How To Start A Hedge Fund From Scratch

Welcome back to the show. Today we're gonna talk about how to start a hedge fund from scratch. We're gonna talk about how to go out, raise the money, find investors, how to actually structure a hedge fund, how to put the pieces together, how to get one off the ground if you're just starting from zero, and how to scale if you're already at $10 million or even $100 million, how to go above and beyond that. Now I know that's some bold promises for an episode that you're watching today, and if it was me watching at home, I'd probably go BS. Way we're going to talk about that today. So just to give you a little bit of proof of that I know what I'm talking about on here, I launched my first fund about 3 and a half years ago. My brother currently is a chief compliance officer and securities attorney at an $800 million fund. My dad, co-founder of a deca-billion dollar fund. And over the last year and a half, we've actually started to help teach others about how funds work, how to go out and launch and scale them. Now, I currently do not run a hedge fund. However, case in point, About 9 months ago, we met these guys, Sakthi and Gopala. They wanted to start a hedge fund. They met with us and our teams. We sat down, we mapped everything out, and to date, almost 8 months later, they've raised over $100 million for their hedge fund. Now, I don't take credit for all that growth. That's on them. They did an incredible job. However, we walked them through all the structure and helped them get their fund off the ground. So I had to get out of the way because when I watch a video like this, I always call BS when I see BS, and I wanna let you know this is legit and actually stuff we've used on real-life funds we've helped launch. out of our programs and all the stuff we teach. Now you're probably here watching this video because you're already number one, A, a good trader. You're already very good at trading. You wanna scale that through a hedge fund. Number 2, you've watched Wolf of Wall Street and you're like, hey, I wanna do this hedge fund thing. Just get me in. I wanna figure out how this works. I hope you're not the second, but number 3 is you've seen how much money is possible inside of hedge funds. And first thing I'll say before you go any further, do not let age or experience stop you From going and looking into starting your own hedge fund. There are so many of these annoying bloggers online that'll tell you, oh, you can't do a hedge fund. You can't do all this. There's no way. But you look at the most successful fund managers, successful investors of all time. They started very, very young. I mean, right here, look at this. Okay? You have Warren Buffett, Ray Dalio, Ken Griffin. Warren Buffett started his first fund at age 25. Ray Dalio, 26 years old. Ken Griffin, 22 years old. Okay, these guys did not wait for 20 years of Wall Street experience and go do XYZ degree with XYZ pedigree. They went out and started and scaled from there. Warren Buffett's first fund had $105,000 in it that he started with that he was able to scale to what Berkshire Hathaway is today. And let's just see a few decades later how these guys are doing. Their net worth's all over a billion dollars. The last guy, $700 million net worth from David Einhorn. But the thing with all these guys is they started young. They did not let age stop them. I'm living proof of this as well. I started my first fund at age 22 years old. Yes, I was a little bit lost. Yes, I was like a little puppy dog left out in the rain that didn't know what to do, but I figured things out. And one thing I've learned about life is that when you start doing, you learn a lot faster. Since launching that first one, I've launched another one. We launched our second one. Actually, we're launching our third fund here pretty soon. I'm going to walk you through some of the proprietary frameworks that we use to help people launch and scale their funds. Faster with more effectiveness and saving them a lot of time. All right, boom, that's a big plate for what we're going to talk about in this video. I hope you guys buckle up, strap in, this is going to be a fun video. And last thing I'll say, if you like the content we put out, if you guys can subscribe, we're trying to hit 50,000 subscribers this year on the channel. I don't know why we set that goal, that's the goal. So if you like anything we talk about today, hit the subscribe button, it helps us towards our goal and it's like a little thank you for us. And we drop videos every Tuesday and Friday so you guys can see more videos that come out. All right, enough with that. Let's get down to the whiteboard here, the whiteboard of truth and justice. Let's get on this thing and start mapping out what it looks like. Now we're gonna start basic here and move advanced pretty quickly, but the first thing I want to define is this: what is a hedge fund? What is the difference between a hedge fund and a private equity fund or a venture capital fund or a real estate fund or a debt fund? It's actually funny, all of these entities and structures we actually help people launch in all, all of these sectors. They're all structured almost the same. And just in basic general, all these are is essentially a pool of money that investors will put money into that pool and then people like me and you as fund managers, we can draw from that pool, we go make investments and when those investments make money, the money flows back to the pool and then flows and gets split between the fund manager and the investor. So, a private equity fund, for instance, they use that pool to go buy and sell private companies. A venture capital fund will use that same pool to go and buy and invest into small