The valuation of most mutual funds is, as I understand it, about 5% of assets... Now this differs whether or not there is a trend towards net redemptions or net subscriptions... With a hedge fund it's a lot different, since revenue flows are consistent with performance in addition to AUM... I'd probably put a premium on it, maybe 10 million, since performance isn't guaranteed is it?
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Hedge Fund for sale.
- Thread starter TSGannGalt
- Start date
Quote from yip1997:
I understand that. I think your bid is too low with your assumption of current $3 M operating profit. The consistent performance of 30% for 5 years (without changing the strategy) is a very impressive one. However if they keep changing their strategies, there is a possibility that new strategies might not come out with new management team. Unless the team wants to go and start a new one, I don't think they will sell at 15M.
What is your strategy to keep the current team without increasing the cost.
$15 Million assumes a P/E of 5 with earnings of $3 Million per year. Very rich on the private market especially for this type of business. One major down year or down period can ruin this business (remember Amaranth?). Investors are not locked-up (assumption) and the business line is volatile. I would also want to "buy it right" to allow for a nice profit for my risk. All in all, I believe that my numbers are a fair representation of where things would trade public/private vs. real value. The real interesting thing is that I truly believe that the business would sell at 100% of assets in the public market given the public's infatuation with equities, IPOs and hedge funds. We'll see what happens with Fortress.
As for the current team, I assume the traders are being incentivized as a % of their trading profits so they really just want to see additional capital being raised. Vested stock in the Management company can be offered as an long-term incentive. Key people would need to be locked in for a number of years as a condition of the deal.
Quote from NTB:
$15 Million assumes a P/E of 5 with earnings of $3 Million per year. Very rich on the private market especially for this type of business. One major down year or down period can ruin this business (remember Amaranth?). Investors are not locked-up (assumption) and the business line is volatile. I would also want to "buy it right" to allow for a nice profit for my risk. All in all, I believe that my numbers are a fair representation of where things would trade public/private vs. real value. The real interesting thing is that I truly believe that the business would sell at 100% of assets in the public market given the public's infatuation with equities, IPOs and hedge funds. We'll see what happens with Fortress.
As for the current team, I assume the traders are being incentivized as a % of their trading profits so they really just want to see additional capital being raised. Vested stock in the Management company can be offered as an long-term incentive. Key people would need to be locked in for a number of years as a condition of the deal.
Will you look at their growth trend and use PEG as a valuation method?
Quote from TSGannGalt:
Wow...
I actually started this thread for discussion purposes. No one is selling their own hedge fund in here. I'm talking in terms of hypothetical terms.
And... I do a lot of the work around my fund... In reality, I have more work than I was trading my own money.
- Working longer hours than when I had a night job as a chef to pay my bills. (70+ hours/week)
- Learning IT stuff on my own due to Software Engineers costing so much to hire. ( FIX engineers costing $150,000+ /year??? insane... I learned the whole thing in 2 months and it's working flawlessly!!! Though, some IT engineers amazes me... not alot)
- I don't get to go out just for fun. Most outings are business oriented, kissing ass to potential 3rd party marketers / investors)
- More legal constraints. PPM is a bitch!!!
Anyways... back to the topic...
There's a semi-successful hedge fund in front of you for sale.
Considering all the flashy image that hangs around in hedge fund management (These days it's getting a bit insane, like those IT moguls from back in the internet bubble)
How much are you willing to pay to become a hedge fund manager???
Why do you want to sell? Assuming a profit of 3 mil a year, I am surprised that you didn't want to pay for a good software engineer (to save 150K)?
Quote from yip1997:
Why do you want to sell? Assuming a profit of 3 mil a year, I am surprised that you didn't want to pay for a good software engineer (to save 150K)?
One has to wonder how many of those replying on this thread are really traders. The guy doesn't have a system to sale. He's just bored like everyone else and went fishing.
