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Author: [Investments] Topic: Anyone have experience starting/running a hedge fund?
Wake2002 send a private message View Space | Friends | Playbook | My Sportsbook: 5Dimes |
Wake2002
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#1
Posted: 6/5/2012 10:24:54 PM

Just curious if anyone has any experience with starting a hedge fund and trying to attract capital, or has some connections to the industry that know how to do it.  I know I'm probably going to get flamed here, to try and head that off a bit, let me disclose the following:

1) I'm not here to solicit money from anyone (I know the rules, and unless the gambling world has been incredibly kind lately, I don't think most covers posters meet the criteria to be accredited.)  I really am just looking for information/suggestions.

2) I've already gone through the process of setting up the legal structure for an incubator fund (i.e., I can take others' money, I'm just not set up to charge a fee at this point, and am waiting to spend the $15-$20K that would take until I have investors lined up). 

3) I've been managing my own investments for 16 years at this point and since beginning to track/document my returns in 2003, I have a very strong track record of beating the S&P 500.

4) I don't work in the industry, but I worked for a Big 4 accounting firm for 8 years, and currently work in the financial reporting group of a large public company, so I've spent the better part of my professional career reviewing/preparing earnings releases, 10-Ks, 10-Q's, etc.

What I'm really looking for is some insight into how to take that huge step from developing a strong track record of beating the market, to getting noticed/attract capital.  Hypothetically, if you have consistently beaten the S&P 500 by a decent margin year in and year out for years, but nobody is there to hear it, how do you go about making a sound in the investing world? 

 

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wallstreetcappers send a private message View Space | Friends | Playbook |
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#2
Posted: 6/6/2012 12:30:05 AM
You wont get flamed in here..

In my experience you either work for a firm and perform your way into running a fund..meaning you do so well that the firm gives you the chance, or you strike out like you are and develop a following, how you get the money depends on your resources and skill.

You might start by hitting up relatives and friends and offering to manage their money through your business (you have to be licensed etc) and collect and manage money that way and spread the word through how well you do for those who believed in you and invested early, start slowly and build..

Or know some heavy hitters or people who have access to heavy hitters and get them to bring you money..

Or start up an office and get reps to bring money or sales people to bring money in return for compensation..

Thats how I see you getting where you want. No road is easy unless you have tons of wealth around you and/or you work for a firm and earn it.

I wouldnt want what you are looking for..way too much pressure and obligation, I would rather build up my own money and develop my wealth independent of other peoples funds.
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hoopsvader send a private message View Space | Friends | Playbook |
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#3
Posted: 6/6/2012 10:14:35 AM
I hear the algo guys in HFT firms make something like 85 million in bonuses. WTF
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Wake2002 send a private message View Space | Friends | Playbook | My Sportsbook: 5Dimes |
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#4
Posted: 6/6/2012 10:19:03 PM

Thanks for the response Wall.

Makes sense, pretty much what I expected, figured I'd just throw the post out to see if I was missing any other avenues.  I've always managed my investments as a hobby (in concert with a regular full time job), and have just had a lot of success through the years and was hoping there was some way to stack my portfolio up to others and attract some attention if I continued to do well and outperform the market.

I do enjoy growing my portfolio, but it is tough to not dream of more.   I just wish there was some way to get a name out there when you have the track record but you don't work in the industry and don't have the connections.  I have a couple of leads through friends/family, but nothing close to what I'd need to make going full blown worthwhile.   

