Considering starting a small hedge fund good idea? bad idea? advice?

Discussion in 'Risk Management' started by lazar206, Oct 13, 2010.

  1. 1. Your question reminds me of what was said about a Rolls Royce. "if you have to ask the price, you can't afford one."

    2. Your past performance is probably the least important element in successfully starting a hedge fund. It's a given and will be checked by investors doing their due diligence.

    3. In the few circumstances where I have some insight, the money sought the investor and a hedge fund was the resultant vehicle.

    4. People who are potential investors associate with each other. If one finds a good deal they are likely to share that information with their friends and acquaintances. That's how Bernie Madoff became so successful at getting people to give him their money. If you don't know anyone who would be a potential client, then you have a really big hill to climb.

    5. You need to do a business plan, including the legal and logistical costs for this start-up. This process is usually a cold dose of reality. Don't let this deter you, just recognize you have a lot of work ahead of you.

    6. As has been said above, you have to know how to qualify your investors.
     
    #11     Oct 14, 2010
    Nobert likes this.
  2. LEAPup

    LEAPup

    Just re-read my post. Typing "skills.":eek:

    "other thongs done such as admin"

    That's THINGS, not thongs:D :D

    Guess as I wasn't as "focused" as I normally would be? Hmmm:D :D
     
    #12     Oct 14, 2010
  3. toc

    toc

    Screw the hedge fund and its start up costs.............why not just get 15 accredited investors and start managing their funds like a hedge fund and charge them management plus incentive fees.

    :cool: :D
     
    #13     Oct 14, 2010
  4. lazar206

    lazar206

    Not more the 10% of my portfolio is in a single stock, I hate having a lot of exposure to a single stock because any single stock can go to zero (remember Lehman, GM, etc.). While I began 2009 buying preferred shares from a whole spectrum of banks, I have added MBS and A- rated bonds at the end of 09 to enhance the return. In the middle of this year I have started selling out of the money long term options which I expect to expire worthless (they are trading now 70% lower then when I sold them.) I know that to do well you need to keep refining your strategy, and so far so good. ( BTW I own 20 shares of apple in my portfolio..)
     
    #14     Oct 15, 2010
  5. IMO, 2 years in this business is not enough. When the market conditions will change (and they will change!) you should be prepared for big drw downs. From your returns I see that your target is quite high (100% returns/year) this is way too much. Why do I say this? Simple, because of the risk that you have to take. In capitalism you can't get big profits without big risk.

    Please also say what was your largest peak-valley drawdown.

    So, be aware, if not, imagine how would you react when you will start to loose money for your clients and the pressure to "get back" will grow exponential and the cost of running the HF vehicle will remain(or rise).
     
    #15     Oct 16, 2010
  6. TWORIP

    TWORIP

    That's why I said typically, not all investors.
     
    #16     Oct 16, 2010
  7. lazar206

    lazar206

    The idea I was thinking about was to start now with a smaller amount (anywhere from100k to 1M) and around 10 investors, just to start establishing a full record without prohibiting costs. I can get this money raised pretty easily, my question was does that make sense? Will that get me to the next level, or should I rather stick with trading my own account. Do you have some advice on that?
    Thanks
     
    #17     Oct 18, 2010
  8. lazar206

    lazar206

    I am actually considering myself as a “conservative” investor.
    While I had a 100 % return last year, that is not my target return, I would be happy to have a 20 % annual return every year. As for drawdown, while values fluctuate I don’t think I had more then a 15% drop in value in any quarter to quarter comparison. (I don’t care about day to day comparisons, nor should the investors)..
     
    #18     Oct 18, 2010
  9. Eddiefl

    Eddiefl

    Lazar, iam kind of on the same boat as you. Get everything checked on by an attorney, first and foremost.

    Let me know how you progress.

    EF
     
    #19     Oct 18, 2010
  10. oh, sorry, I didn't pay full attention when I read your thread. I thought that 100% is your target.

    Good luck and keep us up to date, I'm also looking into the near future to start something like this.

    regards.
     
    #20     Oct 19, 2010