in today's video we're going to talk about how to start a hedge fund from scratch we're going to break down what is a hedge fund how to build one how to launch one how successful people on Wall Street have launched their funds how I've launched two different investment funds that I currently run right now we're going to talk about hedge fund incubators the licenses you need for funds and all the intricacies of building your very own fund now before I dive in you might be wondering who is this guy talking to you and why do I have authority to speak on this subject so I currently run eight figure hedge fund I've launched three funds prior I've actually sold one of those funds we also have a company called fund launch we've launched 210 funds in the last two years roughly two funds per week we've gotten pretty good at the process of building funds and about 25% of those funds are hedge funds we have multiple funds that have come through our community that are $10 million funds and even as high as a hundred million dollar funds that we've helped build out and launch and a couple of them are getting close to a billion we'll get there pretty soon but we've gone through this a lot this process and seen what works and what doesn't additionally my brother is an investment funds attorney at the largest law firm in the world Kirkland and Ellis since retired and now is launching his own fund and my dad also is the founder of a Deca billion dollar family of real estate funds so we've got a lot of experience in funds and fund knowledge and so today I want to share some stuff that we have seen from successful fund managers and what's made it work and not work now additionally I've made a lot of videos on my channel the number one comment I get is like Bridger there's no way you could ever start a hedge fund I you got to work on Wall Street for 30 plus years before you could go launch a hedge fund and maybe that is true but what I like to do is study the most successful people most successful fund managers of all time and see what worked and what didn't work and copy what they did not what they say they did what they actually did so for example Warren Buffett Warren Buffett started his first fund at 25 years old raised $15,000 for his first little syndication fund today one of the most successful investors of all time had 66 years to compound in this game the next one Ken Griffin one of the most successful fund managers of all time started trading at 19 years old started his first fund at 20 years old and by 30 years old was running a billion dooll fund next one Ray alio Ray doio started at 26 years old when he started his very first fund or managing other people's money again you see the pattern here people got in early and they started moving and by the way all three of those guys all started their funds they've raised about a qu million relatively small amounts when they first started but again they got in and got going and other people started later in life so it's okay to not start when you're in your 20s Kathy Wood started when she was 54 years old and she actually said they had a very slow start on their launch now she's been in the game 14 15 years and has done extremely well compounding over time here's another one in the private equity and Venture space this is Robert F Smith 39 years old started Vista Equity Partners he's the guy that went viral for paying off all the college kids student debt at that like the graduation ceremony that's him again he's had all these years to compound and gotten the game even Mr Grant Cardone love him or hate him guys a lot of people don't realize Grant Cardone started pretty late in life for his fund Grant Cardone before Cardone Capital was just a sales trainer at 52 years old he launches Cardone Capital as of the filming today he is 66 years old going on 67 years old he has had what roughly 14 15 years to compound again he got in the game this is the most lucrative game on earth running funds so with that again no matter what stage you're in I believe you can get in this game and I'll give you some few things as we're going to dive in so with that intro let's go to the Whiteboard of Truth and Justice and first off let's define what's the difference between a hedge fund private Equity venture capital or real estate fund like what do those terms even mean and after launching now hundreds of funds through our community I've actually helped all these type of people launch so what they are it's actually not that crazy when you simplify it all down they actually all run almost the same and they have one big difference between all these but in general what is a fund a fund is a pool of money investors I'll use green here green for money green investors that put money into this pool and Slick talking fund managers like me and you I'm going to put managers over here we draw from this pool we go make investments whenever those Investments make money the Investments flow back to the pool use this green again and then they get split between the manager and the investor and there's a split here very common split would be like a 2 and 20 a 2% management fee an 8020 split 80% to the investors 20% to the managers okay this is not anything new this is like back to the Middle Ages it's like hey let's open up a blacksmith shop put some money in we're going to buy this blacksmith shop or build it whenever it makes money we'll split the returns okay this is one of the oldest business models on Earth and yet is produced today literally in the 2024 2025 2026 like the most wealthiest people on planet Earth fors 100 list is riddled with investment fund manager so Bridger