Ryan Morris-28 year old activist investor

[yadayada]

how hard is it to set up a hedge fund? Any forum members who went through this? Seems the best way is to find smart investors who are willing to vouch for you if they think your thinking process is right. And you have a few good years of succesfull picks behind you.

depends on your pedigree and connection/how much you are starting with/how good of a salesman you are/and a big dose of luck. assume you can raise 10-50 mil from yourself/family/connections, you basically have 3 years to show strong (30%+) and consistent returns. If you are still in the business after 2-3 years, your fund should be at least $100 mil by then. Then you are investable to the institutions. Good fortunes can snowball from here. That's my understanding of the state of the industry right now. Vast majority of the potential investors are outcome focused and only care your performance so luck plays a big part especially you only have a year or two to show good performance

yea the thing is, Im pretty confident about my picks. ANd I think i could with little extra work invest like 10-20 million$ in those stocks. My goal isn't really to make enourmous amounts of money. Just leverage what I am currently doing, with little extra effort. Even 5 million$ would be ok, Im ok with living everywhere, so i figure I could cheaply set up a fund for that. I guess I would first have to try and get my family in then.

 

All the non-investment stuff has the biggest potential for sucking away your time.

What for example? You give a presentation once a year on all your holdings and how it is going, and that is that. If they constantly harrass you about stupid day to day market movements you just kick them out?

 

Investing in a fund really seems like a catch 22 tho. If you know how to pick a money manager you might as well manage yourself with those skills. And if you cannot manage your own money actively, then you also don't really know what to look for. I bet a lot of those underperfoming hedgefunds talk the talk really well, but dont walk the walk.

 

You can throw around EV/EBITDA and warren buffett and talk about competitive advantages in a way that looks very professional, while your stock picking ability's are just speculative and undisciplined. I would invest in a fund who follows buffett's and graham's principles, but if they then turn around and proceed to make all kinds of risky crazy attacks and shorts on company's like OMEX...

[jouni1]

i'm guessing it could be relatively "easy" getting investors, if you have proof of beating the market for the last 10 years, including the crisis. the markets have been going up for almost 5 years, lots of people looking for places to invest. if you have something to set you apart (performance), it just might work out.

[oddballstocks]

how hard is it to set up a hedge fund? Any forum members who went through this? Seems the best way is to find smart investors who are willing to vouch for you if they think your thinking process is right. And you have a few good years of succesfull picks behind you.

depends on your pedigree and connection/how much you are starting with/how good of a salesman you are/and a big dose of luck. assume you can raise 10-50 mil from yourself/family/connections, you basically have 3 years to show strong (30%+) and consistent returns. If you are still in the business after 2-3 years, your fund should be at least $100 mil by then. Then you are investable to the institutions. Good fortunes can snowball from here. That's my understanding of the state of the industry right now. Vast majority of the potential investors are outcome focused and only care your performance so luck plays a big part especially you only have a year or two to show good performance

yea the thing is, Im pretty confident about my picks. ANd I think i could with little extra work invest like 10-20 million$ in those stocks. My goal isn't really to make enourmous amounts of money. Just leverage what I am currently doing, with little extra effort. Even 5 million$ would be ok, Im ok with living everywhere, so i figure I could cheaply set up a fund for that. I guess I would first have to try and get my family in then.

 

All the non-investment stuff has the biggest potential for sucking away your time.

What for example? You give a presentation once a year on all your holdings and how it is going, and that is that. If they constantly harrass you about stupid day to day market movements you just kick them out?

 

Investing in a fund really seems like a catch 22 tho. If you know how to pick a money manager you might as well manage yourself with those skills. And if you cannot manage your own money actively, then you also don't really know what to look for. I bet a lot of those underperfoming hedgefunds talk the talk really well, but dont walk the walk.

 

You can throw around EV/EBITDA and warren buffett and talk about competitive advantages in a way that looks very professional, while your stock picking ability's are just speculative and undisciplined. I would invest in a fund who follows buffett's and graham's principles, but if they then turn around and proceed to make all kinds of risky crazy attacks and shorts on company's like OMEX...

