No reason to be snarky, the comment was for the OP who doesn’t appear to consider to be risking their own capital as of yet.
People are skeptical of backtested models. Are you better at backtesting than RenTech and DE Shaw? That is the hurdle you have to clear. I’m serious about that. Big money can invest with anyone, why would they invest with you?
Re: starting a fund –
This is counter intuitive, but making money is only one small part of starting and running a fund.
Do you have appropriate institutional grade infrastructure including top-tier service providers? A big prime broker won’t take you for less than $20 million of assets and that is only if there is an existing relationship. Usually the hurdle is $50 million. You probably can’t attract real investors without a top prime.
Since you are running a model, what is your technology infrastructure?
Who are your major investors? Are they locked up? Who your first investors are is possibly the most important aspect of launching a fund. You will get follow on investors or at least meetings if you get the right anchor / seed investors. The seed statistics are depressing, we’re talking about roughly 1 in 500 emerging managers getting seeded at the better seed funds.
Do you have a team? Are you capable of building and running a team? Are you a credible and reliable person? How well do you pitch?
Is what you do similar / dissimilar from other funds? The world really does not need another identical long/short value fund that buys FLT, BRK and VRX exclusively because other funds own these with zero edge. Novelty factor provided your strategy works is very important. If investors can just read your filings and mimick your positions, why would they invest with you? I am amazed anyone would invest with Pershing Square, just buy JCP (ACTUALLY NO DON’T OMFG WHAT A BAD IDEA) and short HLF, don’t pay Ackman a dime.
Is your model / process repeatable and systematic? If not, don’t bother.
Where did you work previously? What is your pedigree? This is very important. The top funds produce the top talent and people who spin out of these are in demand. It is a top 1% of the industry game. This is an old school apprenticeship business.
Ironically, making money is only half the issue. All of this other stuff needs to line up. Then you have to make money consistently with low risk. There are some funds that are merely “okay” at making money but have all the other stuff down pat and they stick around (but they do make money even if they aren’t amazing at it).
I know some very promising investors who have compounded in the top 1% of managers and can’t raise money because they lack the infrastructure / investor base / etc. You have to build a business, not just have a track record of making money on paper. Can you run a business?
I launched in the mid-8 figures after coming out of one of the top L/S funds with a very unique strategy and good risk controls. Previously I built and ran an office in Asia. I’m told I pitch very well. Basically I checked all the boxes. My strategy cannot be backtested effectively so I had everything except what you claim to have, which is probably the least important part. It was still difficult to get the right backers.
I wouldn’t recommend it, you should find something else to do with your time. This industry is not for 99.99% of people out there. You have a better chance of becoming a professional athlete than succeeding at this. Sorry to be a downer but that’s the way it is. Good luck (sincerely) if you ignore my advice.
Bromion,
Thanks for the feedback, a lot of what you mention is very true, as I’ve found out over the last few weeks. I’ve spoken with several seed companies and prime brokers to get feedback on what steps I need to be taking. Essentially without a track record or a very impressive pedigree there is very little chance to get seed capital.
This leaves me to implement this at my current firm and develop that track record. I know this is probably wasted effort, but I’m going to send some finalized DDQ packets to the seed companies that I know of in the hopes that I’ll get a call-back or two.
Something that I found interesting was that several of the seed companies said that I did not have to be up and running operationally to recieve funds from them. Obvioulsy they would want equity in the company or something, but they said they would be willing to pick up the starting costs for new managers that they are interested in.
In the end, this is a unique strategy that can produce repeatable results. I’ll just have to be patient and wait for my opportunity to do this on a bigger scale. I’m a PM at an advisory group, roughly $300M AUM, so as far as qualifications I’m no hedge fund analyst but would assume I’ll get a little credibility with some of these companies.
Again, thanks for the feedback, I appreciate it.