A: 1) Play to win
If you’re going to take the leap to start a fund, you can’t expect to succeed with “a guy, a Bloomberg and a dog.” That may have worked ten or twenty years ago, but it won’t work today. Competition with the big boys is fierce, regulation is more onerous, and allocators are more sophisticated than ever. Those taking the leap need to be prepared to invest real money, time, sweat and tears in the business for a number of years to have a fighting chance to win.
2) Be as thoughtful about the business as you are about managing money
Managers tend to be well schooled in investment analysis and portfolio strategy, but often are naïve about the time and effort required to build a business. Allocators often don’t appreciate all of the challenges a start-up manager will face either. Creating a clear business plan that lays out the path to success forces managers to consider crucial growth plans and helps allocators calibrate expectations should the manager encounter bumps along the way.
3) Clearly define roles in the organization
One of my favorite mistakes is the creation of “the two-headed portfolio manager monster.” New funds where the partners choose to share portfolio management equally have rarely survived the test of time. Managers should avoid the nearly extinct monster, and allocators ought to take a pause when they see one in the birthing process.
4) Be ready to sleep in the bed you make
Catering an investment strategy towards the perceived demand in the market can veer a manager from his real expertise. When seeking the advice of others in the pre-launch stages, managers should remember that the process is like preparing for a wedding; the many givers of advice intend to help, but they only get in the way of a blissful experience. For allocators, the art lies in divining if a manager’s heart is in the product he is presenting.