 

You are running a business, an asset management business.  You have clients who want details on how their money's doing, you're not just managing your funds.  So you have calls to take with current clients.  Then you need to prospect for new clients, maybe this is with marketing, maybe networking.  Maybe it's writing letters or articles for magazines, but it's something.  You also have the legal and compliance aspect of everything you do.  Don't underestimate the paperwork involved in running the fund.  You also have a lot of special situations and requests from clients.  Writing the quarterly letters, measuring performance, preparing statements for clients.

 

Then you have to research and invest the actual fund.

 

I don't believe you need great performance to be successful, you need to be great at sales.  There are some well known hedge fund managers with high AUM's and terrible track records.  Why haven't all their clients fled to all of the up and coming guys with 30% a year returns and $3m in AUM?  It's not a visibility thing, it's because investors believe the story of their manager.  You want to craft a story, there's a reason investors should invest with you.  You can't guarantee great returns.  So you sell by saying you're an expert on airlines or on distressed credit.  That niche that you're an expert in is why investors invest with you.  If you're an expert and you've giving exposure you're not released from the performance grind.  Investors want distressed credit, as long as you can do well compared to your specific index, or give diversified exposure you will be able to retain investors.

 

I know there's this feeling that all you have to do is hang your hat out the window and $10-15m will come flowing to you, but I'd posit it's much harder to raise a substantial amount of capital.  Unless you're from a wealthy family it's going to be really hard to get money if you don't have an audited track record, great connections or a seed from a well known fund.  If it were easy then there'd be no small funds.  If you ask around you'll find a lot of people on the board here running small funds with excellent performance numbers.  If it were only performance then they should be running a lot more money. 

 

Asset management is just like any other type of business.  There is a product to be sold, and someone who needs to sell it.  Apple can make the greatest device in the world, but unless they tell people about it, tell them why they need it, and create a product out of the device it will never sell.  Engineering creates devices, marketing makes products.  Asset management is no different, investment managers invest for performance, but a marketing department needs to create a product out of the manager. 

[Guest ajc]

You are running a business, an asset management business.  You have clients who want details on how their money's doing, you're not just managing your funds.  So you have calls to take with current clients.  Then you need to prospect for new clients, maybe this is with marketing, maybe networking.  Maybe it's writing letters or articles for magazines, but it's something.  You also have the legal and compliance aspect of everything you do.  Don't underestimate the paperwork involved in running the fund.  You also have a lot of special situations and requests from clients.  Writing the quarterly letters, measuring performance, preparing statements for clients.

 

Then you have to research and invest the actual fund.

 

I don't believe you need great performance to be successful, you need to be great at sales.  There are some well known hedge fund managers with high AUM's and terrible track records.  Why haven't all their clients fled to all of the up and coming guys with 30% a year returns and $3m in AUM?  It's not a visibility thing, it's because investors believe the story of their manager.  You want to craft a story, there's a reason investors should invest with you.  You can't guarantee great returns.  So you sell by saying you're an expert on airlines or on distressed credit.  That niche that you're an expert in is why investors invest with you.  If you're an expert and you've giving exposure you're not released from the performance grind.  Investors want distressed credit, as long as you can do well compared to your specific index, or give diversified exposure you will be able to retain investors.

 

I know there's this feeling that all you have to do is hang your hat out the window and $10-15m will come flowing to you, but I'd posit it's much harder to raise a substantial amount of capital.  Unless you're from a wealthy family it's going to be really hard to get money if you don't have an audited track record, great connections or a seed from a well known fund.  If it were easy then there'd be no small funds.  If you ask around you'll find a lot of people on the board here running small funds with excellent performance numbers.  If it were only performance then they should be running a lot more money. 

