What's the biggest cost to run a hedge fund ?

Discussion in 'Professional Trading' started by lx008, Jul 5, 2017.

  1. Sig

    Sig

    Your answer and several others would make sense if the original poster already had $50M in investor capital lined up. I'm guessing he/she doesn't. In which case hiring your cousin Vinny to do your legal work and your brothers friend's nephew to do your compliance will make it incredibly difficult to get any outside capital, and you'll never get institutional money. Sure you're buying attorneys Porsches, just like you're buying professional athletes Porsches when you buy a ticket to a game or pay $120 for a jersey with $15 worth of cloth and labor in it. It's the ticket to entry.

    A good deal of the advice on this thread completely ignores both the difficulty of getting capital and the amount of capital you need to make enough even as a one person shop to make it worth your while. Capital doesn't magically come to you just because you can post a good 3 year track record. You don't start a hedge fund in a garage any more than you start an investment bank in a garage. Take a look around at the successful funds started in the past 20 years. Let me know how many are earning their founder more that $100K a year and started in a garage by someone with no industry pedigree paying less than 6 figures for their combined legal and compliance costs? I've got every advantage in the world to start a fund with the exception of working a buy-side job, and I'd give my-self low single-digit percentage chances of success, and that would require huge amounts of work and luck in equal parts. It sucks, it's probably not how it should be, but it is reality, and as someone who's started a couple companies I value painful reality advice much more than overly optimistic bullshit.
     
    Last edited: Dec 30, 2017
    #21     Dec 30, 2017
    sle, dealmaker and Xela like this.
  2. Gambit

    Gambit

    It seems the odds are a lot better for the budding CTA. In terms of starting up a viable business, why not start with the CTA route and transition to the Hedge fund model once the foundation is built?
     
    #22     Dec 30, 2017
    Sig likes this.
  3. Gambit

    Gambit

    Thanks for the +1 Sig. Is it because people are so tied to equities only strategies or is it due to marketing and fund raising? I'm sure I'm missing something. Are investors still leery of managed futures?
     
    #23     Dec 30, 2017
  4. Gambit

    Gambit

    I'll just add something I found interesting. The manager of a well known managed futures database noticed my interest in trading and asked, "Do you want to sign up as an investor or a CTA?" I found this a little funny and intriguing at the same time as I'm no heavy hitter. The barriers to entry are starkly different...by like an order of magnitude.
     
    #24     Dec 30, 2017
  5. Sig

    Sig

    Your original post made me think for a minute and I actually had the same question as you. I think you're right, it's the unfamiliarity or discomfort with futures, but that's just my gut feel and not based on anything empirical so not worth a whole lot.
     
    #25     Dec 30, 2017
    Gambit likes this.
  6. Gambit

    Gambit

    You know what...biased perception is real. And I'm not immune either. It seems like an opportunity for somebody.
     
    #26     Dec 30, 2017
  7. Gambit

    Gambit

    I just had a funny image of Joe Pesci from "My Cousin Vinny" as a hedge fund lawyer in NJ. Time for a sequel?
     
    #27     Dec 30, 2017
  8. Overnight

    Overnight

    Yutes
     
    #28     Dec 30, 2017
  9. Gambit

    Gambit

    #29     Dec 30, 2017
    Overnight likes this.
  10. Gambit

    Gambit

     
    #30     Dec 30, 2017