Starting a Hedge Fund with no Credibility

W

webent

My business partner and I want to start a long/short equitiy hedge fund. We have been working very hard on a quantitative model. Now that we've been trading it for a few months, we have confidence in our model, and the return *should* be good enough to interest some investors (at least 30% annually, more if we choose not to reduce volatility).

We have enough funds between the two of us to seed a small hedge fund, but are more interested in growing it with investors' money. We think our method should easily scale up to at least $100m before we need to start making compromises.

Unfortunately, we have math/computer science backgrounds, and think breaking into the industry is going to be tough.

**Where should we start?**

We've been talking to lawyers and accountants about starting an incubator fund, but I'm not convinced it will get us closer to our final goal (investors). Will any prime broker deal with us, and introduce us to capital? Will developing a track record from an incubator fund really help us?


Thanks
 
Have you thought about going to a prop firm for a few months/year? You could get massive BP, and if your #'s are as good as you say, you should have no problem getting investors.
 
Quote from Longhorns:

Have you thought about going to a prop firm for a few months/year? You could get massive BP, and if your #'s are as good as you say, you should have no problem getting investors.
More...



what is "BP"?
 
Long horns has it right. Get a track record (at least a year) then people may(?) start to have a look at you.

Cheers

Bogan7
 
A incubator fund would be ideal, if your relying on this fund for a source of income it will be a few years off.

I just got a letter from a financial group, stating your track record doesnt matter, and there is tons of liquidity looking for return. I'm also going down the incubator pathway.

Plus you need to take state licensing exams and lots of paperwork, once the fund surpasses a certain monetary figure.

If your risk/drawdown/ROE are decent and beat the indexes, thats all the world cares for.
 
Oh God, don't do it. Trust me on this one. Go back to your bits and bytes, unless you have commitments for $50 million and the infrastructure in place.
 
Quote from webent:

**Where should we start?**

We've been talking to lawyers and accountants about starting an incubator fund, but I'm not convinced it will get us closer to our final goal (investors). Will any prime broker deal with us, and introduce us to capital? Will developing a track record from an incubator fund really help us?
More...
if you've traded it for these few months with real money (being generous, $25K - $200K) and the ratios & P&L look good, you may want to grow via managed accts first, attract a few less-demanding HNW guys... but of course an incubator or other type of low-cost fund / portfolio structure wld enhance your credibility, allow you to continue to build a "valid" track record from the institutional investors' perspective, so that within another 12 mths of listing on CTA etc performance databases you wld start getting calls.

Prime brokers are good help as well but only when you've established a "valid" track record. lawyers and accountants? well, tap them for $$$, they cld be your 1st HNW investors if you know how to do it!

best of luck!
 
Quote from Longhorns:

Have you thought about going to a prop firm for a few months/year? You could get massive BP, and if your #'s are as good as you say, you should have no problem getting investors.
More...

Beyond a shadow of doubt,this is the way to go.....

But you will need to spend 2 years there
 
Question is, how many traders from prop firms do you know that went to managing hedge funds? I know quite a few who returned 7 fig payouts off ($2-3MM) off $8-10MM bp and never got any offers.

Quote from Longhorns:

Have you thought about going to a prop firm for a few months/year? You could get massive BP, and if your #'s are as good as you say, you should have no problem getting investors.
More...
 
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