure for a fund, especially if you have low AUM and are getting eaten up by transactional costs.

If you haven't already, I would read up on master-feeder structures. These could be a particularly attractive option for you since relative to an SMA setup it would aggregate AUM at the master fund level, and let you deploy capital/distribute P&L from one entity rather than through each SMA.

Of course, setting up a master/feeder structure is much more costly, I would imagine, than an SMA - but doing a tried and true/common structure could really help you out down the line. Wouldn't want to land your first big fish client and then have them balk before closing because you're operating on some funky structure.

Nov 3, 2017

**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.
**

check out www.sentieo.com or DM me for more info.

    • 1
Oct 29, 2017
pianoman11686:

Replying to multiple comments above:

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.

The reason why I asked is because I'm sort of in the same boat and I have been looking around for a good, free stock API (previously used Yahoo Finance, but they called it quits on their API) and I came across this Alpha Vantage. Seems pretty robust and the data is real-time within 1 minute (Yahoo Finance quotes were delayed by 15 min) There have also been a lot of third party libraries created for it. Might be worth checking out?

    • 3
Nov 1, 2017

It looks good! Not sure what exactly you're trying to do, but I sympathize with the loss of Yahoo API. We'd been using it for some of their Cap IQ data and now have to rely on Morningstar, Marketwatch, etc. For real-time prices/volume, we use TD's excel plug-in.

If you want to discuss further, DM me.

Jan 3, 2018

So Ive been messing around with a trading algorithm that I have recently developed and I want to start utilising it. I had a similar challenge when it came to data.

I mainly use python, and to get reliable data I modified a library called pandas_datareader to fetch minutely tick data through the Google API..

DM if you want to discuss this further as I am happy to help.

Jan 18, 2018

Good morning pianoman and potentially anyone else reading,

I am curently in my masters for data science and I've been working at building my network of like minded individuals. Where I live, St. Louis, does not have many individuals that are savvy in this area.

I've been wanting to work on a small project that consists of building a trading algorithm. It would be awesome to hear the basics on how to attack it, if you are willing.

Also, I've been trying to work my way into the investment banking industry. Wealth management and investing is a huge interest and hobby of mine. I've been in control of my funds and have been successful for the last 4 years. It's got to the point where I've had friends ask me to manage their money.

I'm a couple of years out of school (undergrad) and have worked with Anhueser Busch as an hr analyst and have now moved on to Wells Fargo as a business systems consultant.

I'm not stuck by any means but some advice from anyone in the investment banking industry would be awesome.

Will my knowledge from my masters in data science give me a leg up with looking for a firm to work for? What should I do and/or go for?

My undergrad isn't finance but business administration with an emphasis in hr. This has made getting noticed for positions I'm interested in tough. That is why I'm going for my masters in data science. I see it as a valuable knowledge and that in addition to my analytical mindset, could become a powerful set of skills for me.

Im a straight shooter and have a lot of irons in the fire

Any advice from anybody willing to give this guy some direction would be amazing.

Hearing from a investment banker, broker, or research/equity analyst, etc would be very cool.

Hope to hear back from some.

Thanks!

Ross F.

    • 2
Nov 1, 2017

Please send me a DM, we can talk at greater length via email or phone about what my backtesting process consisted of, any other advice I can provide, etc

Oct 30, 2017

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.

Jan 19, 2018

bump :)

Jan 19, 2018

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.

Jan 19, 2018

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.

Jan 19, 2018

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

    • 1
Jan 19, 2018

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.

    • 1
Jan 19, 2018

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.

Jan 19, 2018

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.

    • 1
Jan 19, 2018

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.

    • 1
Jan 19, 2018

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!

Oct 30, 2017

Quandl is cheap FWIW

Jan 19, 2018

The vast majority of HFs out there are not capturing any alpha. Why pay 2/20? Or whatever the going rate is now.

Jan 19, 2018

Then don't do it? Since you are undercapitalized.

Jan 19, 2018

For anyone who wants the full report:

http://www.citibank.com/icg/sa/flip_book/a1/2013_B...

Jan 19, 2018

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/

Sent from my iPhone

Jan 19, 2018

profitability/breakeven aum estimates are way too high.

Jan 19, 2018

I agree. I can name a couple people on here that have done it with way less.

Competition is a sin.

