Superstars who started as advisors

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Jan 14, 2010 10:53 am

when you look at the bios of the real superstars of the industry, the multi billion dollar hedge fund managers and so on, it seems like the majority of them got their start as analysts at the big firms i.e. goldman sachs, etc. anyone know of any of these mega-successful dudes who may have gotten their start as financial advisors? it would certainly motivate me to know that it's a possible and precedented, and would make me feel like i'm not wasting my time chasing a dream with a relatively low ceiling as compared with my financial analyst/associate or trader buddies. discuss

Jan 14, 2010 2:42 pm

To answer your question, not many hedge fund managers started out in retail production.  Maybe some did, but not any of the big names that I know of.

 
Is it possible to move from FA to Hedge Fund manager?  Of course it is.  Are the two on the same career path?  Not at all.
 
Hedge Fund Managers
Endowment Managers
Mutual Fund Managers
Retail Advisors
 
This is the heirarchy in the industry.  The talent gravitates toward the top where the money is.
Jan 14, 2010 2:53 pm

Not sure but I think Warren Buffet started as an FA.

Jan 14, 2010 10:10 pm

so what's a good career path for someone who wants to become a hedge fund? what the first step?

Jan 14, 2010 10:30 pm

If you want to start a hedge fund you need to know between 100-500 people with $2 million or more in assets.

Preferably, you need a team of two.  One guy to prospect (that would be you) and one guy to manage.  The guy who is managing needs some sort of edge.  Whether it be trading methods or some sort of investment selection.

You will also need some decent start-up capital.  At least $50k, but likely between $150 and $200k. 

You might want to read "how to start a hedge fund" by Daniel Strachman.  He tells you step by step what you need to do to get started.

Unless you have an edge (like Gaddock) forget it.

Also, you will need historical returns (not back-tested). 

Jan 14, 2010 10:40 pm

from that description it would seem to me that a background as an FA would be an excellent one for a person wanting to start a fund, no? you work with investments so you can develop some good investment strategies, and most importantly, youre going to know a lot of wealthy people with money to invest. am i way off here?

Jan 15, 2010 8:24 am
twoeyeguy:

from that description it would seem to me that a background as an FA would be an excellent one for a person wanting to start a fund, no? you work with investments so you can develop some good investment strategies, and most importantly, youre going to know a lot of wealthy people with money to invest. am i way off here?



For the most part, you are way off.  If you are the guy running money at a hedge fund, you will need a competitive advantage.  Most (most, not all) FAs use some form of MPT and asset allocation strategy.  Most hedge funds utilize proprietary trading strategies. 

For you to develop something like that (unless you already have), your prospecting will suffer for the most part.  Also, you will meet wealthy people while prospecting, but it is unlikely that even the wealthy people you meet will have the capital required to make your hedge fund viable.

You would need to be an FA for quite some time.  A good way to get into hedge fund management is to go work at one.  That is the best way.  They hire analysts sometimes, but interns all of the time.

One of my buddies works at one (has been for ten years) as an analyst.  He started as an intern, then customer service. 

Jan 15, 2010 9:17 am

What do u mean by "competitive advantage"? Just a viable strategy or something more specific.

Jan 15, 2010 9:30 am

Dude, seriously.  If you want to become a hedge fund manager, talk to people who work at one, read a few books. 

By competitive advantage, I mean something that makes you different from the other hedge funds making a ton of money. 

This site is generally for financial advisors, and not hedge fund managers.  Most on here focus on their businesses, and fcuk off on this site for fun and to learn a few things about what others are doing to grow and develop their businesses. 

What we do is an entirely different discipline. 

Jan 15, 2010 10:23 am
twoeyeguy:

What do u mean by "competitive advantage"? Just a viable strategy or something more specific.

 
2i,
 
Financial Advisors are generally more relationship managers than investment analysts.  Most hedge fund managers used to be traders, analysts, and mutual fund managers.  They dealt with the investment strategy, not clients.  Yes, they know a lot of wealthy people and institutional reps with huge bucks.  But as Moraen said, you are usually going to pair someone with the technical skill to run a real good fund (with some "edge", not just another mutual fund), along with someone that has contacts and existing relationships and can raise capital.
 
