Road to hedge fund riches is rockier now
Starting a hedge fund was long considered the road to riches for money managers, but the path has become much rockier in the last months.
“It is materially harder to start a hedge fund today than it was two or five years ago,” said David Bailin, who heads Bank of America Corp’s (BAC.N: Quote, Profile, Research) alternative investments group, which invests with roughly 100 hedge fund managers.
A few years ago, when wealthy investors wrote checks more easily, their enthusiasm helped assets in the loosely regulated hedge fund industry double to $1.8 trillion in three years. In the boom days, an Ivy League degree plus a stint at a prominent Wall Street investment bank were often thought to be the main ingredients for a successful new fund launch.
Eric Mindich, a former Goldman Sachs partner with a degree from Harvard, raised $3 billion in 2004. Two years later, Jack Meyer, who earned an MBA from Harvard and quadrupled the university’s endowment to $26 billion in 15 years, eclipsed him with a new industry record — his own $6 billion hedge fund.
But times have changed, thanks to the credit crisis, economic slowdown and worst-ever hedge fund industry returns at the start of 2008, hedge managers, investors and lawyers said.
“The appetite for hedge funds is slowing just as supply (of potential fund managers) is increasing, and that means the days of raising capital from your basement or your garage have passed,” said Lawrence Glazer, a managing partner at Mayflower Advisors, which helps clients select hedge funds.
Even big names with impressive resumes are having a harder time raising money.
Dow Kim, a former co-head of investment banking at Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research), failed to get the financing he expected, people familiar with his plans said credit scores. A number of Goldman Sachs Group Inc (GS.N: Quote, Profile, Research) employees are also in the throes of trying to set up funds, a person familiar with their plans said, asking not to be named because of the sensitive nature of the matter.
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