Starting a HF

NakedPuts Wrote: ------------------------------------------------------- > The list of top 100 HF’s that started with less > than $10M is extensive. There’s white a spread b/t 500k and 10mm- 9.5mm to be exact. Not to mention when they were started. Are those real or nominal dollars, after all, a 1980 dollar does not equal a 2008 dollar. per $1 (1980) = $2.63 (2008)… so that 500k hf would be about 1.315mm today.

akanska Wrote: ------------------------------------------------------- > NakedPuts Wrote: > -------------------------------------------------- > ----- > > The list of top 100 HF’s that started with less > > than $10M is extensive. > > > There’s white a spread b/t 500k and 10mm- 9.5mm > to be exact. Not to mention when they were > started. Are those real or nominal dollars, after > all, a 1980 dollar does not equal a 2008 dollar. > > per $1 (1980) = $2.63 (2008)… so that 500k hf > would be about 1.315mm today. In my very first reply on this thread, I noted that the poster would indeed need over 500K. In startup terms though, the difference between $2M, $6M or $10M is meaningless. You need to build the track record and asset base before you can ever start attracting meaningful capital. I believe the smallest state pension fund in the US is Wyoming, with about $5B. Let’s say this “small” pension fund decides to dip their toe into HFs with a 4% allocation. That’s $200M to put to work. But they don’t want to invest $10M into 20 HFs, they want $50M into 4. They also don’t want to be more than 20% of a fund’s assets, so you need to have $200M just to get considered. This is why the amount of money you start with is pretty meaningless, as long as you are able to form the basic parts of the institutionalized business you’ll eventually need to have.

NakedPuts Wrote: ------------------------------------------------------- > The list of top 100 HF’s that started with less > than $10M is extensive. Survivorship bias!!! I am sure that most funds with less than 10M USD end up finished within a few years.

Agree.

bchadwick Wrote: ------------------------------------------------------- > willer, what are the implications of trading as a > hedge fund vs as a managed account on behalf of > investors. I’m not sure of the difference. bchadwick farley013 basically lists out excellent points on what being a credible hedge fund would entail. The level of auditing, corporate governance, checks and balances is usually much higher in a hedge fund than a managed account. As such, the costs will also be far higher in a hedge fund. For managed accounts, this may entail leveraging off existing infrastructure (back office, IT, trading systems, relationships with prime broker) to carve out a certain amount of capital to trade on behalf of a client. The level of financial reporting, objectives and financial compensation becomes much more customised to fit the client. As the managed account normally will not involve a standardised document like a Private Placement Memorandum (the criteria for redemption, profit sharing, auditing, etc) become less uniform relative to that of other investors who inject capital into a hedge fund. In regards to the original poster of this thread, a hedge fund of AUM 0.5MM USD (after costs) would find it very difficult to: 1) acquire a credible fund administrator (the better FAs would be looking at minimum 50MM USD AUM with a goal of reaching 100MM AUM+ within 3 years, etc). Salary costs for FAs, accounting firms etc are sky-rocketing and given that FAs take a % fee of AUM + other costs, they are looking more and more for HUGE HFs to administer. Small HFs are actually a loss making enterprise for them, and they may only take you on if they strongly believe in your potential to expand up to 100MM USD, for example. 2) acquire a good prime broker - PBs are looking for high churn rate on transactions to earn their fees, or on large AUM placed in their bank accounts so they can utilise the money. You would therefore need to have a strategy which involved numerous transactions to make this worthwhile to the PB. Also, with such small scale, they will not provide you with good commission rates on transactions. 3) Personal Investment - many institutional investors want to see “skin on the table”. They want YOU to be an investor to ensure your interests are similarly aligned and that u are not just playing with other people’s money. What capital contribution will you be willing to make? 4) Risks - there are alot of risks that Institutional Investors (esp FOFs) scrutinize. I don’t think you would pass many in the extensive checklist of items: Operational, IT, Financial, Credit Risk, Track Record, Key Man Risk, Legal… you need to employ people with substantial experience (the team can be small but it must be qualified), but experience does not come cheap. As bchadwick has mentioned: 0.5MM USD is a pitifully small amount of money to start a HF.