Jan 15, 2010 12:06 pm
twoeyeguy:

What do u mean by "competitive advantage"? Just a viable strategy or something more specific.



Pikers don't usually make good hedge fund managers, so I wouldn't worry about it.

Jan 15, 2010 5:25 pm

thanks to everyone making positive contributions. i appreciate your insight. and for the negative ones, you have nothing to get all up in arms about. i'm just a young guy trying to gain an understanding of the big picture, so i can properly align myself to get the biggest of the pie i can down the road. maybe if you had the same foresight when you were in the beginning of your careers you wouldn't be bitter disgruntled assholes now.

Jan 15, 2010 8:42 pm

I know quite a few quys that run hedge funds that started out as retail FAs. They aren't Steve Cohen, but they make a nice living and have a good lifestyle.


Most hedge funds have a relatively small chunk of money compared to corner office FAs and manage a small amount of their clients' assets. at 2/20, it's not hard to make a decent living off a small amount of funds. The overhead for a hedge fund is pretty minimal (computer, maybe a bloomberg, that's about it). Goldman Sachs will let you start trading through their platform at a relatively low amount of assets (like $3 mill or something).
 
Fundamentally, a successful hedge fund manager is someone who gets accredited people to give them a a few million dollars of money they don't mind losing a big chunk of (these people are hard to find - so that's why it's helpful to have a Harvard MBA and a Goldman Sachs background) and then they build a terrific track record with those funds. Once you have an audited track record, it's pretty much an issue of getting access to institutional money.
Historically access was gotten through placement agents (connected people), but this is likely going to be less common in the future. So, the big issue (really the only issue) is how are you going to get the amount of money you need to get started. The rest is up to your innate ability to generate Alpha.
The reason that most hedge funds are small is that most clients will pull their funds if you lose money and move it to another manager (or if they're smart, out of hedge funds altogether - ).
Jan 15, 2010 9:18 pm

a lot of good info, thanks sanfran

Jan 16, 2010 10:09 am

I also know a couple of retail FAs that went on to run hedge funds.

 
The path they took was similar. The first 3-5 years they worked as a retail FA at a major wirehouse doing the grunt work needed to build a book. Along the way they began constructing several model portfolios that new clients generally followed. These strategies proved to be succesful and they went into their firm's discretionary platform as a portfolio manager. After about a dozen years in the business they went out on their own as an RIA still managing around their model portfolios. After several more years, they break one of their strategies off into a hedge fund to give them the ability to apply leverage if desired. The still manage money for regular folks as their primary business. The hedge fund is a sideline. Albeit a very lucrative sideline at 2/20 when they have a good year. I would imagine they manage $100-200 million total with only 10%-20% of that in the hedge fund.
 
Retail FA  -> Fee Based Discretionary Retail FA -> independant RIA -> hedge fund.
 
That's the career path.
Jan 17, 2010 2:18 pm

I know for a fact that Stephen Colbert started as an FA.

Jan 18, 2010 4:02 pm

very helpful northfield, thank you

Jan 18, 2010 8:23 pm
etj4588:

To answer your question, not many hedge fund managers started out in retail production. Maybe some did, but not any of the big names that I know of.



Is it possible to move from FA to Hedge Fund manager? Of course it is. Are the two on the same career path? Not at all.



Hedge Fund Managers

Endowment Managers

Mutual Fund Managers

Retail Advisors



This is the heirarchy in the industry. The talent gravitates toward the top where the money is.







Julian Robertson of Tiger Management was probably the biggest hedge fund manager that was an FA.

Jan 25, 2010 5:24 pm

Stephen Colbert, the comedian?  Are you serious?

 
I know that Jim Cramer started out as a broker at Goldman Sachs Private Wealth and then launched his own hedge fund. 
Carl Icahn also started out as a broker at Dreyfus & Co.
Jan 26, 2010 12:33 am
richkid111:
Carl Icahn also started out as a broker at Dreyfus & Co.



When Carl Icahn started out as a broker, humans had not yet discovered fire.