Do you know anyone that’s started a fund as a young person but followed an atypical path for doing so? How’d they do it? I’d love to hear the story.
If you read the biographies of Einhorn / Paulson etc you hear about starting with $1M of capital, showing a track record then growing from there. Why don’t we hear stories like that nearly as much anymore?
Aside from getting promoted as a multi-manager or waiting for a decade of experience at a single manager, what other paths are there to follow?
Born rich
Thank you for stating the obvious for this fool OP.
I worked in sell-side equity research before, stating the obvious is my core competence.
desk analyst at investment bank rates trading desk --> IB rates trader --> rates prop trader --> hedge fund PM
My buddy runs a Robinhood fund that’s long only Tesla. Started with 10k from his dad and has had incredible performance this yr
Is he taking outside capital yet?
wdym by "robinhood fund" lol?
For every HF PM that scrapped together $1MM to build a large fund, there are so so so many more seeded by their rich parents.
lol this is the answer I expected
Accurate
It's nearly impossible to raise money from people you don't know when you have no track record. That's as true in HFs as it is for entrepreneurs looking for seed capital for their very first venture. That's why you typically raise money from friends and family first. Unfortunately, if you have no friends or family with any money, you have to hustle a lot more to get the same opportunity.
This is why there are few things better than being born rich. You get more chances to swing for the fences. Really, if you're born on third base, you're just getting more chances to steal home. If you ever make it, you then get to pretend you knocked it out of the park.
I think the biggest issue is raising capital. Most inflows these days go to multimanager funds with tight risk management. Difficult to get huge (but not impossible) when institutional investors want to shove a ton of money into a low-risk fund rather than shop around for smaller guys to give $10-50 million.
The big launches that I can think of recently are superstars from the big MM who run their shop like a MM with tight risk controls.
It’s so much harder these days to get “edge” with how fast data flows, and how easy it is to access. Loeb and Ackman both started their funds with 3M. Nowadays you could even start a with 3M. Creating the entity and start up costs are close to 1M. You have to pay yourself something, plus maybe an analyst? A WeWork office for potential client meetings, so you look legit?
I feel like you need 10M minimum these days?
Depends if you are ok with not paying yourself.
fwiw I have a friend starting with $2M who is just basically not paying himself initially in order to get started.
I guess it would be ideal to be able to live off savings or nothing, but I don’t see how that would be possible in New York or any major city?
Start-up costs are no where close to $1m. If you’re running $3mm, can literally run it out of your home office and on an interactive brokers account. Only expenses are Bloomberg, and how ever you procure sellside research.
Agreed. Plus don't even need Bloomberg...lots of good/cheaper alternatives
Ed Thorp's story is fascinating. He was a young math professor at UC Irvine in the 1960s when he started dabbling in quantitative trading/investing. He started investing for people on campus, as well as some people from his gambling/blackjack days (AUM probably no greater than $1M), using a system he devised that traded warrants with a delta hedge. He had a hard time raising money back then as most people thought he was a joke. This was years before the quant craze.
Great story. What ended up happening to him?
fwiw when I read biographies of even the more successful hf founders, they all talked about how hard it was to raise money when they first started out (einhorn, Paulson, etc)
His books are definitely worth reading, and were a big inspiration to me originally. He pioneered a lot of ideas in the 70s/80s that have now become standard. His original fund Princeton Newport was shut down in the 80s, but he started another fund or two later on. I think he is still alive and in his mid 80s now, you can find some interviews of him on youtube.
Unfortunately he picked a bad co-founder and his fund ended up getting involved with some bad eggs (see Princeton Newport Partners) which forced him to close it following a court ruling. After that he basically retired from the industry. Some of the guys who worked at his fund later went on to run very successful quantitative strategies.
I went to UC Irvine as an undergrad, and took a mathematical finance class where the professor is a good friend of Thorp. He talks about Thorp all the time, including some bs about writing students letters so we could have internships at Thorp’s fund. It’s all bs...Thorp is still alive though.
Bill Ackman had an interesting in that he never really worked on Wall Street before founding his first fund.
lol...and where did Ackman get his investors money from?
Rich dad and his connections
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