5 ms·

How to Start a Hedge Fund

80 points by cwan 16y ago

rchi 16y ago
it's funny that the reward of starting a hedge fund is 'marry that yoga instructor'. 1. seems like a pretty indirect strategy for getting what you want. 2. quite an insult to the yoga teachers.
- byrneseyeview 16y ago
  It's an insult that respected, powerful men want to risk half their net worth to marry someone? Take a look at the NYT wedding announcements some time, and note the facial expressions of everyone who is insulted in such a manner.
  - binomial 16y ago
    The insult may be in that it implies the person to be married is being swayed purely by money basically.
    - analyst74 16y ago
      Just having money is probably not enough, NOT having money is definitely no-no.
- zackattack 16y ago
  as far as your "indirect strategy" comment goes, this is something that i have been thinking about. on the one hand it's extremely inefficient to try to build great wealth in order to get a date; on the other hand, sublimated sex drive can be a powerful impetus... known colluder dave mcclure, for example, says that a good reason to start a startup is that "you can't get laid".
dsplittgerber 16y ago
It's a mostly useless list. The main problems are just like with startups - finding the right people, getting your product right and fundraising. Amongst the questions not answered at all: - How do you find good co-founders if you're not amongst the analyst legions at GS, MS or some other bank? - How do you set your fund up, legally, technically, strategically, and foremost financially? Who funds you if every institutional investors wants either a prior track record or a list of credentials (partner/MD at mega-bank etc.)? - How much money gets spent immediately on Bloomberg terminals, other database subscriptions etc? - And: How do you make money? How do you go about executing an idea?
- arethuza 16y ago
  I don't think it is being entirely serious....
  - dsplittgerber 16y ago
    That's what you get for actually being interested in the topic - you miss the obvious.
    - arethuza 16y ago
      After reading "The Big Short" and "The Quants" and having worked on the extreme periphery of investment banking I am also moderately interested in how these folks actually get started.
- danhak 16y ago
  This is what happens when people make sarcasm the default voice when trying to make a point.
retube 16y ago
What you actually need to start a hedge fund: - A long & phenomenal track record of making a LOT of money trading for big name firms, ideally in a new or "hot" market - Have clout and a great reputation in the city or on wallstreet, pref both - Have lots of "ins" with big fund and asset managers who can connect you to people who have a $100m to invest.
Sukotto 16y ago
If this author was to write a similar article on, say, "How to play the flute" it would probably read: - Buy a flute - Blow into one end - Press the various buttons and levers - Make sure you perform at least once at Carnegie Hall
- hugh3 16y ago
  Did you miss the point that this is more a satirical commentary about hedge funds (with some genuine information for the curious thrown in) rather than a serious how-to guide?
  - InfinityX0 16y ago
    I didn't miss that point - but given that I had actual interest in how Hedge Funds start (as I believe most do), I was pretty let down when the article decided to go the humorous route. That, and it wasn't that humorous given my first expectation.
  - Sukotto 16y ago
    Of course not. It was clearly not intended to be informational. Neither was my comment.
  - jacoblyles 16y ago
    I would have preferred a serious how-to guide.
- gaius 16y ago
  The clues are nothing for the American people and rogue finance shop...
jakarta 16y ago
I think the internet is helping change how hedge funds are started and people are hired, possibly for the better. I'll give a couple observations: 1. It's becoming easier to find people with good track records. No, I am not talking about KaChing or Covestor. There are actually two sites that exist where you can apply for entry. They are heavily populated by people who already work at hedge funds, so the process is pretty rigorous. One is SumZero operated by Divya Narendra (the guy who sued Zuckerberg), the other is VIC run by Joel Greenblatt (runs Gotham Capital, professor at Columbia). In these sites, you post investment ideas which are then rated by the community. Because the community consists mostly of hedge fund analysts, it is pretty tough to get a good rating. But for those that do, it becomes easier to get jobs or raise capital. Greenblatt in particular uses his site to identify talent and in the past has seeded members (Michael Burry is one of them). In general, the sites help in networking which is the key (IMO) to landing a HF job or raising capital. 2. Blogs and an online presence are helping connect inexperienced students of investing with hedge fund managers/wealthy people. I know a few people who started blogs where they posted investment ideas and news, and then went on to use their online presence to network in real life. One of these people attracted $1M in seed funding from a well known investor, who then would routinely introduce him to other businessmen/wealthy individuals and helped raise capital. This was a kid that managed to start a $15M fund straight out of undergrad. A couple of others followed a similar path. Started a blog > used it to network > wrote and published books > networked some more and eventually raised capital to start small funds. I also think some of the barriers to entry in the HF biz are coming down, a little bit. I had 3 interviews last week that all came as a result of having an investment blog. It's interesting because most of the people at these firms have had years of experience working at investment banks and graduated from ivy league schools (both of which I lack). 3. It's becoming easier to market yourself/your fund. I see a lot of young/new fund managers offer to do interviews for blogs where they go into their investment process and how they think about markets, plus a few past and current ideas. These interviews work as wonderful marketing tools. Some funds will also leak their investment letters to bloggers which will contain all sorts of returns data and more about their process. This is kind of a sketchy area because you really are not supposed to be advertising returns to the public. Usually what happens is, the letters stay up for a while and then are taken down after a period of time. --- Now, the people I've seen that take this path generally start small funds in the single to double digit millions. They all have offices they rent and they take a very small personal salary. But after a year or two of good returns, it's been pretty easy for them to scale up. One has went from $5M in AUM to $50M in just a few years.
frisco 16y ago
I like how he described raising money for equity as "one step up from human trafficking... they try to own part of you." A different view on a process that's totally normal in the startup world...
klochner 16y ago
This thread needs an auto-responder for everyone that missed the satire.
higher 16y ago
The author seems to think that financial reform has done anything to harm the ability of big banks to extract dollars from productive humans. It has not. Among other things, it has granted FOIA-immunity to the SEC, so that in addition to failing to regulate the industry, it can now ensure that nobody knows for certain that it fails to regulate the industry.
known 16y ago
Hedge Funds are built on trust and personal relationships.