what's the difference then what is a hedge fund or a private Equity like what's the difference the difference is what they invest into their Investments it's the assets they buy they're all pools of money so for example let's take a private Equity Fund what is that a private Equity Fund is a pool of money and they buy Tada private Equity or they buy private ownership of private businesses a good example example is like Sycamore Partners Sycamore Partners is on Wall Street they own aeropostal 9 West shoes they were trying to buy Victoria Secret they own Staples department store those are all privately held companies owned by a private Equity Firm we see some people that do even micro private Equity they go by small businesses they group them together we have other videos on our channel that talk about this okay Venture Capital what is that it's a pool of money and they invest into early stage startups the investment is like Shark Tank they invest into early stage businesses okay so the only difference really is what they invest into so what is a hedge fund a private Equity is private companies a hedge fund is public Securities anything in the public market so this is Forex stocks bonds crypto that's the world of hedge funds okay that's the world they plan again a pool of money and they go and invest in those Investments now that's pretty basic stuff so let's go one layer deeper let's flip this thing over so this is how 99% of all funds raise their money through this little structure structure is right here you have a tada a general partner and a limited partnership now it's again just like before the limited partnership this is your pool of money or your fund this is where all the money sits and what happens is investors over here with the money sign they're not called investors though they are called I'll put them in green limited partners limited partners put money into to a limited partnership that is managed by a general partner and this is the fund managers this is me and you okay this is the people that manage the fund guess what happens we help make investment decisions the fund then goes and buys the Assets in this case it would go and trade now additionally this management site is sometimes split into another piece which I'll call the management company and by management I mean like investment management company we'll come back to this in a minute what this means so again you've got managers here in this bucket I'll Circle it here managers that help manage a limited partnership that goes and makes trades for a hedge fund it would make trades or private Equity Firm would go buy private equity and whenever again those trades make money they flow back to the limited partnership and they get split between the general partner and the management company we'll talk about the differences of those two in a minute and The Limited partner up here the wealthy individuals that have given money here now this whole structure is governed by two documents that we lovingly call I'm going to put it over let's put it over here the Bible okay I call it the Bible what they're actually called is the LPA and PPM these two documents are thick documents I mean they're big they're thick okay thick with a cc okay thick documents um there's my there's my joke for the middle of the video how about you guys like that these documents though are let's call them a 100 pages each I mean they are big and what they do is they tell all the details of how this relationship will work in the fund now what's cool about funds is you get to write the Bible you get to decide the covenants the laws all the stuff that happens in the fun now once it's written it's written that's why I call it the Bible once it's written written you got to follow it so for example if you say hey minimum commitment to this fund is $100,000 and we're going to write that down our LPM PPM you've got to follow that okay it's a minimum commitment is $100,000 or this fund is only going to trade uh Forex we're only doing foreign exchange if you get the best uh stock maybe some stock or IPO deal you've ever seen your fund cannot do it because in your bylaw you said we're only going to do foreign exchange we aren't buying shares of private companies and you write that down now we can talk a lot about how you write these and make them broad or narrow whatever you want to do but you got to decide a lot so a lot of the questions I get in the comments when you guys talk to me Bridger can I do this can I do that nine times out of 10 the answer is yes you just write it down in your LPN PPN okay now the cost of setting this up like how much does this cost a starting base price I would put you at about 30 $30,000 to build these entities and build these documents for a lawyer to come and build all this for you okay and they're going to come build this and and figure this out now on a second I'm going to share how you can do this for a lot cheaper and step into a hedge fund using something really cool called a hedge fund incubator I'll come back to that in a second now I want to come back to a few questions that I'm sure I'm going to get on number one licenses what licenses do I need to do this and then also let's talk about this management company here we have videos that talk about the difference between an investment advisor a registered investment advisor and an exempt reporting advisor okay and this management company would qualify as one of those things if you are an investment advisor you fall into the state level ra falls into the federal level and exempt for reping advisor is you're exempt from these things as well but either any of these a lot of