 

Asset management is just like any other type of business.  There is a product to be sold, and someone who needs to sell it.  Apple can make the greatest device in the world, but unless they tell people about it, tell them why they need it, and create a product out of the device it will never sell.  Engineering creates devices, marketing makes products.  Asset management is no different, investment managers invest for performance, but a marketing department needs to create a product out of the manager.

 

This is a great post.

 

Also, Nate and Ham Hockers are being mindful when they point out how much time this stuff can take up.

My sense from the folks on here who manage OPM, is that downtime isn't really an option if you're interested in building a successful asset management business from a totally standing start.

 

[gg]

Agree 100% with oddball

[yadayada]

Yeah thanks for posting, you killed all hope for me :D . Im a terrible salesman, couldnt sell a cure for cancer. Just curious oddball, you run a fund?

 

I would feel really awkward asking people I know to get them to give me money to manage. Even with a nice track record of at least a few years. Unless they know quite a bit about investing. So the only route I guess is apply with a hedgefund.

 

[stahleyp]

From what I recall, Morris started the fund in 2009 with money from family and friends. He had an amazing year and attracted Tilson, who funded him with a larger bankroll. I think over the past 6-12 months, he also started working with Gabelli.

 

He's also on the board of 3 companies (INFU, LEI and SEV). That's all while running his fund.

[frommi]

Yeah thanks for posting, you killed all hope for me :D . Im a terrible salesman, couldnt sell a cure for cancer. Just curious oddball, you run a fund?

 

I would feel really awkward asking people I know to get them to give me money to manage. Even with a nice track record of at least a few years. Unless they know quite a bit about investing. So the only route I guess is apply with a hedgefund.

 

I know a lot of people in here will roll their eyes when they hear the name Timothy Sykes, but he wrote an interesting book about this topic. I just read it for entertainment, its title is "An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund". He describes very good how hard it is to raise capital for a small fund.

[oddballstocks]

Yeah thanks for posting, you killed all hope for me :D . Im a terrible salesman, couldnt sell a cure for cancer. Just curious oddball, you run a fund?

 

I would feel really awkward asking people I know to get them to give me money to manage. Even with a nice track record of at least a few years. Unless they know quite a bit about investing. So the only route I guess is apply with a hedgefund.

 

Nope, for all the reasons I posted.  Instead I'm working on a tech startup (url in my signature) and a few other ventures.  I like product companies because they're scalable.  With my banking product I can grow it and eventually hire management to run the company.  Hiring people to run a product is straight forward.  With an investment management company investors are investing with the manager, it's hard to hire a replacement for that role.

 

You are probably better at sales than you think you are.  Sales is simple, if you have a great product that solves a problem for a client it's easy to sell.  Don't think about what you have to sell, rather think about what you provide for the client and why they need you.

[Ham Hockers]

how hard is it to set up a hedge fund? Any forum members who went through this? Seems the best way is to find smart investors who are willing to vouch for you if they think your thinking process is right. And you have a few good years of succesfull picks behind you.

depends on your pedigree and connection/how much you are starting with/how good of a salesman you are/and a big dose of luck. assume you can raise 10-50 mil from yourself/family/connections, you basically have 3 years to show strong (30%+) and consistent returns. If you are still in the business after 2-3 years, your fund should be at least $100 mil by then. Then you are investable to the institutions. Good fortunes can snowball from here. That's my understanding of the state of the industry right now. Vast majority of the potential investors are outcome focused and only care your performance so luck plays a big part especially you only have a year or two to show good performance

yea the thing is, Im pretty confident about my picks. ANd I think i could with little extra work invest like 10-20 million$ in those stocks. My goal isn't really to make enourmous amounts of money. Just leverage what I am currently doing, with little extra effort. Even 5 million$ would be ok, Im ok with living everywhere, so i figure I could cheaply set up a fund for that. I guess I would first have to try and get my family in then.

 

All the non-investment stuff has the biggest potential for sucking away your time.

What for example? You give a presentation once a year on all your holdings and how it is going, and that is that. If they constantly harrass you about stupid day to day market movements you just kick them out?

