Even for small fund managers, the hedge fund industry’s outlook is quite bright. The debate over survival of funds with less than $100 million has been heating up as it seems many both in the popular press and in the industry believe that smaller managers can’t make it.
I think they’re wrong and I think that small managers will thrive over the next few years.
There are many who believe that unless you launch with a few hundred million, you will never get off the ground. That seems to be the rallying cry, particularly from those at large investment firms.
I don’t believe it. I believe that there is room for both the big boys – those with many billions of dollars in assets under management — as well as for those who are not so big – those with $5 million, $10 million or $20 million in assets under management. There’s plenty of room for both behemoths and boutiques.
The reality is that not everyone who sits on a trading desk or is just a student of the markets can launch a fund with a few hundred million dollars. Most new managers launch with less than $100 million, and while there will always be funds with a.u.m. in the tens of billions, there is plenty of room in the market for funds with less than $100 million. In fact, I believe the market needs them and some investors want them.
And while many of the naysayers will say the small funds will not survive – the reality is that they will.
Small funds will survive because even with $25 million or $50 million in a.u.m., one has a nice business. Not to mention the countless number of brokers, accountants, lawyers, administrators and technology consultants who ready, willing and able to support their efforts.
Sure, they may not get assets from the institutional investors and they may never make onto a wire-house distribution platform, but mark my words: Small funds will not only survive, they will thrive.
The large funds will continue to get larger while the smaller funds will continue to exist in their wake. Each will make it, because the markets want them to. This is not a phenomenon just in hedge funds, but something that happens in all markets, from shoe stores to appliance stores and everything in between. There is always room for large and small players.
So for those of you looking to start a fund with just a few million dollars right out of the box – keep the faith and call a lawyer to get working on your documents. The market is there for you to survive, thrive and grow. Don’t be discouraged – there is plenty of opportunity.
Don’t just sit there: Get started. Now!