Hedge Fund Guys

Hedge fund guys aren’t well-liked, which I find interesting. Most people don’t even know what a hedge fund is. And if they knew, they probably wouldn’t care. Who cares about running money for Richie Rich?

Obviously, it’s not that simplistic—hedge funds manage institutional money, which is a lot bigger than just high net worth individuals. But the business of running institutional money is a lot different than the business of running retail money. For sure, it can be more rewarding. But most of the time, it isn’t.

Of course I have thought about starting a hedge fund. Any good investor worth his salt has thought about hanging up a shingle. And 10-15 years ago, it was a lot simpler. Now, it is a nightmare.

First, passive is taking over the world, and all hedge funds will be out of business.

Second, big hedge funds get more and more assets, and small ones get shut out.
The mechanics of it are insane. You have to get a legal team to fill out a Form ADV, and take care of piles of paperwork, MIFID nonsense, compliance, back office, prime brokerage, and fund accounting.

Then there’s the hardest part of all: fundraising. People are just not in a hurry to cut checks to young, smart, ambitious people with unique ideas about how the markets work. Because most of those ideas are not terribly unique.

And you have to be able to articulate what your investment strategy would be. Which is hard! What would my investment strategy be? Well, I use behavioral analysis and economic blah blah… I buy when everyone else is selling, yabba dabba doo.

Whatever you think of Ray Dalio and George Soros, not only do they have an investment philosophy, they have a philosophy of life, and their investment strategy springs from philosophy. They have books about it, both of which are fairly impenetrable. These are people who spend a lot more time than me thinking about investing, and I think about it a lot.

Starting a hedge fund in this environment is the hardest thing in the world. I would never attempt it. Yet people do.