

How to Start a Hedge Fund  - cwan
http://www.vanityfair.com/business/features/2010/09/hedge-funders-201009

======
jakarta
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.

~~~
conorh
I'm the technical guy behind SumZero and I'd have to say that your comments
are spot on. It can be very difficult to get a good rating on the site, those
ideas that do tend to be exceptional and get a significant amount of
attention.

~~~
conorh
Also, and sorry for the plug, but I think it is relevant here. If you are
interested in seeing the quality of ideas that come through SumZero you should
sign up for our individual investor mailing list -
<http://sumzero.com/retail/users>. Each week we send out a top idea to the
members on the list. edit: There are some sample ideas on that page.

~~~
davidw
Do you have an example mail or two from that to see if it's at all something
that is relevant to me?

~~~
SkyMarshal
<http://sumzero.com/retail/users>

Check the sidebar.

------
Sukotto
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
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
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.

------
retube
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.

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

------
dsplittgerber
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
I don't think it is being entirely serious....

~~~
dsplittgerber
That's what you get for actually being interested in the topic - you miss the
obvious.

~~~
arethuza
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.

------
frisco
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...

------
rchi
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
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
The insult may be in that it implies the person to be married is being swayed
purely by money basically.

~~~
analyst74
Just having money is probably not enough, NOT having money is definitely no-
no.

------
higher
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
Hedge Funds are built on _trust_ and _personal relationships_.

