Do you need a lot of your own money to start a hedge fund?

Question

I want to play the game! I would love to learn to manage a hedge fund and make people, as well as myself, a lot of money.

Answer 1

Are you a good salesman?

I love that little piece in that old movie Wall Street. Martin Sheen's character ribs his son (in real life and in the movie) about being a salesman. Charley protests that he was an "analyst" or something. Martin's character retorts, "You call strangers and ask for money, right? Then you are a salesman."

Okay, that is one foot in the dance. The other foot involves what you do with their money once you get it. Got a good plan? Got any experience? How about what you did with your own money? Some popular stock contests will win you a job, but you've got to be better than the other 20 thousand competitors. Meanwhile it will give you opportunity to practice ideas and see what others are doing. Nonetheless, what you do with real money is what sells your idea best, so shake loose some shekels and parlay it into something respectable.

When you know what you are doing, and are able to persuade others to do it with you, then you can dance.

(Don't feel too bad if you don't get there, lots of us, myself included, are lousy dancers most times)

Answer 2

Good question-here is my take on what I know of the business so far. There are many different ways to get involved with a hedge fund including graduating from an Ivy league MBA program, making plenty of connections in the business such as you would as a broker, trader, or analyst, or just a distinguished trading/investing career. Additional credentials that help are CFA, CMT, CPA, etc. but I still believe that networking is the most important key. Having a good grasp on quantitative analysis, regardless of paper certifications, is not bad either. I, too, am hoping to go this route. Currently, I hold a BSBA in finance/economics, an MBA in global management, Series 7, 63, and 55, and I am working on Level I of the CFA. Additionally, I make and keep as many connections as I can in the brokerage industry; there is nothing that will give you a better pulse on the market than knowing other brokers, traders, accountants, etc. that speak the language. I read as many books as I can. I trade stocks, commodities, and foreign exchange-the best way to learn the proper risk control that will come in handy later is by doing it.

If you don't get on as an assistant to a hedge fund manager, and you are an outstanding trader on your own, there is something called a incubation fund. This means that you put up a small amount of your own capital and show it what you got. This can be simply a margin account at a broker like Ameritrade, Schwab, etc. Trade it for a couple of years and prove yourself-then you will have a much better chance of attracting potential investors. Assuming that you already have brokerage accounts and know how to shop around for commissions and such, just remember that if you make more than 4 trades that are opened and closed in one day, in a 5 day period, then you have to have at least 25K (day trading account).

Essentially, a hedge fund manager is the general partner in a limited partnership so in theory, no you do not need too much, but it helps. Remember also that the business is changing fast and more regulations may be in the oven. The good news is that if you learn this business there will always be opportunity.

Answer 3

Yes it does, and i wouldn't recommend you just "start one up" Wealthy investors look for track record before they invest money in a hedge fund, which is one of the reason so many successful mutual fund managers leave to run hedge funds. So you would need pool money probably $5-10million, then you would need to find a successful portfolio manager and lure him to run your fund, which will likely cost you a couple million at minimum. Plus there are NASD and SEC requirements and paperwork you would need to complete in order to have a hedge fund. You'd need to complete the necessary licensing requirements, and get an NASD series 7, 66, and 24 at minimum. So no you can't just start one up. Go to school get an MBA from a top 50 business school, and go to work at a hedge fund, learn the business, then maybe you'll be in a position to start a hedge fund.

Answer 4

No you do not need a lot of your own money to start a hedge fund but you do need a history of being a very successful investor to get partners with a lot of money to fund the high startup costs (as the first responder mentioned) and the "grub state" to start investing for a profit.