Investment funds compete for different investors based on size. SEC caps on investor counts force large funds to require higher minimums, so a $10 billion fund needs $100 million commitments while smaller funds can take $1 million checks. This leaves room for new managers to raise from investors the biggest funds ignore.
Chapters
Most funds don't even compete for the same investors. So for example, in regular business, if you open up a coffee shop, guess what? You're competing against Starbucks and Dunkin' Donuts, these huge behemoths. But in the fund world, in a lot of scenarios, it's not that way. So for example, let's talk about investors that you're going after for different funds. So on this board, I've drawn out a very beautiful picture, self-drawn by me. On the left here, you have fund size, $10 million, $100 million, $1 billion, $10 billion. On the bottom, you have investor net worth, $1 million, $10 million, $100 million, $1 billion, and $10 billion investor net worth. Now because of SEC rules, a lot of funds are capped at 99 investors or 1,999 investors. So for example, a lot of us know Ray Dalio. When he launched his funds back in 2004, 2005, he was capped at 1,999 investors. So what they did was minimum commitment for their fund was $100 million to invest in their hedge fund. So on the chart, that would put them way up here. They're launching a big fund and going after high net worth individuals. They won't even take people with smaller amounts of money. So if you So if you launched a hedge fund the exact same day as Ray Dalio and your fund is maybe $100 million, you're gonna go after investor net worth that's kind of in this range down here. You're not even competing for the same investors as Ray Dalio. And typically, as your fund grows in size, the level of investor moves to a higher net worth because again, you're limited to so many spots inside of your fund. So as funds get bigger and bigger, they move up this chart and then it gives space for new young funds like people like me and you to launch new funds and go after those smaller net worth people that aren't being targeted. This is a pretty unique thing with funds, and it gives opportunity to new fund managers to enter the market.
