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So You Want to Start a Hedge Fund: Lessons for Managers and Allocators



"So You Want To Start A Hedge Fund offers a very high insights-gleaned to time-spent ratio.  If you have any desire whatsoever to start your own fund, read this book.  If you have any desire to invest in hedge funds whatsoever, read this book.  Given the high stakes involved in the industry, it's probably not hyperbolic to say that the lessons learned could potentially help make (or save) millions."

"I strongly recommend this superb book for anyone who is interested in starting a hedge fund, investing in one, or is already in the business. One can learn an enormous amount from Ted's experience analyzing hundreds of start-up funds and from the many case studies he shares in the book."
--William A. Ackman, CEO, Pershing Square Capital

"Part technical manual, part detailed chronicle of modern money management history, and part personal reflections from the investing world front lines, So You Want to Start a Hedge Fund is a must read for allocators, industry veterans, aspiring managers, and everyday investors. Ted Seides has crafted a definitive guide to one of the 21st century's most dynamic and opaque industries."
--Scott Bessent, Former CIO, Soros Fund Management, and Founder and CIO, Key Square Group

"Launching a new hedge fund in this hyper-competitive era is a difficult journey riddled with many landmines. Unfortunately, many of these landmines are counterintuitive and cannot be easily avoided. As a seasoned allocator to emerging managers and hedge funds, Ted has seen it all--the good, the bad and the ugly. His book is a treasure trove of wisdom for managers and allocators with many digestible, real-life lessons and vignettes to aid not only in avoiding the landmines, but also in how to thrive. This is must reading for anyone looking to build a fund or allocate to newer ones."
--Jason H. Karp, Founder and CEO, Tourbillon Capital Partners

"Through an engaging set of lenses, this short book captures the key issues firms and allocators face in creating and managing their organizations and businesses. It's about leadership, organizational design, marketing, and client relations. It's about talent spotting and management. It's about the essence of the industry. The case study format and clear takeaways make this book an easy read. Hedge fund managers who heed Ted's advice will create better and longer lasting firms; allocators will become better investors."
--Andre F. Perold, Founder and CIO, HighVista Strategies, and George Gund Professor of Finance and Banking, Emeritus, Harvard Business School

"A must read. Ted does an outstanding job explaining in clear language how to stay ahead of the curve in today's hyper-competitive golden age of hedge funds. I wish I had access to this book when I started allocating capital."
--Anthony Scaramucci, Founder and Co-Managing Partner, Skybridge Capital, and host of Wall Street Week

TED SEIDES is the former President and co-CIO at Protégé Partners, LLC, a leading alternative investment firm launched in 2002 that invests in small and specialized hedge funds on an arms-length and seed basis. He has authored investment pieces for CFA Institute Conference Proceedings Quarterly, Institutional Investor, Harvard Business School Publishing, FT Alphaville, and the late Peter L. Bernstein's "Economics and Portfolio Strategy" newsletter.

Foreword xi

Acknowledgments xv

Introduction xix

1 The Lessons 1

Lessons for Managers 2

Lessons for Allocators 4

2 So You Want to Start a Hedge Fund? 7

3 Attracting Capital 11

Signals of Success 12

A Classic Chicken-and-Egg Problem 30

Investment Funds are Sold, Not Bought (Just Don’t Tell the Buyers) 43

Leveraging the Buzz 49

Riding the Wave 55

Building a Great Business 60

4 Team 65

Your Single Best Investment 66

The Best a Man Can Get 73

The Two-Headed Portfolio Manager Monster 76

Where Do Nice Guys Finish? 83

Turnover: Don’t Knock It Till You Try It 86

Pacing Growth 91

5 Investment Strategy 97

Finding True North 97

Best Foot Forward, With Both Feet 100

The Tug of War between Flexibility and Style Drift 106

Stick to Your Knitting 117

Building Blocks of Process 123

6 Investment Performance 129

A Slave to Monthly Numbers 130

Sustaining Performance 134

Reaching for Return 138

The Role of Luck 144

The Best Month in a Manager’s Career 150

7 So You Want to Invest in a Start-Up Hedge Fund? 153

Influencing Outcomes 154

Terms 158

Preparing for Bumps in the Road 164

Heed the Stop Sign 167

Crossing the Velvet Rope 173

Making Decisions 177

8 Parting Thoughts 183

Author’s Disclaimer 189

About the Author 193

Notes 197

Index 205