 

Investing in a fund really seems like a catch 22 tho. If you know how to pick a money manager you might as well manage yourself with those skills. And if you cannot manage your own money actively, then you also don't really know what to look for. I bet a lot of those underperfoming hedgefunds talk the talk really well, but dont walk the walk.

 

You can throw around EV/EBITDA and warren buffett and talk about competitive advantages in a way that looks very professional, while your stock picking ability's are just speculative and undisciplined. I would invest in a fund who follows buffett's and graham's principles, but if they then turn around and proceed to make all kinds of risky crazy attacks and shorts on company's like OMEX...

 

You are running a business, an asset management business.  You have clients who want details on how their money's doing, you're not just managing your funds.  So you have calls to take with current clients.  Then you need to prospect for new clients, maybe this is with marketing, maybe networking.  Maybe it's writing letters or articles for magazines, but it's something.  You also have the legal and compliance aspect of everything you do.  Don't underestimate the paperwork involved in running the fund.  You also have a lot of special situations and requests from clients.  Writing the quarterly letters, measuring performance, preparing statements for clients.

 

Then you have to research and invest the actual fund.

 

I don't believe you need great performance to be successful, you need to be great at sales.  There are some well known hedge fund managers with high AUM's and terrible track records.  Why haven't all their clients fled to all of the up and coming guys with 30% a year returns and $3m in AUM?  It's not a visibility thing, it's because investors believe the story of their manager.  You want to craft a story, there's a reason investors should invest with you.  You can't guarantee great returns.  So you sell by saying you're an expert on airlines or on distressed credit.  That niche that you're an expert in is why investors invest with you.  If you're an expert and you've giving exposure you're not released from the performance grind.  Investors want distressed credit, as long as you can do well compared to your specific index, or give diversified exposure you will be able to retain investors.

 

I know there's this feeling that all you have to do is hang your hat out the window and $10-15m will come flowing to you, but I'd posit it's much harder to raise a substantial amount of capital.  Unless you're from a wealthy family it's going to be really hard to get money if you don't have an audited track record, great connections or a seed from a well known fund.  If it were easy then there'd be no small funds.  If you ask around you'll find a lot of people on the board here running small funds with excellent performance numbers.  If it were only performance then they should be running a lot more money. 

 

Asset management is just like any other type of business.  There is a product to be sold, and someone who needs to sell it.  Apple can make the greatest device in the world, but unless they tell people about it, tell them why they need it, and create a product out of the device it will never sell.  Engineering creates devices, marketing makes products.  Asset management is no different, investment managers invest for performance, but a marketing department needs to create a product out of the manager.

 

Agree with all this.

 

People also usually think they can outsource all the administrative stuff (calculating NAV, investor performance, handling redemptions/contributions, etc.). But even if you hire an outside administrator, you remain responsible for all of this at the end of the day. So practically speaking, you're probably running a parallel process and spending time doing these things anyway.

 

I'm not saying you can't do it. Just that it's more work than you think and you will always have plenty of non-investment work.

[DoddDisciple]

This is all based on your network. I'm sure several people on here trounce fund returns, but how many qualified investors do they know?

 

You are a qualified client if:

 

You have an individual net worth, or you and your spouse have a combined net worth of $1.5 million

 

You have at least $750,000 in assets under management

 

These folks (and the net worth echelons above them) are all you want. I don't see why anyone would want a group of lesser accredited investors you can charge a paltry 2% management fee to. Sure, raise $50M, take home a cool $1M if expenses are low, but how likely is that for the average sod?

 

While I think you can get around SEC filing based on number of investors, can you get around guidelines for performance management fees?

[dpetrescu]

His OMEX short just took a big dive a few days ago. What a great example of an overvalued stock. The challenge is knowing when the tipping point is. If it's already overvalued, it seems they can keep finding shipwrecks, issue press releases, and capture the excitement of investors while they keep losing money.