startups. A real estate fund will use that pool to go buy and sell real estate. A hedge fund will use that pool to go buy and sell public securities. Typically, anything traded on public markets, hedge funds can be in. And then finally, you have debt funds. They take that pool and they go issue debt, usually loans, outside of that pool. But the funny thing is that it is all structured under the same roof, and that structure typically looks like a general partner limited partnership structure. Now if you've seen our other videos, you know this well. This structure is how 99% of all money on the planet is raised through this structure. You have a general partner, this is an entity, this square here. You have a limited partnership, this is an entity or the fund, okay? This is just like the pool I was saying before. This is the pool, this is the fund. And investors over here will come, they're called limited partners. They come in with their money and they put money into the pool. And then us, we as fund managers, we are owners of the general partner. The general partner is just like the last game, is the fund manager that manages this limited partnership and has— makes all investing decisions. on behalf of limited partnership. They are the general partner. And in a hedge fund's example, typically that general partner will draw from that limited partnership. They'll use potentially a prime broker or use another function to go and place trades in public markets. Now, some hedge funds are going to be hyper-frequency traders, others are going to be shorting markets, others are just going to be in cryptocurrency, others are going to be in forex trading. They all will use a similar structure to this. Now, this general partner limited partnership structure is governed by 2 main documents. The documents are called your LPA, Limited Partnership Agreement, and your PPM, Private Placement Memorandum. These 2 documents are about 100 pages thick. They are huge, and they put out all of the rules, regulations, all of the stuff that's going to go on in your fund. We call it The Bible. Now, the great thing about the Bible is you get to write the Bible. Yes, there's a lot of securities laws and things you have to understand and follow regulations. However, once you get past those regulations, there's a lot of stuff we teach in other videos, you can go learn about that stuff. But once you're past that, you get to write a lot of the rules inside of the Bible. Now, we call it the Bible because once it's written, it is written. It is commandment, it is the law. for your fund, for your investors what you're doing. But the best part is, is we get to write the Bible. We get to decide what kind of minimum commitments we're going to have. It's a $50,000 minimum commitment and every quarter, semi-annually, or annually we're going to make distributions, or maybe every 5 years we'll make a distribution, or we're going to charge X number of fees or carried interest or pref. We'll talk about what that means in a minute. You get to decide all of that in the Bible because You get to write the Bible. Now typically to get this all written and done by securities attorneys, minimum you're gonna pay about $30,000 to get all of this set up. Now actually for our Inner Circle people, we have a few discounts we can give people. We have some firms that'll do it for a lot less, $12,000, $15,000. But typically if you go talk to a securities attorney, you're gonna be at $30,000 out the door to set this whole thing up. Now for a lot of traders, people like me and you, you're like, man, I don't have $30,000 laying around. To just throw into a fund and just hope that I make money and become like the Wolf of Wall Street, whatever, right? I don't know if I can do that. You might be saying, hey, I'm just starting out, I need to build a track record, how do I do this? So for hedge funds specifically, there's actually a very cool entity and format that you can use to launch your fund, entire thing, get a general partner, limited partnership, start building a track record, but you pay a fraction of the cost, usually less than about $2,000. Sounds too good to be true, right? Well, it is real and it's called a hedge fund incubator. So let me erase some of this stuff here. A hedge fund incubator allows you to number one, build your track record with an actual fund, but yet only pay about $2,000 for startup fees and you carry a lot less risk if you were to lose some of your investors' money. This is called a hedge fund incubator. Now about 2 weeks ago, I actually sat down with a hedge fund incubator attorney For an entire hour, we sat down and he walked me through— this is what he does full-time, it helps set up hedge fund incubators— walked me through how they do it, why they do it, and the pros for you to go about it. But the way that a hedge fund incubator works is instead of having limited partners over here, investors, okay, you do— you take out these investors and all of your investors, or now partners, will come in through the general partner. So all the money that you have Comes into the general partner, and what happens is you then will give out pieces of the general partner based on how much money they give you. So a lot of times I've seen it done where you, as the fund manager, will reserve about 25% equity for yourself, and you'll leave 75% equity pro rata how much money they put in. So if they put in half of the money, they get half of the equity. that's available pro rata for how much money they put in. And then what happens there is you take that pool of money, the general partner will invest into the limited partnership, and that's the only contribution that's made in the limited partnership. Now you can go out and start