-John D. Rockefeller

Jan 19, 2018

think it is fairly accurate. You can do it cheaper but not with real infrastructure, service providers, compliance program, etc.

Jan 19, 2018

Moving to Asia is your best bet for lowering costs, think Hong Kong.

Oct 30, 2017

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.

    • 2
Jan 19, 2018

looks like they successfully attracted some initial capital

Jan 19, 2018

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."

Jan 19, 2018

Even if these kids were financial geniuses they lack any skill at interviewing, pr, or investor relations.

Jan 19, 2018

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.

Jan 19, 2018
SirTradesaLot:

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.

They made the mistake of publicizing the fund and if they fail it will be pretty unfortunate for their future career prospects.

Jan 19, 2018

If I hear the word passion one more time...

Jan 19, 2018

The american hyperbole....

Jan 19, 2018

"He jets around the world to attract investors to his hedge fund company."

Yea, these guys are pulling money through their parents/friends/family.

    • 1
Jan 19, 2018

Ahaha they called it a hedge fund company

Jan 19, 2018
kyleyboy:

Ahaha they called it a hedge fund company

Are you a freshman at IU, or still a hs senior?

Jan 19, 2018
BTbanker:
kyleyboy:

Ahaha they called it a hedge fund company

Are you a freshman at IU, or still a hs senior?

Senior

Jan 19, 2018
kyleyboy:
BTbanker:
kyleyboy:

Ahaha they called it a hedge fund company

Are you a freshman at IU, or still a hs senior?

Senior

Cool. I'll have to hook you up with my buddy over there who just got a Citi S&T offer.

Jan 19, 2018
BTbanker:
kyleyboy:
BTbanker:
kyleyboy:

Ahaha they called it a hedge fund company

Are you a freshman at IU, or still a hs senior?

Senior

Cool. I'll have to hook you up with my buddy over there who just got a Citi S&T offer.

That'd be sick man, i'm aiming for S&T best case scenario, but i'm keeping my options open, and I have a lot of time to think.
Just PM me whenever and I can share my email or something

Jan 19, 2018
kyleyboy:
BTbanker:
kyleyboy:
BTbanker:
kyleyboy:

Ahaha they called it a hedge fund company

Are you a freshman at IU, or still a hs senior?

Senior

Cool. I'll have to hook you up with my buddy over there who just got a Citi S&T offer.

That'd be sick man, i'm aiming for S&T best case scenario, but i'm keeping my options open, and I have a lot of time to think.

Yeah, you're definitely on the right track given the fact that you even know what S&T is in high school. Most kids have no idea what's going on until sophomore/junior year when it's too late.

Jan 19, 2018
BTbanker:
kyleyboy:
BTbanker:
kyleyboy:
BTbanker:
kyleyboy:

Ahaha they called it a hedge fund company

Are you a freshman at IU, or still a hs senior?

Senior

Cool. I'll have to hook you up with my buddy over there who just got a Citi S&T offer.

That'd be sick man, i'm aiming for S&T best case scenario, but i'm keeping my options open, and I have a lot of time to think.

Yeah, you're definitely on the right track given the fact that you even know what S&T is in high school. Most kids have no idea what's going on until sophomore/junior year when it's too late.

It helps that I enjoy this stuff. I'd probably trade even if there was no money to be made. It's one of the hardest games to be good at, and it is so satisfying.

Jan 19, 2018

I am sure the firm is run well, they are all managing partners.

But, good for them and I hope they do succeed.

Jan 19, 2018

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?

Jan 19, 2018
ky0ung:

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?

22.5 lots is about what they got
If they are Euronext Wheat (No. 405) Futures WHT futures

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.

Jan 19, 2018
kyleyboy:
ky0ung:

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?

22.5 lots is about what they got
If they are Euronext Wheat (No. 405) Futures WHT futures

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.

CBOT trades in 5k bushel contract sizes, so i think they got it from them because euronext wheat is traded in London. plus if they bought 75k of bushels, it would be a nicer number to buy 15 contracts

Jan 19, 2018

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?

Jan 19, 2018

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.

Jan 19, 2018
Macro Arbitrage:

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-medica... ...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...

    • 1
Jan 19, 2018
duffmt6:
Macro Arbitrage:

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-medica... ...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...

I feel the same way. I don't think they'll be tarnished even if they fail but they remind me of an interaction I had with a student at my alma mater.