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Askevi send a private message View Space | Friends | Playbook |
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#5
Posted: 6/19/2012 9:54:24 PM
I'd also pick up a copy of the Alpha Masters if you haven't read it.  It's an in depth look at how nine of the biggest hedge fund managers got their start.  Interesting stuff.
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#6
Posted: 6/27/2012 5:55:58 PM

This is not how to start a fund but maybe an alternative to starting a fund.  Maybe you can send in your audited results to these guys and they'll give you a shot.  One way to get exposure before your big jump into the hedge fund world.  Good luck.

http://covestor.com/

 

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Wake2002 send a private message View Space | Friends | Playbook | My Sportsbook: 5Dimes |
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#7
Posted: 7/3/2012 10:23:46 PM
QUOTE Originally Posted by cave0707:

This is not how to start a fund but maybe an alternative to starting a fund.  Maybe you can send in your audited results to these guys and they'll give you a shot.  One way to get exposure before your big jump into the hedge fund world.  Good luck.

http://covestor.com/

 

Thanks for posting the site.  I checked it out.  I'd be interested to see if anyone had experience with it.  My initial thoughts are that it would be pretty tough to get noticed on that site.  The best performing/top ranked funds seem to be highly leveraged and undiversified. 

Smoothly beating the S&P by anywhere from 5-10% a year for a couple of years won't even get noticed against funds that beat 50% one year based on lack of diversification and hitting the right couple of stocks (pure probability and statistics will produce multiple managers who do this)  It would take 4-5 years to outlast random performance before you'd even show up in a query of top ranked performing funds with what they seem to allow on there

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hook21 send a private message View Space | Friends | Playbook |
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#8
Posted: 7/8/2012 1:17:18 AM
beating s/p for that many years is more than good enough to start a fund or at least run a managed account.  question will be is what kind of capital can you use.  believe it or not its easier to get 25 MM than 5 MM.  audited returns is a must, then you have to ask yourself do you want a backer or start a true hedge fund.  a backer situation where you put some dough up and they put dough up behind it gets you much better returns than the traditional 2 and 20 split of a hedge fund and can be worthwhile in smaller amounts of capital.  so i guess the first question id ask is how much capital you think you want to run.

good luck.


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Wake2002 send a private message View Space | Friends | Playbook | My Sportsbook: 5Dimes |
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#9
Posted: 7/9/2012 9:54:29 PM

Hook, thanks for your post, I appreciate the info.

As a follow up, do you have any suggestions on who to speak with?  Is there a broker or service that helps with something like this?

Also, in terms of an audited return, what does that mean?  All my investments are level 1 in nature (primarily stocks, a few options here and there, publicly traded, easy to value), so are you just saying I'd need to hire an audit firm to slap a signature on a printout from my Interactive Brokers account?  Will I run into problems if I've utilized 2 different accounts during the time, (the other one being Scottrade) and the fund that is set up in my LP's name has only been in existence for about a year of that time?  Will I need to re-establish the same sort of track record in the LP's name, or would my personal account be acceptable to demonstrate the same sort of track record?

In terms of fees, I'm not even looking at the 2/20 structure, I don't need that to survive.  I'm looking to do this in conjunction with my job at least to start.  I've been doing it like that for the last 8-9 years.  I consider my fund primarily a mutual fund, that outperforms mutual funds.  I'm just looking for a fee structure of maybe 1-1.5% per year (utilizing some combination of incentive fee/management fee ideally that will average out to that long-term)  I like the hedge fund set up for the flexibility it provides (to short a few puts, use covered calls, etc., go to cash if I want) and the barriers to entry just seem much less with it than with a traditional mutual fund setup.  I feel like my low fee structure should provide me a good competitive advantage. 

In terms of capital, obvious answer, I'd like as much as possible, haha.  I primarily trade mid or large-cap stocks, with a sprinkling of small-caps, micro-caps, so I could do what I do very easily in even the $100's of millions.

Ideally, what I'm looking for (if it exists), is some sort of broker who I can tell my story to, explain my methodology to, show my results to, and if they like what they see, then they'd help me with introductions, set up meetings, tell me what I need to move forward, etc.  I'm assuming I'd need to dole out a decent percentage of equity in the ownership structure of the fund, which is something I'd be very willing to do if I could find someone who can help me get it up and running. 

 

 

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