Starting quant fund out of college


Hello people,

Let me first say that I believe to be heavily delusional on the feasibility of this subject. That's why I'm posting here to get a taste of the real world.

A little bit about me: will in one year have a fairly quantitative MSc Finance from semi-target/target (think HEC, Bocconi, St Gallen) in Europe. Currently work part-time as a software developer, and REALLY like the job. No experience from BB or any type of serious financial firm (have done internship at boutique IBD in my town but it was quite unorganized). Have some connections to money through well-off friends from school, however very unclear whether they would be willing to invest.

I have been getting into building statistical models quite a lot lately, and one specifically is really starting to come along (lots of Nuclear Phynance browsing). I believe the work in some kind of quant role would be perfect for me since I will be able to combine some lighter programming with statistics. I also believe that I can acquire the skills needed, but think that I will really be risking to be stuck in risk due to not having a degree such as physics or similar if I choose to try to get a real quant job.

This in combination with me generally liking high-risk stuff and wanting to take some chances early on in life so that I do not end up a bitter old dude wondering why he didn't take chances in his youth when he didn't really have anything to lose makes me think starting a quant fund would suit my risk appetite and career goals quite well. I have also had the idea that maybe people would be more willing to invest in something where they can actually make money when the yields are so low. Wrong or right?

Give it to me raw monkeys, why should I think again about this?

Comments (17)

Mar 22, 2019 - 5:35pm

Truman, sorry about the lack of response. Maybe one of these topics will help:

  • Leave boutique IB internship for start up hedge fund internship? internship and go to this tiny unknown start-up HF, or just continue in my current internship as IB generally ... be the 3 of us in the fund, and I'd get to learn a lot about the nuts and bolts behind the HF ... told by a friend that there was a long/short fund started in early 2013 by 2 ex- BB MDs. They were ...
  • Joining Start Up Hedge Fund- What to Expect Hey guys, I have the option to join a start up hedge fund after I leave b-school. It hasn't ... student loans/to survive. For those of you that are more knowledgeable in startup funds, do you have any ... a great track record at the blue chip fund he left to start this one. We have not discussed comp figures ...
  • Start Up Hedge Fund London Based let me know. hedge fund startup No fee hf start up start up pitch seed ... I am looking to start up a hedge fund or a managed account structure based in London (management). ... structure firm that starts up small hedge funds
  • Part-time Investment Analyst at start-up hedge fund opinions Y) as an investment analyst at a start-up hedge fund in my city. The position's relevant work ... this opportunity might bring for me? Cheers, P IB hedge fund HF BB portfolio management investments ... Hi guys: I was offered a part-time position (up until the firm moves its office from country X to ...
  • Start-Up Fund Manager advice Hedge Fund Advice Start-Up Hedge Fund ...
  • Hedge Fund Careers: Getting a Hedge Fund Job Out of Undergrad and Beyond knowledge to get a hedge fund job in the first place. Getting into Hedge Funds Out of College Most hedge ... A career in the hedge fund industry is one of the most desirable careers in finance. Money is ... on individual performance, a simultaneously appealing and frightening facet of
  • Compensation at Start-Up Hedge Fund with $100mm AUM experience as the first hire for a hedge fund launching with $100mm AUM? Would this change much after 2 years ... of IB? When should junior analysts expect to get carry/equity in the fund? What are the kinds of ... What is reasonable compensation (Base & Bonus as % of Base) for someone with 1 year of IB ...
  • Would you ever consider joining a start-up fund that your friend started? a certain level of AUM) hedge fund friend start-up ... work in the industry regard experience at a start-up fund. Obviously, the experience is not going to be ... someone to go from working to a start-up fund to a more established fund? My current situation: IB at one ...
  • More suggestions...

You're welcome.

Mar 27, 2019 - 11:40pm

you have no idea what you are no. get a job at a trading firm or BB as a quant developer. You'll get paid well, and you'll learn the things you'll need. Then, after 2-3 years, depending on what you've learned in the "real world" maybe you'll be in a position to try what you are referring to (but, i doubt it).

Why would an investor choose to invest with you over, say Citadel?

just google're welcome
Most Helpful
Mar 28, 2019 - 4:35am

You asked for it:
You are heading into the abyss eyes wide open. You know your logic is flawed and delusional, yet still feel an urge to do this.

Let's say you're in St. Gallen - which, given a lot of rich peers sounds about right. Take the bus to Zurich and take a walk around Paradeplatz. The first thing you need to ask yourself is; what can you offer, that all of these firms can't? You say that you have had the revolutionary idea that "people would be more willing to invest in something where they can actually make money". What makes you think that you can provide this? You have no meaningful finance experience, no track record, no infrastructure and no clue about how to even run the operation required to create abnormal returns for anything more than pocket change. Oh, and the fact that you also "generally like high-risk stuff" doesn't exactly make you more attractive as a money manager, it just makes you sound like the next major HF blowup.

What most people don't get is that financial services aren't just about having some smart algo and then let that trade. We're not in the business of making great returns, we're in the business of building trust and relationships. The problem with this; If your friends from college are old money, they are already connected to a number of highly reputable firms that offer both returns, and services, that are way above the level you can ever provide.

