In this instructional video, the speaker, drawing on experience working with hundreds of emerging fund managers, outlines four core habits that distinguish successful fund managers. First, they must be able to generate strong returns, illustrated by Cathie Wood’s 142% 2020 performance that propelled her into fame. Second, they must put investors’ interests ahead of their own, adopting fee structures that reflect performance; the speaker cites Jim Simons’ evolution from a modest 75/25 split to a 5% management fee and 44% performance fee earned through decades of ~39% annual returns. Third, successful managers align their interests with limited partners by investing a substantial portion of their own capital in the same funds, exemplified by Barry Sternlicht’s personal allocation and data showing that 14 of the top 15 hedge fund managers earned more from their own investments than from fees. Fourth, they start with a small, lean fund (typically $10‑100 million) and scale responsibly, managing expenses, forecasting runway, and eventually growing to large AUM (e.g., a client scaling to over $1 billion in 12 months). The speaker emphasizes the need for a long‑term vision and disciplined growth. The video concludes with a call to implement these practices to become a successful fund manager.
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What's up guys? In today's video, I'm going to talk about 4 different things that successful fund managers do. Over the past couple of years, I've worked with hundreds of emerging fund managers, a lot of good, a lot of bad, a lot of ugly. Okay. Um, and you know, there start to be these parallels that can be drawn between those that are successful and those that are not. So again, 4 things that fund managers do to be successful. Number 1, successful fund managers Know how to make money. Okay, as simple as that sounds, you know, it's, it's a vital part of this game. If you know how to take $1 and turn it into $2, you can be good at this. Let me ask you a question. Did you know about Cathie Wood before 2017? Probably not. If you did, kudos, but she's actually been in the fund world since, you know, the 1990s. But now today everyone knows about her. Why? Because Because in 2020, she was able to return like 142% to her investors. Okay, now the whole world knows about her, and now she's speaking at events, she's on forums, her AUM like 10x'd. So if you can make people— people love to make money, and they love to talk about when they make money. I mean, how many of your friends got in early to Bitcoin, right? They bring it up all the time. They always want to tell you about it. So If you can make money, just point blank, you can be successful at this game. Number 2, successful fund managers put their investors first. All right? Now, if you are more concerned about you making money than your investors making money, probably not gonna work out for you. You should probably stop pursuing this goal of being a fund manager right now. Obviously it's great to make money, but you really need to put your investors first. I get a lot of people, a lot of my clients come in and they're like, well, You know, I want to charge this like 50/50 split and these crazy fees. No, no pref. Like I want to make all this money and just don't. Okay. Stop, stop doing that. You know, you look at Jim Simons runs one of the most successful hedge funds out there. He charges a 5% and 44%, right? We've talked about that. So a 5% management fee and a 44%, you know, performance fee as opposed to like the standard 2% and 20%. But here's the thing. He did not start out that way. The only reason he charges those fees and he can is because on average, Average, he has returned a 39% return to his investors year over year for the past several decades. So he actually started 75-25 split. Then after a couple years, he introduced a management fee, slowly inked that up to like 5%. You know, obviously investors aren't happy when you raise fees, but if you're making them good money, they probably won't leave. I think, I think he said he had 2 people out of all the fee hikes that he did that, that took their money and left. And then so then he was at a 5% management fee and a 25% split performance split. Then he raised that to 36. After a couple more years of good performance, you know, he's at a 44 where he's at today. So he earned the right to charge those fees. You probably haven't, okay? Even if you've just syndicated a couple of deals and you've gotten great returns, that's awesome, good for you, but don't charge that type of fee on your first fund, okay? It's just not reasonable or realistic. Number 3, successful fund managers align their interests with their limited partners, with their LPs, okay? What I mean by that is any investments that you have, your largest allocation should be in your own funds. I was listening to a podcast a little while back and one of my— founder of Starlight Capital, Barry Sternlicht, he was asked how he invests his money. And keep in mind, this guy runs billions of dollars worth of real estate funds. And he's like, well, I've got 3 to 6 months in savings. You know, just as like an emergency fund to support my family and my lifestyle. I've got a little bit with a financial advisor, and then like everything else is in my own funds. And the guy interviewing him was like, what? Like, that's so concentrated. Are you crazy? He's like, no, it's not. Like, anytime I think about investing my money elsewhere, I just think to myself that it's not fair to my LPs. Okay, so if you can start thinking like that, you're going to be a successful fund manager. Just align your interests. Now, if you look back actually at 2020, you take the top 15 hedge fund managers, they're the top earning managers, they all made billions of dollars, right? But 14 of the 15, they actually made more money from their own dollars invested to their funds than they did from the management fee and the performance fees. I'm going to say that again. They made more money from their own dollars invested right alongside their LPs than they did from their fees, fee income. Like that is just really like, that should tell you something. Fund managers are invested in their own projects and they're not, you know, a lot of people will have different businesses and other side projects and that's fine. But this needs to be your core focus if you're actually going to be a good fund manager. All right, last but not least, number 4: fund managers start small, but they go big. Most of you, if you're watching this channel, you're probably going to start with a pretty small fund. You know, unless you've worked on Wall Street for 30 years and you have these great institutional connections, you probably aren't going to start a fund north of $200 million, right? It's probably going to be a micro fund, you know, somewhere between that $10 to $100 million range. And that's fine, that's totally fine. But you don't have that caliber of connections. Now, since you're starting a smaller fund, the economics of smaller funds, you need to, you know, forecast those and think about those. You don't have as much money to budget. You know, you have— you can't be flippant about expenses. So you have to be very lean in the startup phases of just like, you know, starting a business. You just— you have to be lean and think through your costs and your runway and make sure that you have sufficient capital to support, you know, to keep the lights on. So I think a lot of good fund managers are really cognizant of that. You know, they're aware, they're watching, you know, making sure that they're not overextending themselves. Also, successful fund managers go big, okay? You know, one of our most successful clients scaled to north of a billion dollars AUM just after 12 months. When you start to raise more money, the economics then make way more sense, and then you can start You know, if you are a good manager, a good business owner, you're going to reinvest those profits back into the company or the fund, you know, and keep making things better. You know, better talent, bringing on better service providers, right? So like you need to have a vision if you're going to be successful as a fund manager. Like you should have a vision board of the next 10 to 30 years just lined out. You know, a good, a good game plan of where you're at. And where you're gonna go. So again, these 4 things are, are consistent that I see, you know, across emerging managers. Obviously there's a lot more to it, but these are things that you should be implementing if you want to be a successful fund manager. Hope you guys enjoyed the video. Talk to you later.