times you need a series 65 that allows you to give investment advice and get paid a fee for doing so and so back to we talked about this split of 8020 I'm put that right here 8020 split so for example let me walk through this the limited partnership the fund makes some trades and we have a return of a $100,000 net return how that would look okay is it flows and we did this with let's call it uh $1 million right we did it with a million of invested Capital we got a 10% return and we're running a 8020 split okay the 100,000 goes here we split it 8020 so 880,000 would go to the limited partners and 20,000 would come to the general partner here Tada okay is that making sense and then additionally we charged a 2% management fee and for doing that on the million dollars that would be an additional $20,000 that would go here okay and again I mentioned just to clarify this was a 100,000 net 100,000 net okay so you probably had to make $120,000 to have net of that kind of scenario so you'd have 20 grand here 20 grand here and then $80,000 here from the limited partners okay that would be a very simplistic split we have another video on this called This is called a waterfall structure breakdown now I'm getting pretty crazy here the last thing I want to add is people will ask me all the time like especially with hedge funds do we need a series seven or 33 or a six or all these different things the answer is maybe but often times you don't need it a lot of these funds I'm gonna add this over here and then we're gonna go to the next page with licenses you can use I'm going to draw it right here a prime broker a prime broker will actually hold a lot of these licenses allow you to get leverage and margin and all whatever else you want to do with your trading the prime broker approves on their platform and then the let's say you're at the limited partnership here and you want to make a trade you go to the prime broker they then help execute the trade and then the trade comes back and flows through that Prime broker you pay them some fees but they hold the licenses they hold all the margin all the liability now once you get big enough bigger firms will kind of make their own broker dealer Prime broker in and then that's why internally you see a lot of these traders that have to get series sevens and 33s and sixes all the different trading licenses but on face value for your first fund you don't need to do really any of that and a lot of times you can qualify as an exempt reporting visor which means you don't even need your series 65 again talk to an attorney get all that but if you're under $150 million you oftentimes can qualify for this exemption as an exempt reporting adviser and you can do all of this using a prime broker without a license which is pretty crazy we have other videos that we can maybe link on this channel that we talk about this in more in depth um but kind of cool now I want to talk about this for a second as well we're going to talk now about launching and scaling your own fun hopefully this is good so far I'm trying to just give you a tons of info because that's why you're here that's what we're talking about let's talk about this $30,000 to launch there's actually a really cool strategy we can do this for a lot cheaper okay so I'm going to refresh our whiteboard here we've got our general partner again I'm G to put GP and we've got our Limited [Music] partnership and this is what's called a hedge fund incubator I've actually met with a lawyer talked for two hours about this whole structure hedge fund incubators and how they work this is a great stepping stone to get to hedge fund instead of paying $30,000 you pay two maybe 5,000 to set this whole thing up it's a great stepping stone to again incubate your hedge fund how this works again on the last page we talked about the LPA the PPM the Bible that is where a lot of your cost comes from from building this it's pretty expensive to build an LPA PPM again that's $30,000 What a hedge fund incubator does is this a hedge fund incubator does not have limited partners over here like we were saying before it doesn't do that you don't have any investors no investors and hence because you don't have any investors or limited partners you don't need an LPM PPM so then Bridger like how do you raise money well what you do is your investors they actually join the general partner they become partners with you in the fund so how this would look as an example uh you would say hey uh I've got family friends that want to give me money I'm gonna Reserve 25% of the GP for me the fund manager the investors are going to come and they put money in and they're going to get split the remaining 75% PR or just on a percentage basis how much money they put in and so somebody puts in 50 Grand they get I don't know 10% and somebody puts in 100 Grand they get 20% right of the thing and they all start filling up this general part and they actually are General partners with me like they are part of my stuff and we we set up a operating agreement which is much cheaper again two to five grand for this and there's an agreement and we are actually partners and and what we do is the general partner then commits the money the money flows into the limited partnership of let's call it $200,000 flows in and our $200,000 is here and then the $200,000 can start trading and then when the trades make money it just flows back here and then just flows here and you distribute it based on your operating agreement and as partners so now how does this play out and why would you even do this well what's cool is now every year you can get an audit done on your limited partnership