80 points by cwan 16y ago

rchi 16y ago

it's funny that the reward of starting a hedge fund is 'marry that yoga instructor'. 1. seems like a pretty indirect strategy for getting what you want. 2. quite an insult to the yoga teachers.

byrneseyeview 16y ago
It's an insult that respected, powerful men want to risk half their net worth to marry someone? Take a look at the NYT wedding announcements some time, and note the facial expressions of everyone who is insulted in such a manner.
- binomial 16y ago
  The insult may be in that it implies the person to be married is being swayed purely by money basically.
  - analyst74 16y ago
    Just having money is probably not enough, NOT having money is definitely no-no.
zackattack 16y ago
as far as your "indirect strategy" comment goes, this is something that i have been thinking about. on the one hand it's extremely inefficient to try to build great wealth in order to get a date; on the other hand, sublimated sex drive can be a powerful impetus... known colluder dave mcclure, for example, says that a good reason to start a startup is that "you can't get laid".

dsplittgerber 16y ago

It's a mostly useless list. The main problems are just like with startups - finding the right people, getting your product right and fundraising. Amongst the questions not answered at all: - How do you find good co-founders if you're not amongst the analyst legions at GS, MS or some other bank? - How do you set your fund up, legally, technically, strategically, and foremost financially? Who funds you if every institutional investors wants either a prior track record or a list of credentials (partner/MD at mega-bank etc.)? - How much money gets spent immediately on Bloomberg terminals, other database subscriptions etc? - And: How do you make money? How do you go about executing an idea?

arethuza 16y ago
I don't think it is being entirely serious....
- dsplittgerber 16y ago
  That's what you get for actually being interested in the topic - you miss the obvious.
  - arethuza 16y ago
    After reading "The Big Short" and "The Quants" and having worked on the extreme periphery of investment banking I am also moderately interested in how these folks actually get started.
danhak 16y ago
This is what happens when people make sarcasm the default voice when trying to make a point.

retube 16y ago

What you actually need to start a hedge fund: - A long & phenomenal track record of making a LOT of money trading for big name firms, ideally in a new or "hot" market - Have clout and a great reputation in the city or on wallstreet, pref both - Have lots of "ins" with big fund and asset managers who can connect you to people who have a $100m to invest.