trading and using all those accounts, and now this is a legit limited partnership. You can show investors and show in the future potential investors, hey, hey, we've had a limited partnership set up for the last few years, and these are the type of returns that we've received. As you guys know, if you show somebody your personal trading account, they always call BS. They're just not gonna believe you. But the moment you have a hedge fund incubator, a limited partnership, and you can get audits and other things done on that limited partnership, all of a sudden, people start to believe your track record and believe how good you actually are at trading. Now what you can do with hedge fund incubators is down the road, you can convert this into a full-out fund. So when you're ready, you can go get your LPA, PPM done and start raising money from outside limited partners. Additionally, what you can do because you're like, shoot, I've already given up so much of my general partner equity, you're probably asking that like, ah crap, I don't want to give up that equity. You can write inside of your operating agreement that as the money flows back to limited partnership, you can actually buy out investors and you set a target price. Hey, if you get a 15% return every year over the next couple months, I can buy out your position in the general partner, and what happens when you're ready to transition to a full-out fund is you can pay back these investors, and then they later on can be your first investors as limited partners into your limited partnership as a full-fledged fund. Is that making sense? You guys following with me? You might have to rewind a second and just catch that, what I just said, is where you can pay off these general partner partners, and they later on can become investors with you. Now, this does not save you money in the long run. It'll still cost you about the same amount of money, about $30 grand to go out and draft these documents. However, it gives you a certain period of time where you can get warmed up to running a full-out fund. You can test out if you like managing other people's money, if you, if your trading strategies still work at scale. You can test all of that out inside of a hedge fund incubator for about $2,000 or less. But the benefits are huge because if you transition to a full-out fund, you can say, hey, We've got returns for the last few years that you can look at, that you can use to now transition from your hedge fund incubator to your full-out fund, and that entity still stays the same. That limited partnership still is intact. And now you have seasoned bank accounts and seasoned relationships with other people in the industry to help you launch faster. Now, you might be saying, well, Bridger, you know, that's great and all, that's cool, I get that it works, right? I get that, you know, I actually could do that. I could do a hedge fund incubator, I can convert it into a full-out fund, But the bigger question is, Bridger, how— no one's gonna believe in me. I don't know anybody with money. I don't have the track record. I didn't go to Harvard. I don't have the Ivy League degree. I don't have the pedigree. I wasn't born into the Vanderbilt family. I didn't marry into the Rothschilds. I don't have what it takes to go out and raise the millions of dollars needed to start the fund and get moving and get started. When I started out, it was one of my biggest questions. I had no clue how to get over that big hurdle. And I thought for a long time I'd have to take my job in investment banking. I'd have to work for 10+ years, work my way up, Maybe do a big MBA at an awesome school, and then and only then I would be ready and qualified enough to go and ask investors for money. And I remember I actually asked my dad this question. Again, my dad, deca-billion-dollar co-founder, all this kind of stuff, didn't use any of that to launch his funds. He actually grew up in ghetto North Las Vegas, barely graduated high school, barely graduated college, has been an entrepreneur his whole life, but yet figured out how to use all these strategies together to launch his own funds and now teach me how to do the same thing. So I remember I sat down with him one night and I said, Dad, how do I do this? No one's gonna believe me, I'm 22 years old, how can I go out and raise money? And I think at the time too, I'd actually knocked my front tooth out playing basketball, and so I didn't have a front tooth, I didn't have the college degree, I had nothing going for me, I was like, how do I do this? And my dad sat me down and gave me one of the most incredible examples that changed my life, and I wanna share this with you guys right now. He says, Bridger, I want you to imagine with me we just found this Lamborghini Aventador. It's beautiful, we've had it checked out by a mechanic. We can buy this Lamborghini for $50,000 Saturday morning in Billings, Montana. And he goes, we've talked to the lady, the lady's going into bankruptcy, she needs to sell it like right now. $50 grand Saturday morning, needs to sell this Lamborghini. And just go with me, this is an example, he says, we've had it checked out, this is legit, it's not broken, nothing's wrong with it, it's an incredible Lamborghini Aventador, $50,000. We have a verified buyer Monday morning that will buy the car for $200,000 in California. We've already checked out, they've got the purchase order, all that kind of stuff, they verified they have the cash. And he says, Bridger, it's a guarantee. You can guarantee make $150,000 this weekend if you can find $50,000 by Saturday morning. You cannot use any of your own money. Could you go raise $50,000 by Saturday morning? And I kind of stopped, I thought about it, I looked at the