Superstars who started as advisors

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Jan 27, 2010 5:19 am

[quote=san fran broker]

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 - ;) ). [/quote]

You will need over $25MM to use Goldman.  And you will need a major CPA firm to audit your track record and premium legal counsel to be taken seriously by hedge fund investors.

So plan on having at minimum $50,000 in start up capital (over $100k is better).  And you'll need initial investors to build a track record.  Those initial dollars will need to be in excess of $1MM for anyone to even think of looking at your track record as being legit for larger contributions.

Lastly, San Fran is spot on re: what most hedge fund managers actually run.  You get $25-30MM and have good returns and life can be very, very easy.  If you have 1 bad year, you may as well start over or find another career.  Hedge funds are feast or famine.

For full disclosure, I run a small hedge fund with primarily my personal $$ while building my track record.  It will be a couple more years before I start to solicit - so far I've spent around $40k and my fund is still in incubator phase.  It will be another $50k or so when it opens to subscribers.
Jan 29, 2010 6:27 am

[quote=AdvisorControl.com]


You will need over $25MM to use Goldman.

[/quote]

Hey AdvisorControl, no disrespect, but you’re wrong. My partner spoke with GS this morning (he uses them for his sub-25mm fund which he manages separately - he started with $2mm there 2 years ago) and they confirmed that the minimums remain pretty much non-existent and they are still eagerly courting small start up funds.
Anyone can feel free to PM me for his contact.

Jan 30, 2010 4:01 am
mlgone:

[quote=twoeyeguy]What do u mean by “competitive advantage”? Just a viable strategy or something more specific.

  I am going to go out on a limb here and say you will never run a successfull hedge fund.  Just a guess[/quote]