Quote
"I actually started this thread for discussion purposes. No one is selling their own hedge fund in here. I'm talking in terms of hypothetical terms"
What kind of valuation is MAN's listed hedge fund getting?
Note that it has multiple managers so losing one is not a huge hit and is diversified style and asset wise. It also has things like established distribution, diversified client base etc.
Hedge fund biz is beginning to look like the dot.com i.e it doesn't matter if at the end of the day it doesn't work you are only interested in the option payoff profile of the fund raising.
e.g. Three guys who worked for a few years ar Goldberg Suchs put in around 300k each to cover initial marketing and documentation bearing the names institutions feel reassured by and raise 5bn with 1% management fee = USD50m/3 =USD16m each. Not bad. All they have to do is use their persusive skills to get the investors tpo keep their assets in the fund for one year.
I am seeing funds with 8bn under management saying they will top any existing package for anyone who can generate 15% PA doiing size with good sharpe ratio, but what's really giving it away is the insistence that has crept in that employees have Ivy League type educational backgrounds - why? because looking right to mainstream institutions is probably more a function of this than performance.
Note that it has multiple managers so losing one is not a huge hit and is diversified style and asset wise. It also has things like established distribution, diversified client base etc.
Hedge fund biz is beginning to look like the dot.com i.e it doesn't matter if at the end of the day it doesn't work you are only interested in the option payoff profile of the fund raising.
e.g. Three guys who worked for a few years ar Goldberg Suchs put in around 300k each to cover initial marketing and documentation bearing the names institutions feel reassured by and raise 5bn with 1% management fee = USD50m/3 =USD16m each. Not bad. All they have to do is use their persusive skills to get the investors tpo keep their assets in the fund for one year.
I am seeing funds with 8bn under management saying they will top any existing package for anyone who can generate 15% PA doiing size with good sharpe ratio, but what's really giving it away is the insistence that has crept in that employees have Ivy League type educational backgrounds - why? because looking right to mainstream institutions is probably more a function of this than performance.
Quote from yip1997:
Why do you want to sell? Assuming a profit of 3 mil a year, I am surprised that you didn't want to pay for a good software engineer (to save 150K)?
As I mentioned, this is just for discussion purposes. No one is selling there fund. There's Citadel issuing bonds, there's Hedge Fund IPOs going around.
All this hype about Hedge Fund managers getting news reminds me of the .COM companies back in the late 1990s and early 2000s. Being one of the surviving traders from the "good ol' days", it's like a dejavu for me. As one of the newer hedge fund managers, I'm trying to see how others view the industry.
I survived one "bubble", I hope to survive through the next.
...
Good software engineers are hard to find around my area. A monkey is only a monkey. Getting 100 monkeys is still a bunch of monkeys. It doesn't make them smarter or better. Team work is mulitiplicative, not additive.
I also find some of the jobs out there to be overrated. Of course, there's not a lot of FIX engineers, so their prices may be high. But it's not as hard as people think it is. I started programming 3 years ago and learned C# like a bit over a year ago. It took me about 100 hours of studying / programming to figure the thing out. And I'm sure it's not worth the $150,000 and once you have it programmed and debugged, what are they going to do??? Sit around with their PS3???
Upgrading to FAST or FIX 5 is not much of a big deal, most brokers don't use it yet (Mostly FIX 4.2-4.3) and most of the work is done by the FIX engine developer.
...
I'll say this again... I'm only talking in terms of hypothetical situations. Maybe I was too vague...
Well, keep on discussing... thanks...
Quote from jmccain:
I can just imagine the spaghetti code in your mission critical apps just because you're too cheap to hire someone that you can count on in times of trouble.
Do you also put on a bandana and wipe your office toilets after hours ?
Our Commodore 64 clusters are working great! We clean the floppy disk drives every day so that the program won't crash. Code??? What code??? Troubled times??? We can always run to the brokers office and trade directly!!!
We don't have bathrooms in our office. We take a dump out the window and like those damn pigeons.