DE Shaw

[opmtrader]

melo said "I believe that most people involved in researching and selecting hedge fund managers will tell you that the quant part of the d/d process doesn't weight more than 20% in their report."

What other factors make up the other 80%?

How much do people care about your numbers vs. your style or philosophy behind your trades?

 

[melo]

Numbers are what brings your fund up on the screen initially. Audited returns required to back them up. Run comparisons with peer group and other metrics to rank the candidates. That's the 20%.

Qualitative is the major element - Third-party checks/investigation on the principals' backgrounds, a long phone interview to hear the manager articulate his strategy and risk management systems, follow-up questions. If they stay on the shortlist, a visit to the fund's offices and meeting ALL the personnel. Ask friendly administrators/prime brokers etc. about the manager/fund.

Is the cycle favorable for the strategy is another consideration. There are obvious times when merger arbitrage, conv arb etc., is saturated, or economic cycles when distressed is likely benefit.

If you're marketing to intermediaries, you need to know what your target audience is likely to want for its clients, or if it's for institutions, what their constraints are. Institutions will also want to meet the manager in person.

Typically this due diligence process will take 2-3 months. And at the end of it, the ultimate qualitative test is your gut instinct. After a while in the business, as in many others, you begin to get a nose for when something doesn't stack up. Very bright hedge fund managers can be very bright at covering up and cooking up. Frauds are not easy to detect, and ultimately that's often a bigger risk than the fund blowing up since style drift is a little easier to pick up on the radar screen.

The above is necessarily a generalisation.

 

[mustraise]

I am going through the process of starting Investment Advisor firm. I have read this entire thread from the beginning, and have some questions regarding my situation. I have a future client that wants to do a raise for his hedgefund. He does not come from a big trading firm, and has only a 1 year track record of 40%of which he made from his own seed capital of $350,000. He wants me to do a raise of $1 million in 2007. So here are my questions.

1. Currently I am contemplating how to go about the raise? I have 3 years succesful retail experience at Morgan, and am dynamite on the phones and in person as far as sales. Should I attempt institutions or should I stick to finding private investors? It seems from the commments in the thread that institutions would not even consider my client even if he has an "edge". If that is the case what would you suggest I do besides networking with other brokers, getting all the necessary prospectus, and legal promotional material to present to accredited investors? In addition do you think I should go for a 30-50 million raise to attract interest of these investors so we dont appear to be new to the game?

2. Should I attempt to do a Class A share and B share raise to where the A share class would get a discount for early entry? I hear this works?

3. What should I charge to do this? I was thinking 10% finder on the front, but I hear some firms charge 20%.

4. Should my client have a legal website for the investors to reference?

5. Should I team up with other broker/firms to attempt to find overseas capital? Im not sure if this is even allowed, but in order to save time I thought it would be a good idea to ask.

I appreciate any constructive feedback. This is a new business for me and look forward to taking the right steps in order to be successful.

MustRaise

 

[jimmyneutron]

1) This is 100% off-topic

2) Worse, you're resurrecting a 3yo thread, to go OT

3) Your client hasn't a chance of securing institutional money with his aum and track record.

4) Class A, B; absurd considering the amount you're looking to raise.

5) Morgan? You work/worked for DW. Why would anyone doubt you expertise in raising buy-side capital?

6) Your ability to sell mom and pop an annuity is meaningless in this context.

7) 10% is absurd. I would tell you to summarily "gfy" if asking for nearly 30% of my starting capital. Ludicrous considering you're only raising a mil at best.

 

[timmyz]

witness the mind of a fund of funds person. audited fund performance only matters 20%. what his circle of friends say about you matters 80%.

same old game - it's all about who you know and not what you know.

Quote from melo:

Numbers are what brings your fund up on the screen initially. Audited returns required to back them up. Run comparisons with peer group and other metrics to rank the candidates. That's the 20%.

Qualitative is the major element - Third-party checks/investigation on the principals' backgrounds, a long phone interview to hear the manager articulate his strategy and risk management systems, follow-up questions. If they stay on the shortlist, a visit to the fund's offices and meeting ALL the personnel. Ask friendly administrators/prime brokers etc. about the manager/fund.

Is the cycle favorable for the strategy is another consideration. There are obvious times when merger arbitrage, conv arb etc., is saturated, or economic cycles when distressed is likely benefit.

If you're marketing to intermediaries, you need to know what your target audience is likely to want for its clients, or if it's for institutions, what their constraints are. Institutions will also want to meet the manager in person.

Typically this due diligence process will take 2-3 months. And at the end of it, the ultimate qualitative test is your gut instinct. After a while in the business, as in many others, you begin to get a nose for when something doesn't stack up. Very bright hedge fund managers can be very bright at covering up and cooking up. Frauds are not easy to detect, and ultimately that's often a bigger risk than the fund blowing up since style drift is a little easier to pick up on the radar screen.

The above is necessarily a generalisation.

 

[mustraise]

If Im entirely off track, what would you propose would be the right road for me to travel in order to raise this capital considering the circumstances then?

must raise

 

[jimmyneutron]

Quote from mustraise:

If Im entirely off track, what would you propose would be the right road for me to travel in order to raise this capital considering the circumstances then?

must raise

There is no easy answer for raising 7-figures. Networking inside your office will help, but you'll need the DD and performance ratios; Sharpe, Sortino, etc...

 

[timmyz]

gut instinct? lol this is what you need to do to suck money out of this idiot.

forget your fund performance. just make sure you can make the initial minimum cut off. the most important step is to ask your friends who have contacts at the places he mentioned to say good things about you.

then contact this idiot and let him do his due diligence. bet you a million dollars his gut instinct will tell him you're a winner.

Quote from melo:
And at the end of it, the ultimate qualitative test is your gut instinct. After a while in the business, as in many others, you begin to get a nose for when something doesn't stack up.