Sukotto 16y ago

If this author was to write a similar article on, say, "How to play the flute" it would probably read: - Buy a flute - Blow into one end - Press the various buttons and levers - Make sure you perform at least once at Carnegie Hall

hugh3 16y ago
Did you miss the point that this is more a satirical commentary about hedge funds (with some genuine information for the curious thrown in) rather than a serious how-to guide?
- InfinityX0 16y ago
  I didn't miss that point - but given that I had actual interest in how Hedge Funds start (as I believe most do), I was pretty let down when the article decided to go the humorous route. That, and it wasn't that humorous given my first expectation.
- Sukotto 16y ago
  Of course not. It was clearly not intended to be informational. Neither was my comment.
- jacoblyles 16y ago
  I would have preferred a serious how-to guide.
gaius 16y ago
The clues are nothing for the American people and rogue finance shop...

jakarta 16y ago

I think the internet is helping change how hedge funds are started and people are hired, possibly for the better. I'll give a couple observations: 1. It's becoming easier to find people with good track records. No, I am not talking about KaChing or Covestor. There are actually two sites that exist where you can apply for entry. They are heavily populated by people who already work at hedge funds, so the process is pretty rigorous. One is SumZero operated by Divya Narendra (the guy who sued Zuckerberg), the other is VIC run by Joel Greenblatt (runs Gotham Capital, professor at Columbia). In these sites, you post investment ideas which are then rated by the community. Because the community consists mostly of hedge fund analysts, it is pretty tough to get a good rating. But for those that do, it becomes easier to get jobs or raise capital. Greenblatt in particular uses his site to identify talent and in the past has seeded members (Michael Burry is one of them). In general, the sites help in networking which is the key (IMO) to landing a HF job or raising capital. 2. Blogs and an online presence are helping connect inexperienced students of investing with hedge fund managers/wealthy people. I know a few people who started blogs where they posted investment ideas and news, and then went on to use their online presence to network in real life. One of these people attracted $1M in seed funding from a well known investor, who then would routinely introduce him to other businessmen/wealthy individuals and helped raise capital. This was a kid that managed to start a $15M fund straight out of undergrad. A couple of others followed a similar path. Started a blog > used it to network > wrote and published books > networked some more and eventually raised capital to start small funds. I also think some of the barriers to entry in the HF biz are coming down, a little bit. I had 3 interviews last week that all came as a result of having an investment blog. It's interesting because most of the people at these firms have had years of experience working at investment banks and graduated from ivy league schools (both of which I lack). 3. It's becoming easier to market yourself/your fund. I see a lot of young/new fund managers offer to do interviews for blogs where they go into their investment process and how they think about markets, plus a few past and current ideas. These interviews work as wonderful marketing tools. Some funds will also leak their investment letters to bloggers which will contain all sorts of returns data and more about their process. This is kind of a sketchy area because you really are not supposed to be advertising returns to the public. Usually what happens is, the letters stay up for a while and then are taken down after a period of time. --- Now, the people I've seen that take this path generally start small funds in the single to double digit millions. They all have offices they rent and they take a very small personal salary. But after a year or two of good returns, it's been pretty easy for them to scale up. One has went from $5M in AUM to $50M in just a few years.

frisco 16y ago

I like how he described raising money for equity as "one step up from human trafficking... they try to own part of you." A different view on a process that's totally normal in the startup world...

klochner 16y ago

This thread needs an auto-responder for everyone that missed the satire.

higher 16y ago

The author seems to think that financial reform has done anything to harm the ability of big banks to extract dollars from productive humans. It has not. Among other things, it has granted FOIA-immunity to the SEC, so that in addition to failing to regulate the industry, it can now ensure that nobody knows for certain that it fails to regulate the industry.

known 16y ago

Hedge Funds are built on trust and personal relationships.