and actually have audited financials of a this is a gplp structure of a fund and now you can start building a track record of your trades because it's hard when you're a Trader people always call BS like well this one trading account you know crushed it we got like a 200% return and then investors go well how many trading accounts do you have well I have seven of them and they go you have seven trading accounts okay so this one did good what about the other ones and are they audited how many of your personal trades are in and are you handpicking and cherry-picking your best trades this structure allows you to have a very clean track record and audit structure and it allows you to take family and friends money put it into here through a structure what happens down the road let's say you start crushing this and doing well you can transition this structure to a full out hedge fund and just make it a whole hedge fund what you would do is you put it in your oper pre agreement hey at uh at a certain point I can buy out there's already a pre-agreed buyout Clause where you can come and buy back all your shares from the GP and probably you're going to pay back their principal plus a percentage return okay you buy back your general partner you then it's not going to you still have to pay probably the 30 grand to go and set up your legal docs but now you have a track record and you go set up maybe your management company and your Prime Brokers and you just go from there but now you have four years of audited financials it's a great way to step into this game of running a fund and and starting to move in move in this direction now the last thing I want to share and probably the most important thing of this whole thing is this process that we have learned on launching funds and I'll say more discovered launching funds I've interviewed now hundreds of fund managers on how they launch their funds and how entrepreneurs launch their funds and what's funny is they all had this common theme and Common Thread of how they actually built their fund and launched it successful because the reality is anybody can go hire a lawyer and spend some money and build a fund the bigger question is can you build a fund that investors want this is the hardest task of a fund can you build a fund investors want anybody can do legal docs can do this so we've discovered this four-step process that the biggest fund manager that we could interview and talk to they all followed the same thing we started to apply this into our group and now we've launched 210 funds I have launched I currently run two funds myself I've ran two funds prior actually exited one of those fund had a competitor come and buy us out and so this has worked in real life for me and for a lot of people we worked with and we call this framework the fund launch formula I know you love my beautiful handwriting as well and there's four steps to this formula I'm going to go through them pretty quickly we have other videos that go way more in depth and what we've figured out is we've actually plugged in all these Frameworks you want to flash the mega framework in other videos I talk about this Mega framework today I'm going to drop some simple steps especially when launching a hedge fund now again most people when they want to launch a fund the first thing they do is say Bridger I want to do legal like give me the lawyers let's go talk to the lawyers and I always go hold on legal is your last step okay that's step four again we want to build a fund that investors want legal is the last step when I talk to all these successful fund managers this is what they did so let me go back step one is what I call I'm put this in air quotes is have an incredible deal now if I'm talking to somebody that's doing real estate or private Equity it really is a deal in your case this is finding Alpha this is finding asymmetrical risk versus return which is a a fancy term for just saying can I find something in in trading or in what I'm doing that has relatively low risk for high return if I can find that that difference is called Alpha now I know you probably heard high risk High return low risk low return which a lot of people will preach fund managers us we are paid big money billions of dollars to if we can find asymmetrical risk versus return that's the that's what we call a hedge fund the hedge fund Hedges downside risk and keeps upside return Ray D I was actually just with with him a few months ago I met Ray D person he told us he's like you can diversify away about 80% of your risk without losing your return again that's how he runs his funds to find asymmetrical risk versus return so what we do and we have other Frameworks in other videos that talk about how to find this we call it risk control return I won't talk about it today but we figure that out and stress test the model and what we're going to do here is test and this would be test portfolios and other things for a hedge fund to really figure out do I have asymmetrical risk versus return and what things can I test or back date or stress test to really make sure in variable and fluctuate and moving markets that I really have a symetrical risk versus return on this strategy number two the next step again everyone's like okay I got that let's go to Legal I'm like hold on before you go to Legal okay step two this is what I call the frame stage we are gonna frame the fund specifically the fund out how is the fund GNA run so what are you going to do for your waterfall structure you're going to run American or european waterfall are you going to do a general partner limited partnership ship what's your lockup periods