number, the 50 grand, you know, could I— I'm gonna make 150 grand this weekend but who do I know and I started to think about who I could talk to to raise money from and I thought about a former boss, college professors, family friends, an aunt, an uncle, some long-lost buddy and the more I thought about it, I said you know what? And it's guaranteed, everything's guaranteed. And he goes, it's 100%, it's guaranteed, you'll make $150 grand this weekend if you can come up with $50 grand by Saturday. I said, you know what? Yeah, I could do that. It's guaranteed, you know what? Dang straight, I'm in, bro. $150 grand over this weekend? I will find $50,000 by Saturday. I don't care if I stay up all night, I have to fly somewhere, I'm gonna find $50 grand by Saturday morning. And he goes, what about $100 grand, right? What about $100,000? And I thought about it, I said, well, $100 grand's a little bit more, right? It's a little bit harder. But I thought, yeah, you know what? I think I could raise $100,000 by Saturday morning. And he goes, why? And I said, well, the deal is so, you said it was foolproof, right? It's such an amazing deal. I was like, you know, of course, I think I could do it. And he goes, aha, there it is. What do you mean? Because you just said it. The deal was so good. See, 4 minutes ago you were telling me that you don't have a track record, you don't have the right pedigree, right family, or all this kind of stuff, and you don't— you can't raise money. But all of a sudden you're telling me you could raise $100,000 by Saturday morning because the deal is guaranteed, because it's foolproof. There's no way you can lose money. And he said, Bridger, the problem with most people that go out and try to raise money is is that they don't believe in their deal enough. They don't truly believe they can grab $50,000 by this weekend and change it into $200,000 by Monday morning. He goes, step 1 in any fund, anything you wanna launch, is you've got to find an amazing deal or find an amazing trading strategy or find amazing real estate property or find amazing company that you're gonna buy. And you've gotta be so convinced on this strategy that you're willing to put all your money in and invite friends and family and anybody else because you're going to be making so much money on this deal. And when he told me that, it completely shifted my mind. I realized that it didn't matter what my degree was, my Wall Street experience was, I had a goose egg deal and savvy investors, when they see a good deal, will jump in on it. And my dad told me this, he goes, this is how we raised our first $100 million fund. None of us had the Harvard amazing background, But we would go talk to investors and say, hi, Mrs. Investor, Mrs. Johnson, we found this incredible property in Miami, Florida. Now you're smart, you're a savvy investor, look at the deal, try to poke holes in the deal as much as you can, but if you can't poke holes in it, can we put you down for $500,000 for this deal? And she'd look at it and bring on her real estate person, they'd run the numbers and they'd go, well, yeah, this is a pretty good deal. But again, back to the beginning, think about Ray Dalio, Warren Buffett, Ken Griffin, started their funds in their mid or early 20s with very little track record, very little experience, and yet are some of the greatest investors today and started then and scaled their funds to where they are now. Again, you can do this. That's why we have these teachers. That's why we call ourselves the Wall Street Rebels, because the Wall Street people, whoever they are, tell us that you can't do this, you can't get involved, you should come work for me, and I'm going to tie you down with 100, 120 hours a week and make you do schooling and tell you that you can't make it because I don't want you to learn about this entire strategy, this whole process of how you could actually potentially go out and do it on your own. Now call me crazy, call me that this doesn't work, but we've had a number of students raise millions of dollars for their fund. In the beginning I mentioned Gopala and Sakthi that have raised over $100 million in their hedge fund in the last 8 months. It's worked for me with my 2 funds and launching my 3rd fund right now. It's worked for my dad and my brother, and it just takes someone a decision to go and learn how to do this. Now last thing I'll say, if you are not that expert trader, if you are not that expert person that could go and trade crypto and great get a fine alpha and make a great return. That's okay. Go and partner with someone who is. There are hundreds of people that I call broke geniuses. They're not broke. They make maybe $100,000 or $200,000 a year. They trade or whatever they're doing, but yet they have no clue how to go out and raise money or how to scale a fund. And you could go out and partner with them and help scale their investments if you're not the guy that's running the investments. No one does this alone. Everyone builds a team around them. So again, that's why we started this channel. That's why we started this stuff was to help people understand and learn more about the hedge fund and private equity and venture capital space and bring together a group online of hundreds of people like me and you going out and launching and scaling their own funds. So finally, if you're interested in learning more or working with us directly, there should be links below where you can check out all that stuff. Again, hit the subscribe button. We're trying to hit 50 grand. For whatever reason, 50 grand's the number. So we're gonna hit 50,000 subscribers this year. It should be a fun ride. So let me know what you guys think in the comments. I'll see you guys on the next episode. Bye.