Ran into the kid's blog and it reminded me of when I did the same thing to build my resume. I shot him an email from my work address to say something encouraging.

Then we start talking about BP after the Deep Water Horizon accident. I mention my friend is looking to make a big investment and this freshmen starts telling me "how much of a fool's trade that is". I wonder if I should have told him another fool named Seth Klarman was in the same trade.

Pretty pompous way to reply if you ask me.

Jan 19, 2018
Macro Arbitrage:

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

Agreed. They're just goofy kids, it's not like they're doing something immoral. They won't be tarnished goods. It's not like they're actually famous or even known in most financial circles (outside of WSO, that is).

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.

Jan 19, 2018

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.

Jan 19, 2018

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."

Jan 19, 2018

His dad is David Caroll, who is head of Wells Fargo's Wealth Management business.

https://www.wellsfargo.com/about/corporate/executi...

In 2011, he made $8 million in total compensation.

http://www.forbes.com/profile/david-carroll/

Jan 19, 2018
TeddyTheBear:

His dad is David Caroll, who is head of Wells Fargo's Wealth Management business.

https://www.wellsfargo.com/about/corporate/executi...

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.

"Whenever you feel like criticizing any one, just remember that all the people in this world haven't had the advantages that you've had."
-F. Scott Fitzgerald

Jan 19, 2018

Hmm, yea I just saw a bunch of comments mentioning it. Not related at all then.

Jan 19, 2018

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/ry...

He's been at it since at least 2009, and this is the 1st I'm hearing of him.

Jan 19, 2018

I'd bet that he has some very wealthy friends and family.

Jan 19, 2018

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.

Jan 19, 2018
lotsofquestions:

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.

I think you might be looking at a bad source in the article it says he was up 753%
Here is his annual letter
http://www.mesoncapital.com/letters/2009_Q4_MCP_An...

Jan 19, 2018

Wait a minute. 753% ?!?!? That cannot be right. Wouldn't every high net worth individual in the world be begging to be a partner?

Jan 19, 2018

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.

Jan 19, 2018

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.

Jan 19, 2018

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.

Jan 19, 2018

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.

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Oct 31, 2017

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.

    • 3
Oct 19, 2017

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?

Nov 1, 2017

That is consistent with what I've seen and heard...would love to pick their brains on the initial fundraising process

Jan 19, 2018

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-start...

    • 4
Oct 19, 2017

Hey PM me and I'll see if I can set something up.

Nov 1, 2017

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.

Jan 19, 2018

To start a fund properly, its going to cost about 30k

Jan 19, 2018

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.

//Signed//
MLang

Jan 19, 2018

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.

Jan 19, 2018

Do you even know what a hedge fund is?

Jan 19, 2018

Letter of direction.

Jan 19, 2018

High school senior? Or college freshman

Jan 19, 2018

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.

    • 4
Jan 19, 2018

Quant Macro with a focus on FX.

Do we really need more 2 and 20 L/S equity funds?

Jan 19, 2018

Are you saying you think L/S equity is more saturated than quant FX? What are you going to trade, 20 FX pairs??

Jan 19, 2018
dabanobo:

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.

Jan 19, 2018

A big one

Jan 19, 2018

L/S doesn't mean market neutral, so L/S firms can have exposure to risk factors like beta.

Jan 19, 2018

Distressed Debt (acquiring positions large enough to influence the bankruptcy procedures) : Some very clear value investment propositions in this field

Jan 19, 2018
suchislife:

Distressed Debt (acquiring positions large enough to influence the bankruptcy procedures) : Some very clear value investment propositions in this field

Same here.

Jan 19, 2018

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).

    • 1
Jan 19, 2018
Ravenous:

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

Jan 19, 2018
Ravenous:

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).

great stuff!
one silver banana for you sir

Jan 19, 2018

FI arb hedging with FX options

Jan 19, 2018

global macro - fx, rates, commodities

Jan 19, 2018

Why, multi-strategy of course.

Jan 19, 2018

one that makes money duh

Jan 19, 2018

i would create a fund that only invested in Sega, leverage it 10x, and call it "Sonic the Hedgefund".

Money Never Sleeps? More like Money Never SUCKS amirite?!?!?!?

    • 1
Jan 19, 2018

An FX LS arb XS TD MEr Beta Alpha Omega Macro Fund. Specializing in ctfsooc (confusing the fucking shit out of clients).

