KKent, having an original business model is great and it looks good on your resume, but the point is to make money. Boring, derivative, and ubiquitous does not always mean unprofitable. Was the guy supposed to announce that he’s an amazing investor with a 50% CAGR? If he does the same thing everyone else does, only better, then originality is just a feather in the cap.
Guys, Make sure you know what you are doing. Not trying to discourage you, but cautioning that it is not an easy game for starters. My neighbor (a former VP from GS) and one more manager are struggling to get $$ coming in from investors & set up a proper HF on the paper with good structure. Lots of PF/Endowments make you run around until you drop dead without seeing a penny. So be absolutely clear that you have real investors.
Kkent, I would hardly classify any institutional investor as ignorant, and would also put most high net worth clients in the sophisticated catagory. The very nature of these companies and individuals is to strive to do above average, and I believe that is why they prefer active management to passive index investing. As for the original posters friends and family, who knows. Warren Buffett started with a pretty small network of investors and things seemed to work out okay.
kkent Wrote: ------------------------------------------------------- > FIA, wow, apparently you’ve missed a lot. I was > hired as an investment banking analyst in spite of > mediocre grades, a state university degree, and no > internship–you know why? Because I started my > own company, my own original company using an > original concept, which was what got me a ton of > attention by those firms (already discussed this > on numerous occasions here). > > Plus I’ve got 2 dozen pretty original ideas right > now, including a not-for-profit idea, written down > in an Excel document. I fully intend on pursuing > one of these ideas, but it’s tough to raise > capital as a 22-year-old with minimal experience > and limited relevant contacts. Maybe it’s a bit > smug, but starting ANOTHER fund among the ten > thousand other existing funds seems like a cheap > ripoff of entrepreneurship, especially when it > would be more ethical to tell your prospective > clients that they are almost certainly better off > putting their money in an index fund than > investing with you. Who does this guy think he is? What a joke
Yeah, well, kkent is not the most diplomatic guy in the world (neither am I). Anyway, he probably thinks he’s a guy who’s right and I mostly agree with him on this one. I know people out there like long-only equity hedge funds and are willing to pay 2/20 to get them. Suppose that kkent is anything like right (he just is - there seem to only be a few people in recent history who have been able to consistently outperform equity markets and there isn’t even agreement on them), the only justification for 2/20 is leverage. So if equity markets return 10% and the manager adds 1% of alpha and levers 5 times the return to the investor should be 55% - fees - interest = 55% - 13% - 4% = 38% which most people think is just a rocking return. However in that upmarket they could have gotten about the same return by borrowing on their credit cards and their risk-adjusted return is terrible (hedge funds have a variety of tricks in smoothing out vol btw but none of them are real). The problem of course is in the year when equity markets drop 20%, all the money is gone and the only person to have any left is the fund manager. Long equity exposure is so easy to get outside of hedge funds. I have no idea why people invest in lo equity funds (no chance are hedge fund equity guys better than the mutual fund guys and in most cases they are worse because they don’t have as much money). As for kkent’s point about this being unoriginal - that’s probably right too -although as several posters pointed out, that wouldn’t matter if he was good enough. I think hedge funds exist to provide people with risk exposures that are difficult or impossible to get outside of that structure. Of course, the big problem is that to start a successful hedge fund you need an original risk idea that is also scalable to large investors. That’s tough.
he is awfully cocky for a kid a few months out of school on his second job…
numi Wrote: ------------------------------------------------------- > kkent Wrote: > -------------------------------------------------- > ----- > > FIA, wow, apparently you’ve missed a lot. I > was > > hired as an investment banking analyst in spite > of > > mediocre grades, a state university degree, and > no > > internship–you know why? Because I started my > > own company, my own original company using an > > original concept, which was what got me a ton > of > > attention by those firms (already discussed > this > > on numerous occasions here). > > > > Plus I’ve got 2 dozen pretty original ideas > right > > now, including a not-for-profit idea, written > down > > in an Excel document. I fully intend on > pursuing > > one of these ideas, but it’s tough to raise > > capital as a 22-year-old with minimal > experience > > and limited relevant contacts. Maybe it’s a > bit > > smug, but starting ANOTHER fund among the ten > > thousand other existing funds seems like a > cheap > > ripoff of entrepreneurship, especially when it > > would be more ethical to tell your prospective > > clients that they are almost certainly better > off > > putting their money in an index fund than > > investing with you. > > > Who does this guy think he is? What a joke He has an excel file with original ideas! How dare you doubt him!! And I agree with everyone else that funds are overdone, doesn’t change my view of Mr. Kent.
