Funding a Hedge Fund, How Easy?

I don't know much about the hedge fund industry, but I was a broker for 4yrs. A complete accident, but I found out that I was very good at selling. And it's about selling yourself in the retail brokerage business(not sure about hedgies) after a few meetings, the prospect will probably not even remember any numbers or track record. They either trust you or they don't.

Near the end, I was more interested in finding good stocks than finding people with money.

As far as people being a pain in the ass or not....in my experience the amount of money people had did not correlate with the amount that they bothered you. Some people need more hand-holding than others...$10,000 or $1,000,000 it didn't seem to make much difference. I had guys that would call a few time a day.others maybe twice a year.
 
Quote from Corso482:



You know it's funny that you should mention that. I'm about to graduate from college, and my dad is really pushing me to go to law school, which I normally scoff at, but the more I think about it, the more I realize there may be some utility in becoming a securities lawyer.

The trouble is that to get any decent experience in securities you have to get a job with a huge prestigious law firm, which means graduating from a top 10 law school and/or the top 5% of your class. Not an easy feat...

At any rate, if things went well trading, I suppose securities law experience would be invaluable for moving into "managed money."

Oh, and by the way, my original question was completely hypothetical-- I'm no where near the point of starting a hedge fund.
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corso,

GET THE LAW DEGREE !! you are way better off with a law degree than an MBA. OR you can do what i did--- marry an ex-SEC attorney. LOL

best,

surfer
 
The most successful lawyer investor is Charles Munger of Berkshire, he says if you want to be successful in investing get yourself a liberal education .
You might be better of going to this university.
http://www.sjca.edu/
Read the book Latticework By Robert G. Hagstrom
 
I tried managing money for a small group of friends/acquaintances (3) back in the late '80s. Basically we opened up a small partnership account (20k) and I was given the power of attorney to make all the trading decisions. I traded futures for about six months, the account ran up 50% in six months, but alas then it took a nose dive and when it was up about 5%, one of my friends moved away and we dissolved the partnership.

One thing I found that it is very easy to find friends/relatives etc who will readily give you the money to trade. Its all based on trust, I am not sure if they even understood or cared to dig deep into my trading performance or trading style.

I think performance aside a large measure of your success in getting private or for that matter commercial money is how well they like you and how well they trust you. But that probably true in any business..

The other thing I found is what Ed Sekota talked about in Market Wizards, every account had a measurable impact on my performance and psyche.

If anyone is thinking about managing money I think its a great idea to open up a small partnership account and start small. You will learn a lot about yourself and your trading when people are looking over your shoulder.

For me starting a Hedge fund or managing money commercially would be a very difficult task. These intermediates who help you get money from high net worth investors are really as**&^%les.
The constant pressure of people looking over my shoulder, playing morning after quarterback.

One thing that would help a lot is to get a partner, if you notice most of the big trading legends of our time, Buffet, Richard Dennis etc have brilliant partners who they get along with very well.

Good luck Trading, hope you find what you are looking for.
 
It is difficult to find investors for a hedge fund. Your first investors are going to be friends, relatives, and former and current coworkers.

Once you have about a year of results (and you are profitable, but that is assumed), you'll start getting high net worth individuals interested. They'll find out about you through hedge fund databases and any media exposure you can get.

Once you have about two years of results you'll start getting some interest from smaller (and later larger) funds of funds. They have the knowledge and time to do the due dilligence on small managers.

Around this time you'll also start being of interest to the prime brokers and incubators. They will be happy to get your name in front of larger investors. But always for a cost, of course. Either a portion of your fees, for a portion of your trading business (at higher than discount commissions), or for equity in your management company.

After about 3 years of results you'll start being of interest to family offices and extremely wealthy individuals.

After 5 years of results (always assuming you are profitable!) you should be large enough ($10-50m under management) and seasoned enough to be of interest to the endowment funds and pension plans.

Having a good track record, publishing it with all the databases, media exposure and networking are the name of the game for "marketing" private placements.
 
Quote from easyguru:

The most successful lawyer investor is Charles Munger of Berkshire, he says if you want to be successful in investing get yourself a liberal education .
You might be better of going to this university.
http://www.sjca.edu/
Read the book Latticework By Robert G. Hagstrom
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Okay, but why (what appears to be) a relatively expensive, 3rd tier, liberal arts college? Couldn't one could get a similar (perhaps better) education at a state school for considerably less money?

Also, I find the liberal arts thing a little bizarre coming from Munger (who got a Bachelor's from Michigan and a J.D. from Harvard).
 
I worked for a small money management firm who had 30 million under management. He had a track record of 15 plus years of beating the S&P 500, some years by over 25%. He also managed to diversify the risk out of his fund so that it had a lower risk profile then the market. He was good at managing money but had a hard time communicating to potential clients, so he had the hardest time raising money despite he spectacular results. He eventually got a company to help market his fund (there are many out there) and to help him develop some better marketing material. Of course they get a percentage cut on any business that came in as a direct result of their efforts. This percentage varied depending on which company you dealt with and had some room for negotiation. I left soon after helping him find a company to market his fund so I don't know what happened as a result of this. The other thing is that it seems it is a lot easier to get funds as you get larger in size because none of the institutional money wanted to be the first one in the fund or make up a large percentage of the money in the current fund. A lot of his growth was based on growing the money thru good performance rather than getting several new clients in. So that is one story of how a good manager with low risk fund and superior performance can still have a hard time raising new money without the right kind of marketing or personality to push the fund.
 
Quote from links:

I tried managing money for a small group of friends/acquaintances (3) back in the late '80s. Basically we opened up a small partnership account (20k)

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What are SEC requirements in opening up a friends and family type of trading partnership with no public solicitation? My interest in this is for tax reasons so I can book earned income and max out SS, IRAs etc and offset certain expenses. (Yes I know that is making my taxes higher for that portion of my earnings since I'm not under the 60/40 rule.)

I know you'd have to form an LLC as the trading entity and then another corporation as the management entity.

Were you able to avoid the state and SEC requirements for prospectuses, filings etc... which would result in costly legal and setup fees? At what point are those requirements triggered? By number of investors, public solicitation?
 
puffygums,

There maybe some validity to setting up a partnership as you describe, it almost sounds like a tax shelter, but I am not sure as to its tax implications.

Our partnership was setup as a general partnership, as such there weren't any tax benefits, the taxes simply passed through to the partners.

We just thought starting out it was a good idea to forgo the time and expense of setting it up as a corporation until the business has proven itself.

I forget what the exact number of partners is, but if its under a certain number you can bypass all of the SEC requirements etc. The partnership agreement dictates who gets what percentage of the profits.

I think trading a partnership account is good small way to experience the pain and pleasure of managing money.
 
Quote from easyguru:

The most successful lawyer investor is Charles Munger of Berkshire, he says if you want to be successful in investing get yourself a liberal education .
You might be better of going to this university.
http://www.sjca.edu/
Read the book Latticework By Robert G. Hagstrom
More...

No problem. Already an English major at a small liberal arts university similar to that one.

Either it'll make me a great investor or the butt of jokes when I try to find employment. Something tells me the the latter is more likely...
 
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