Jan 19, 2018

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.

Jan 19, 2018

capital structure arbitrage

Jan 19, 2018

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

Jan 19, 2018

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.

Jan 19, 2018

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.

Jan 19, 2018
  1. Distressed debt; limited downside. And if you buy a large enough chunk, you can have a say in company strategy and can implement it, which personally i find interesting
  2. Value in small (possibly medium) cap; I'm long-term orientated and believe in minimizing trades to cut costs. One thing i would take into account, if possible, is to identify consumer psychology trends to identify companies that will benefit in the future from shifts in product preferences (could be a separate strategy)
Jan 19, 2018

Activism Mothafuckas

Nov 1, 2017

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.

Jan 19, 2018

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.

    • 2
Jan 19, 2018

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?

"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller.

"Live fast, die hard. Leave a good looking body." - Navy SEAL

    • 2
Jan 19, 2018

color doesn't matter, just the vanity plate

Jan 19, 2018
undefined:

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?

Ballers drive Lambo's. With that purple metallic chrome paint. You'll never make it if you're aiming for a Ferrari.

Jan 19, 2018

Purple is a little too subtle. Need that Nyan Cat inspired paint job a la Deadmau5.

http://gtspirit.com/2015/08/02/deadmau5-reveals-ny...

Jan 19, 2018

Tasteful thickness +1

Jan 19, 2018
undefined:

Purple is a little too subtle. Need that Nyan Cat inspired paint job a la Deadmau5.

http://gtspirit.com/2015/08/02/deadmau5-reveals-ny...

I like this one more: https://i.ytimg.com/vi/ZmD5iAT_L-A/maxresdefault.jpg
Nothing says my penis doesn't work without cialis/I'm a Qatari prince with a GBP10 million apartment in London like that paint job.

Jan 19, 2018

If its not red, you don't really drive a Ferrari.

Mine is red.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Jan 19, 2018

No, no, no, my Ferrari was white - like Don Johnson's in 'Miami Vice' - not red.

"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller.

"Live fast, die hard. Leave a good looking body." - Navy SEAL

    • 2
Jan 19, 2018

Don Johnson isn't a real Ferrari owner he is just some poser.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

    • 1
Jan 19, 2018

Prove it :)

Jan 19, 2018

why do i get the feeling that martin shkreli might have been the author of one of the 'started my own hedge fund' threads?

    • 5
Jan 19, 2018

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.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

    • 1
    • 1
Jan 19, 2018

You read that from Outliers it sounds like

Jan 19, 2018

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.

    • 1
Jan 19, 2018

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

Jan 19, 2018

http://www.wallstreetoasis.com/forums/launching-a-...
This was about 2 weeks ago. Have no fear - these threads are still going strong!

Jan 19, 2018

Another one here from two months ago:
http://www.wallstreetoasis.com/forums/how-to-raise...
Seems to me like there's still plenty of irrational exuberance out there...

Jan 19, 2018
Jan 19, 2018

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

Nov 23, 2017

Pm me if interested

Array

Jan 19, 2018

So are you starting a private bank, starting a hedge fund or running a different business? I'm confused...

Jan 19, 2018

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.

Jan 19, 2018

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.

Jan 19, 2018

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.

Jan 19, 2018

You not only have no apprehension about the value of a dollar but you don't value your friends either?

Chaffey:

Also, I have nothing to lose; it isn't my money.

Anyone working in wealth management or at a private bank can tell you that earning your client's trust is more valuable than boosting your fees this year.

Jan 19, 2018

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"

Jan 19, 2018

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.

Jan 19, 2018

Most likely.

Jan 19, 2018

You have a friend who you will most certainly lose because this will fail.

Jan 19, 2018

Ya bud

Jan 19, 2018

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.

    • 1
Jan 19, 2018

Thank you for the advice.

Jan 19, 2018

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

Jan 19, 2018

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.

Jan 19, 2018

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.

    • 1
Jan 19, 2018

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.

Jan 19, 2018
MilitaryToFinance:

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.

Yikes.

Oct 30, 2017

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.

    • 1
Jan 19, 2018

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.

Jan 19, 2018

Yee man!

Jan 19, 2018

Yee man!

Jan 19, 2018

Yee man!

Jan 19, 2018

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.

Jan 19, 2018

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.