Raising Money for a Hedge Fund

i've made my living out of the markets for the last 5 years? i have a track record. to be honest, this topic is about how one would raise money IF they had a good strategy that was scalable, but didn't know any wealthy people. i never said i was that person. so if we could stay on topic, i'd appreciate it. :)

so if you had a series 7, you still couldn't market hedge funds, or do people not know the answer to that. what if you registered as a broker/dealer (although i realize that is expensive, could you market hedge funds then?). and no one has any idea on whether you could work with financial advisors at established firms, so they could screen clients properly? i don't see a problem with this.

maybe trying to talk to fund of funds managers. cold calling them has to be allowed i assume.
 
Barton Biggs book "Hedge Hogging" is a good read in laymans language......

Where are you located?

Put together a short preliminary business plan....cold call on CPA, CFA etc etc...local pension funds, police dept, fire dept, other small local institutions....you would be surprised who might invest...


Short business plan very important....quick overview to see if ANY interest whatsoever....

Entity....minimum,maximum dollars....splits/fees etc etc...mandate for type of investments...

Back in the RTC (Resolution Trust Co) days of bad loans from defunct institutions I had a friend who bought these loans from the Govt.....you just got a cardboard box full of loan files....some old, some new....you were buying the "loan" and all legal rights that went with that loan, if any...pretty dicey/risky investments

You know who their investors were??? College endowments, Harvard, Princeton and the like....true story!! These guys would throw $5,000,000 in the pot to see how it went, LOL...

So, just get organized, put on your suit, act like you know what you are doing and go after the money...

SteveD
 
I believe the key here is salesmanship. It takes charisma to lure in the cash and then it takes charisma to keep it there. When an investor calls, you have to be quick to provide answers. When an investor wants to meet, you have to be ready to sit down with them. I believe experience in a brokerage type environment like Morgan Stanley would probably help a person in that regard. They have a great training program of dealing with customers both on the phone and face to face.

As for returns and trick trading strategies, I think those days are over. I am not a fan of the hedge fund industry because I believe its a rip-off. To illustrate my point, look at the following link.

http://www.hedgefund.net/HFN_Averages_Sept_2006_Report.pdf

Year to date they are up 6.66% on average. Some funds actually took a loss. Those days of 20+% returns are now history.

Those hedge funds who simply placed all their holdings into the Vanguard 500 Index Fund Admiral Shares at the start of the year would have enjoyed a 9.63% year to date return which appears to be above the industry average.

https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0540&FundIntExt=INT

So go around with your suit and tie. Collect the cash. Then place it in the 500 Index and then collect your fees.
 
Quote from eagle488:

I believe the key here is salesmanship. It takes charisma to lure in the cash and then it takes charisma to keep it there. When an investor calls, you have to be quick to provide answers. When an investor wants to meet, you have to be ready to sit down with them. I believe experience in a brokerage type environment like Morgan Stanley would probably help a person in that regard. They have a great training program of dealing with customers both on the phone and face to face.

As for returns and trick trading strategies, I think those days are over. I am not a fan of the hedge fund industry because I believe its a rip-off. To illustrate my point, look at the following link.

http://www.hedgefund.net/HFN_Averages_Sept_2006_Report.pdf

Year to date they are up 6.66% on average. Some funds actually took a loss. Those days of 20+% returns are now history.

Those hedge funds who simply placed all their holdings into the Vanguard 500 Index Fund Admiral Shares at the start of the year would have enjoyed a 9.63% year to date return which appears to be above the industry average.

https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0540&FundIntExt=INT

So go around with your suit and tie. Collect the cash. Then place it in the 500 Index and then collect your fees.
More...

I agree. You would need to be very good at sales, or hire some sales guru. You can have an average product and be the market leader if your good at sales and marketing. World is full of examples.

Or you would need an awesome track record. I believe a good product would sell it self. If you have a money machine it will sell it self. Don't you all agree?
 
I think Steve has a great idea here. Going to local players like a municipality which is bound to have a pension fund. This gives me some ideas in which I never thought about myself.

However, there is an old saying which states "What the wise man does at the beginning the fool does at the end," In 2003, I think this idea might have worked great. However, there is a lot of competition nowadays, Congressmen pounding the tables for regulation, and now the mutual fund companies appear to be posting very reasonable returns. As I posted earlier, the 500 Index is posting nearly a 10% return YTD and with very low costs as well. Then there are all the stories that are circulating around the media about blow-ups. Then there is the data which suggests the returns from the risky hedge funds are not that rosy anymore.

So if you were a manager of a local pension fund, would you trust your cash with Vanguard who will give you a reasonable return for very low cost or the hedge fund who might return less money then what you put in?
 
Eagle -- are you Bogle in disguise?

Let's look at the drawdown on the S&P 500 in 2000-2002. There are many hedge funds out there that deliver historic returns similar to that of the S&P 500 with much less volatility. Granted, the hedge fund indexes show that the hedge funds, as a whole, aren't delivering much but there are some hedge funds out there that deliver consistent, lower-risk, returns than the S&P 500.
 
I'll agree that there was some need for hedge funds from the 2000 to 2005 time frame. There were many factors that placed the market into a secular bear. Tech crash, 9/11, Iraq war, real estate boom (takes away cash from the stock market), etc. It was the perfect storm. Making money in a secular bear requires trading in and out of different areas and other non-conventional strategies.

However, if the S&P500 is going to roar, why would I risk my cash for an extra two bits in an unregulated hedge fund. Amaranth was supposedly a conservative fund but behind the curtain you had a young daytrading like fool whose strategy resembled that of an 18 year old with a Scott Trader account. My god, a 7 billion dollar loss? The USS George Bush cost 6 billion dollars to build from greedy government contractors.

All I know is that if I hand my cash over to Vanguard, I will be handed something back and if something does go wrong then there is government body that I can complain to. If I hand my 2 bits to an Amaranth-like hedge fund, where is the guarantee that I will get anything back?
 
Re. the question about non-correlation with other asset classes, it's not even necessarily a quantifiable thing (although you certainly can do so with a simple correlation coefficient). It is often done in a simply intuitive manner. Managers in many cases are looking for people who can smooth their equity curve. It is usually preferable to most clients to make a little less every year, but avoid stomach churning drawdowns in equity that might accompany a narrower investment "world". So, often they are looking for traders whose style would complement their other traders rather than duplicate it. For instance, if I traded futures or options on the S&P with a demonstrated long bias, I might be of less interest to a manager who already had a lot of money in the stock market. He might be more interested in adding somebody who traded agriculturals or currencies. Or within the equities market, if he was typically a directional trader or trend follower, he might be interested in adding somebody like Max Anspager who sells S&P options and usually makes money in flat markets (but does relatively poorly in very volatile or strongly trending ones) when his other equity investments are likely to do well. That is also why people will often keep money with a manager who has a few "bad" years, as they may be the result of transient or fluctuating market conditions. Sometimes markets go sideways, sometimes trending, sometimes volatile and sometimes flat, and that applies to hundreds of markets. the more managers you have whose styles are uncorrelated (to a point, there are diminishing returns in overdiversification), the more likely you are to have a smooth equity curve. Yes, this means that you are very unlikely to hit a home run and have a 50% year (or 20% year), but that isn't what institutional managers (and most individual clients) are looking for.
Hope that helps!
Jessie
 
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