So Ken Griffin made the news a couple times this week with real estate purchases in London and New York..and to think he supposedly only started with $1 million of outside capital straight out of college in contrast, a new fund launching today would require at least US$200mm to be considered viable, to pay for all the infrastructure and expenses, not to mention to have enough scale to attract institutional capital but then there is this guy, who made $170mm with no LPs/outside capital: https://www.bloomberg.com/news/arti...ck-picker-who-wishes-his-edge-would-disappear no doubt he's an outlier too, like KG, whose fund probably was in the small % which survived rounds of industry consolidation, investor withdrawals, market vol, etc it just seems like there are 2 paths to making it big in this game: (1) 'Traditional' path: Pedigree --> Institutional capital in hundreds of millions (nowadays) --> Make like 8-12% per annum, hopefully consistently to have staying power and collect on 2 & 20, 1.5 & 15 - Pros: if strategy is consistent, has even a tiny bit of alpha, fund manager gets to essentially clip a coupon & make bank - Cons: Barriers to entry are huge today (the $200mm figure), which are available to maybe a dozen plus new entrants annually in all of Wall Street/ City of London. Of the 500 or so funds that launched last year, the average size is $50mm, skewed by the largest players, which means most of them are probably not even viable by industry standards, until they raise additional capital. (2) 'Lone wolf' option: like David Webb per the BB article, where he managed to acquire a sizable but not outlandishly large nest egg by mid-thirties --> 20% per annum returns with 100% profits retained --> $170mm within 2 decades - Pros: can ride out any short term vol, strategy drawdown, give full attention to markets instead of splitting it on: markets / firm's everyday matters / investor handholding - Cons: pretty much no visibility on the street, no fall back options really My guess is that unless/until the fundraising environment gets easier, probably option #2 would be the only route available to most in this game Maybe that's the reason all the guys who made it big in hedge funds have already done so by the 2007-08 era, hardly any newcomers who joined them up there this past decade, to the same level of success at least
Dang. Thought this was going to be another interesting trading journal: "Watch me make $100 million..."
The industry matured by 2006 and to be a player you have to have a pedigree plus some significant management experience. One of my wife’s friends started a 200mm hedge fund in the old country. But he has a 15 year track record at a major global fund. He’s managing 1/10th of what he was managing at the global fund. His goal is to get to 5bn. The story about Webb is fascinating. Elite traders should be admiring him. He took a reasonable fortune (if probably a few million) and found a real edge and ran with that for decades.
Hmm, there are so many things to point out here I don’t even know where to begin, but here are a few: 1. It cannot be that bad when Karen the Supertrader raised $150M+, regardless of what happened later, while she may even reappear. 2. I also suspect that a few Elite Traders and people outside of ET are capable of pulling in 20%/year. 3. Starting a hedge fund requires $25k - enough to day trade. Some people can turn this into a $million and then are being offered money to manage, which can continually be grown as a fund/business. While money chases capable people, and investors continually look for them. 4. There are also some contests and companies that arrange funding for traders who simply come up with consistent and verifiably profitable strategies, even if you trade $10k. (Quantopian, QuantConnect, FundSeeder, and others I don’t recall) 5. Couple guys can build a professional/enterprise hedge fund infrastructure with systematic strategies in a year or two. And they can set this up as one of a million startups, and either raise money as a startup (like Robinhood, WeBull, etc), or self-fund and initially trade own funds or just sell some product or technology to raise funds, etc Or simply get rich off of an unrelated startup and then move to trading. 6. Indeed times have changed, but mainly due to leverage being taken away by regulation. This makes it more difficult for the most capable traders to multiply money, while even hedge funds are seeking high leverage. This only means that getting rich (or poor) may not be as quick as it used to. 7. If your mental state doesn’t allow you to assume that you’re the greatest and can beat the market and everyone else, and build professional business, while you see impassable roadblocks or just more problems than opportunities - then indeed your chances of making it aren’t that great.
Attracted by the notion of "2/20"... and being the greedy little bastard that I am, I once queried the SEC about starting a hedge fund. They told me that "unless I could raise ~$50 MM quickly, the costs would be prohibitive."
That's mostly true but not exactly true. If you are running a few million, you don't need that much. You can get a legal structure going for a few grand, too. Once you are managing 25 million you are required to get registered with SEC and there is a bunch of requirements (CRO, compliance, IT, outside admin etc). That's when the costs add up and I'd put the required capital higher than what you heard, like at 100-150. Before that most funds are operating under the assumption that if they come up with a track record, the capital will show up.
Without knowing much about David Web, I'd imagine that one of his early trades worked out very well and he was able to leverage that. KG was born into the right family who not only was able to send him to a very good school but also was able to give him a fair amount of capital to trade. It's pretty obvious that "making it big" is primarily luck. So many stars have to be aligned to get into the 3rd standard deviation and beyond. Even making it "medium" (let's say to the top 1%) required a lot of luck at various stages.
It's a little bit more than $25k. The average startup cost is $50k-$100k with first year operational costs at $75k-$150k. That's before you've even funded your account. Here the source for those numbers. It's from 2012, so they might be more now. https://www.managedfunds.org/wp-con...-GrantThornton-Stonegate-Capital-Dec-2011.pdf