Thread by @hfreflection

L/S HF LAUNCH COSTS -

Many an aspiring PM dreams of launching a fund one day. Through my start up process I’ve gotten some better datapoints on fund expenses for two types of institutional launches - large (150m+) and small (10-30m). Will discus small here. A 🧵

I believe a small launch can get by with $100-150k/yr of mgmt co expense and still be semi-institutional. I am more confident about large launch vs small launch numbers since that is closer to my (hoped for!) experience. Those with more knowledge please chime in.

Main budget items are: 1) personnel 2) service providers, 3) rent, 4) research. In general, fund admin, legal, audit, and some research can be charged to the fund. As long as you launch with 10m+ and go cheap these are not a massive drag on returns

In general, personnel, rent, outsourced cfo, IT, marketing, some research expenses, and capex (other than legal) are mgmt co expenses. When you get down to it, these actually aren’t a huge amount especially for a small launch. Let’s start here.

If I had a million dollars and 9m of friends and family, I’d launch a long only, small cap concentrated fund with 10-15 positions. I’d hire no employees other than unpaid interns (if you want). I only have 10-15 positions which I can handle myself.

I’d have a hot desk at a coworking space and use the conference room for meetings. So my personnel expenses are 0 and my rent is about $7000/yr. I’d get a credible outsourced cfo so I can focus on investing and to pass OPS DD. This is my biggest exp and probably about $35k/yr.

I’d get a cheap IT firm like MetroCSG so I have some basic cybersecurity protection (I manage a few million after all). Call this a few grand. I’d get either Bloomberg or capiq which I’d pay for ($25k) but I’d expense tegus, alphasense, and a handful of calls to the fund.

I’m researching small / micro caps, so I don’t need research. If I do, I get friends to send it to me or plead poor to 3-4 sellside sales reps who take pity on me for 6 months. When they cut me off, I find 3-4 more and so on. Or I cold call analysts until one talks to me.

I’d get a big 4 auditor out of the caymans, someone like NAV for fund admin, a decent lawyer, and use an outsourced trader and small prime so I could get cap intro. These are all fund expenses but I’ve gone cheap and can afford them.

I’d focus on putting up numbers and getting an anchor or seed. If I put up numbers some allocator will pay me fees as they still believe stock picking exists in small caps. But I have to get my name out there, can’t be a hermit. I send out my best ideas 3-4x/yr to my list.

If I put up numbers over a 3-5yrs without any disastrous years or running out of money, and I think I’d have a business. Anyhow hope this helps - I know a handful of people who’ve done this but it’s not my experience so apologies for errors.