Hmmm I think you guys totally miss the most important point. Aspiring HF manager should be first and foremost an artist of sales. How to persuade people to invest... Profitable strategies are the least crucial thing in this whole business. There are 100s of funds with very poor results, or hyper risky strategies or without any strategies at all (trade like in casino) who happen to have a LOT of assets and managers living in mansions. Bottom line: investors are NOT looking for decent performance. They want to be lured, entertained, amused, bent over or anything!!! but never , god forbid, never ever tell them about technical or statistical side of trading. It will bore them to death and worse, they will just use just plain logic : "i don't get it - i don't want it".
But in a real world- i guarantee you - it is not attractive. They prefer to invest in Madoff style of "investments". Or they will find 55 excuses not to invest in a sound, low-risk trading program simply because.... they don't understand even a shadow of it. The last issue is that everyones is used to investments which are bad or mediocre. If somebody presents a program which makes 20% p.a. with 5% risk -- they will say "oh well, yeaaah right....its too good to be true, get the hell out, i'll continue with my good old merrill lynch advisor"
You are making an incorrect generalization. You are narrowing your view of the hedge fund world to only include shitty managers, running shitty funds, selling to stupid investors. Now it's true that there are shitty managers out there, and shitty funds, and stupid investors. But you will find this in every career path, every business space. The lousy practitioners and the dumb clients do not cancel out the existence of the genuinely good practitioners and the genuinely intelligent clients. Again, only if you are good at conning idiots. There are also highly successful funds, with strong strategies and excellent results, who have clients who are both happy and smart. Yet again, this assumes all investors are morons and fools. Some certainly are. But not all by any stretch of the imagination.
Now you are talking about pikers. A savvy high net worth investor may well already have investments with a handful of managers he knows and likes, and be frustrated because his favorite funds have closed their doors to new AUM due to strategy capacity being full, thus leaving him looking for more places to invest / diversify. Sheep don't make the world go round. There are smart, savvy, and genuinely good to know people out there. I would suggest rethinking the impenetrable cynicism and expanding your circle of reference.
You are 100% correct. It's good to see someone with obvious experience outside of reading about others and tall tales from the hedge jungle. The billionaires I am familiar with only invest in hedge funds as a gamble. These guys want 100% plus returns and are willing to lose millions in the process--- IF the idea or strategy makes sense and is unique enough. If true UHNW investors want 10-20% returns they don't invest in hedge funds. There are far safer ways for them to generate returns like that---- my investor xperience is these guys are looking for the thrill regular joes get from a casino in their hedge fund investments. In addition, sophisticated investors really don't care about track record-- they want to make sure the strategy itself makes sense and has high potential going into the future. I have raised funds into the 8 figures, and I agree you are 100% right. Surf
You must know some very different investors than I do then. I haven't "raised an 8 figure fund" myself, but I have plenty of friends and colleagues in the space, including family office managers and at least one billionaire, whom I have known on a personal level for 7 years, who doesn't think the way you describe at all, and a relative (an uncle) with a net worth of +$100MM who doesn't come close to that line of thinking either. Gross generalizations are often unwise. Also, re, sophisticated investors, what you say is not true either -- they care about both, track record AND strategy soundness (as any logical investor would). Of course they want deep due diligence to vet the soundness of the strategy moving forward. But they want past performance too. And they are not idiots or morons as DT-waw implied, so I don't understand where your "100% right" endorsement comes from.
Also, in addition to the above being far too over generalized -- it's not logical to talk about UHNW investors as a monolothic group any more than it is to talk about hedge funds as an asset class, they are far too diverse and different -- your implied argument that these investors differentiate by the percentage level of return does not make sense. Say, for example, a "casino" investor of the type you described really liked a strategy geared toward 15-20% returns with 7-10% drawdowns. If he wanted to "juice it up," all he would have to do is get the manager to create a 3x or 4x leveraged version, providing a shot at 60 to 80% returns with commensurately higher drawdown risk. The key aspect of the strategy, and manager evaluation in general, is performance-adjusted reward to risk, i.e. how much historical and future drawdown is expected per unit of return. If an investor wants to turn the % return dial up higher, he can always do so via getting the manager to set up an X leverage version of the same fund, or, by simply investing in the standard strategy with borrowed money to create his own amplified leverage. And finally, getting 15-20% returns today, safely, is NOT that easy, no matter how connected you are. I have a close friend, a family office manager, who travels to five or ten institutional investor conferences a year. She has breakfasts and lunches with other FOMs all the time. These people are CONSTANTLY bitching to her about how hard it is to find attractive returns without undue leverage or risk, in large part because of the serious size they wield. A ZIRP world is hard on everyone.
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I can only speak from my experience in the space. Obviously they are not morons , but they are widely diversified across assets. Hedge funds are but one small part of their investments, the risk or fun money.