people have to come in for six months or a year or five years what are you going to do with withdrawals or redemptions if people want to pull money out of the fund you want to run an open-ended or close-ended fund today I don't have time to go through all these you can see our Mega framework we have other videos on this channel that talk through all these different things of framing out your fund where do you want to doile how do you want to structure it and again these are things that I like to figure out before going to a lawyer you can go to a lawyer and they can teach you these things and they're going to bill you $1,200 an hour and that's I had a friend on his first fund he spent over $500,000 setting up his first Fund in legal fees because he didn't do this process because he had lawyers be his teacher you don't want your lawyer to also be your teacher it's a very expensive teacher number one and number two often times lawyers don't see the strategy behind the frame let me give you an example it's kind of like football could you talk to a referee and learn the rules of football 100% a referee will teach you where's the end zone what's a fourth down what's a punt what's an extra point all these great this is awesome but it's a little bit different if you talk to Andy Reid the head coach of the Chiefs he also knows the rules but he applies a lot of strategy within the rules does that make sense see the difference we want to build a fund that investors want can we build a strategic Edge in this fund that investors are dying to have within think like the there's yeah we all have the same lines the rules which are important to understand follow the rules I'm not telling you not follow the rules follow the rules but within the lines there's a lot of strategy that can be had of what to run on a third and long or a first and 10 or what do you do in this situation that a referee may have a little bit different opinion than Andy Reid or Bill bich okay a little bit different game this then all drives to number three which is capital what we've seen the most successful fund managers do and this is what I've done is you find a deal asymmetrical risk you frame the fund out you put that into some kind of PowerPoint or presentation and you actually go pitch investors before you do legal you float this out to investors you pitch you say you guys interested in this with this does this apply and what they're what they are going to do is poke holes in your fund and you want them to poke holes and what's going to happen is you're going to come back to Step One or step two and you're going to start iterating and building a fund again that investors want that is the biggest deal and you're going to build this kind of iteration process with them then and only then what we do in our Black Card group is we try to get these people at least and what we're asking for here is verbal commitments hey once the legal setup if everything's like we talked about can I put you down for a quarter million dollars can I put you down for a half a million and I yeah you know if everything checks out it's legally yeah you know what put me down for half a million that's a verbal commitment nothing legal nothing legally binding but a verbal commit we try to get people at least $2 million of verbal commitments before we go to legal and then you go to legal and guess what happens you walk in you say hey I want XYZ with a drink and a side of fries boom bada bing and lawyers say great I love set it up for you lawyers are very good at taking orders yeah I want I want it buildt this way with this Frame and this stuff and all great they put it together uh and I mentioned 30 grand like my my last fund I spent that these lawyers typically charge 30 4050 $60,000 because I showed up and I was prepared and I I knew exactly what I wanted I know funds very well I walked in I said hey I want this they I think they did it for about 15,000 when they normally charge 45 50,000 because I had done the prep work does that make sense and more importantly than saving money is building this again a fund that investors want when you do this iteration process you build a fund that investors are dying to have and guess what you might go through this process and people might hate your idea and poke holes and you go wow actually they have a pretty good opinion you know what maybe we don't really have asymmetrical risk ah it doesn't work in that situation thank goodness they poked holes in it before you spent 30 grand and spent a year of your life building a fund this allows you to iterate and tweak and you know what let's go back to the drawing board and readjust I'll tell you straight up I had a fund in 2022 that we were gonna launch I did this process our investers poked a lot of holes in it stuff that I hadn't thought about we looked back and we finally just said you know what this fund is not worth worth launching we didn't launch the fund thank goodness I didn't launch the fund the best thing I ever did and then we went back to the drawing board built a new fund and we went through it and people loved it we launched our ugly unicorn fund we raised $10 million our initial launch Boom for a firsttime fund manager in this space we thought it was pretty good because we built a fund that investors want so for this video hope this was helpful go check out the other videos on our Channel let me know down in the comments what you guys think if you have questions you want me to make different videos or go on different tangents but hopefully that gives you a big breath of knowledge on building a hedge fund from scratch see you guys the next video bye