Back to the orriginal question, you have most likely though of this already but… One way to approach the issue you have brought up is to turn your book (if you are a broker now) into a disc structure and run 3-4 model protfolios… most HNW clients are lookign for some version of income & growth and if a clients wants a more growth/control you can have some transaction business on the side…
My two cents… I’d go for the one strategy you like most and focus on that one and get the most out of it. Try and get a solid investor base so you make a decent income. Use word of mouth to grow and make sure you’re transparant about what you do and how you do it. I wouldn’t spend my money on a black box, I do invest when someone has a great track record and a sound investment strategy. Go for a decent base fee and don’t focus too much on performance fee. That sounds nice but you’ll end up taking more risk then you wish and one big down and you’re out of business. Big bucks can follow but don’t expect them in the near future!
kkent Wrote: ------------------------------------------------------- > Maybe it’s a bit smug, but starting ANOTHER fund among the ten > thousand other existing funds seems like a cheap > ripoff of entrepreneurship, especially when it > would be more ethical to tell your prospective > clients that they are almost certainly better off > putting their money in an index fund than > investing with you. More ethical, you have got to be friggin joking!! LOL. Thanks for the laugh, I needed it today. Maybe it would be more ethical to tell prospective clients that by investing in an index fund it is a 100% certainty that they will underperform the benchmark.
kkent Wrote: ------------------------------------------------------- > you don’t see a fundamental problem with > selling a product to the public that you know is > inferior to an existing product? That’s pretty > effed up. You do understand that the vast > majority of money managers raise billions of > dollars in AUM under the false pretense that they > have a better product than an existing product? You bring up some key questions but your attitude stinks. 
Industry concentration - The fact that there are so many inferior existing products is an opportunity. Fund strategy - My strategy goes something like “buy/sell mispriced securities”. If you’re good that is the differentiation. The big question - If the majority of guys starting funds are Harvard grads or former GS employees (because that’s how you attract the cash) why are the majority of funds not able to beat the benchmark?
purealpha Wrote: ------------------------------------------------------- > Fund strategy - My strategy goes something like > “buy/sell mispriced securities”. If you’re good > that is the differentiation. > I hope kkent is on vacation…
HA! Yes, I’m sure he will enjoy that one. 
"Fund strategy - My strategy goes something like “buy/sell mispriced securities”. If you’re good that is the differentiation. " That’s great differentiation for a long only manager charging 1%. For a hedge fund, they’ll laugh you out the door. Why should I think you’ll be any good at that when Bill Miller hasn’t been able to beat the S+P 500 2 years running?
I dunno, seems to me that to set up your own fund, you have a few options (aside from the startup costs). 1) Have a truly original idea that makes money - this is hard, given that original ideas are difficult enough, and original ideas that work are even trickier. 2) Use an older idea, and gain market share because you charge lower fees. Not necessarily a bad way to go, other than the tacit assumption that some people have that “if you’re cheaper, you must not be that good.” 3) Use an older idea that doesn’t scale well, and be content with higher returns, but smaller AUM. This might not be so bad either, but if it’s a quantitative method, then other people using that basic framework with higher AUMs may wear away your advantage.
HoldSideAnalyst Wrote: ------------------------------------------------------- > "Fund strategy - My strategy goes something like > “buy/sell mispriced securities”. If you’re good > that is the differentiation. " > > That’s great differentiation for a long only > manager charging 1%. For a hedge fund, they’ll > laugh you out the door. Why should I think you’ll > be any good at that when Bill Miller hasn’t been > able to beat the S+P 500 2 years running? I always ask myself this question when I daydream about running my own shop. How the hell am I going to ever be good enough to beat the market consistently when guys like Bill Miller are striking out. I know I have only a fraction of that guys brainpower. I suppose I take solace in knowing I also have a fraction of his experience. I just hope maybe someday I will develop that mix of fundamentals, global macro vision, confidence, and luck to become a solid analyst. The fundamentals I grasp, the vision and confidence part, thats been rather elusive.
personally, i love bill miller’s story. basically, it’s a story about a guy with a decent, but not spectacular academic background who knew nothing about finance and accidentally fell into a job on the buyside in his early 30’s. in fact, i think he was pursuing a PhD in philosophy or something like that. anyway, guy works his tail off over ~20+ years and beats the S&P for 15 years running. i like the story because it flies in the face of the OPPRESSIVE negativity you read on boards like this about how if you don’t start studying finance at age 3 and then go on to become number one in your class at wharton, you have zero chance for an internship, let alone a full-time position, blah blah blah. it’s competitive, but it’s not like winning the lotto here. anyway, if you want to start a fund, figure out how to get some experience, do that for 5 to 20 years or however long it takes you to get good and then start the fund if you’re willing to stomach the risk. lots of people pull it off and retire very comfortably even if they don’t ever crack the Forbes 400.