Some of your friends' parents may stick some money with you, just to show support, but you'll need to raise a whole lot more than breadcrumbs just to get some office space and a Bloomberg terminal. The 2 and 20 is dead, and it's more like 1 and 10 these days. You'll probably need to give some discounts too if you want anyone to back your first round of funding. If you're smart enough to build a statistical model creating alpha, you should be smart enough to pick up the calculator and see how much money you need to raise for this to even go breakeven and, in turn, how absurd this "plan" really is.

I don't know... Yeah. Almost definitely yes.
Mar 28, 2019 - 10:38am

Lot of great points here, but some of it is flawed. Yes the trust & relationships are key, but you are literally in the business of prudently compounding capital if you're in some form of investment management (not talking WM/PWM/IB, etc.).

As for the fee structure, it's not 1 and 10. It's closer to 1.5-1.6% and 15-16%. I can see it eventually getting to 1 & 10, maybe 10+ years down the line, but it's not 1 and 10 today on average.

Mar 28, 2019 - 11:22am

Agree to disagree. If you think making great returns is all it takes, then I have some bad news for you, but let's not derail the discussion with details like that.

Your main problem is that you're putting the cart in front of the horse. Most people, starting a hedge fund, already have the funding in place - either by funnelling their own money into the shop or from a handful of sponsors whom they have longstanding relationships with.

To take a specific example, look at Dan Sundheim, former co-CIO of Viking, one of the most renowned HFs on the Street, and now the owner of D1. He had 15 years of HF experience and was known as one of the best stock pickers in Connecticut. He also managed his own money for a while and funded the entire operation in its initial stages with his own cash. When he took outside money, I am sure that a lot of his former Viking-investors were happy to back him with 20-200m and you can bet your a*s that most of this money was already "secured" by a gentleman's agreement. Rumour has it even Halvorsen himself chipped in a piece. That is the competition in your initial fundraising.

The fee structure was somewhat exaggerated to get my point across, and I do agree that the average HF might be able to charge around 1,5 and 15. However, I do find it odd why you would consider your new operation to be anything close to average in the HF world. Unless they were paralyzed from the neck up, there is absolutely no way that people are gonna pay those fees for a guy coming off a part-time gig in AM no matter how smart they are.

Lastly, I do not mean to crush all hope and I am sure you can have a great career, and maybe even start a fund one day - but that day is not today. There is a reason why every smart HF analyst isn't opening up shop, no matter how many percentages they've made for their investors. Raising capital and getting people to trust you with hundreds of millions is no easy task and smarter people than you have failed thousands of times before.

I don't know... Yeah. Almost definitely yes.
Mar 31, 2019 - 4:36am

Thanks for your honest answer! Just wanted to provide a few clarifications. Regarding "invest in something where they can make money": I have read quite a bit about pension funds and such having issues with getting enough returns, and with rates being so low right now I figure that people are looking into more high-risk ventures in general just to get some return. Obviously, a startup wouldn't be first in line to get that money but I thought it would open up the market a bit. Regarding "high-risk stuff": I was thinking more about my general career interests than in terms of money management.

Anyways, I completely agree on the fact that my competitive advantage against others is zilch and that it is probably best to nip this "fund" in the bud.

Mar 28, 2019 - 8:48am

QuiltEmerson is not wrong. You can build the best system in the world, but if you are unable to pitch and sell yourself no one will feel comfortable investing in you.

I would go work for a firm and get some experience under your belt. In regards to old money, I know many people who fall into this category. They "do not" care about technology, but rather, who you are as a person (complete package). They will look at education, family wealth, jobs at XYZ location, etc. Think long and hard about this before you ask them for funds. If you do go this route - build a strong foundation first.

I am sure you will succeed. But you need to build the train tracks before the train can be placed on it!

No pain no game.
Mar 28, 2019 - 2:33pm

All of the posters are telling you that you need a foundation. I'm going to tell you how to make one. You say you have quantitative experience from a good MSc? Head over to Quantopian and start to build your models. Spend six to eight months perfecting them, tap into the Quantopian funds (for great models they give you some money to play the real market), and once you've shown you can provide above-ETF returns, then go after your friends' parents.

Mar 29, 2019 - 12:50pm

If it was so easy everyone would be doing it. The people truly talented enough in their algo development skills get picked up by larger shops quickly, Hudson, Akuna, etc. If this guy really wants to prove to his wealthier friends (unfortunately not really a skill one can learn), this is probably the best way for him to go about it.

Mar 31, 2019 - 4:44am

Thanks for your opinions monkeys. I just needed people to tell me the cold hard truth straight up. Not always easy to get that in reality since I've noticed most people don't really want to say this kind of stuff to one's face.

Apr 3, 2019 - 11:47am

If you have access to capital, take the plunge. If not, work for someone else first.
The world will never see plenty of good strategies because the capital was not there, and has seen too many poor strategies because capital is allocated inefficiently (nepotism, luck, etc.).

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