If someone asks you how much of seed money you need to start a market-neutral equity HF with a Quant focus, what would you say?

Interesting question. How much money you need really depends on how you intend to start your fund, e.g. incubation within a larger firm (in which the seed money is more proof of concept money) or independently, in which case you're going to have to live off the 2/20.

My personal opinion is that you need a very large sum of money in order to start a successful quant fund. You need to hire qualified people, pay for data ($100k / year minumum), purchase costly computing facilities, and compensate brokers for sophisticated execution algorithims and trading infrastructure. And if you are starting a whole hedge fund company, then you need to pay for lawyers, accountants, real estate, etc. An undercapitalized start-up HF has a very high probability of collapse. But, as StatTrader pointed out, if you can incubate the strategy in a large firm then you can use the firm's data, computers, brokers, offices, etc.

This is an established firm with great returns; they have the infrastructure. Their trading is based on fundamental analysis of companies. They want to launch the quant product as a new one to investors. They will ask for seed money from investors; they won’t give it to me. FYI, two of us manage over $100m in a different fund.

Can you turn the question around? Can you back out how much do you need to ensure that the fund can operate effectively and build a realistic track record. eg Look at how many positions you will have in the fund, what is the minimum investment in each stock (eg due to exchange round lots), what leverage will you use etc. This may be a reasonably small number (I would guess around the $5-10mn mark). There may be an advantage in going with a smaller rather than larger number - unless your company has an agreed seeding relationship with a number of strategic partners then it may be difficult for them to gain sufficient capital until a 6/12 month track record is going. The most important item is to get the 6-12 track record. A strong track record and effective marketing can quickly increase the AUM of the fund. Obviously the larger the number at the start then the greater increase on your personal income!

QuoteOriginally posted by: orangeman44This is an established firm with great returns; they have the infrastructure. Their trading is based on fundamental analysis of companies. They want to launch the quant product as a new one to investors. They will ask for seed money from investors; they won’t give it to me. FYI, two of us manage over $100m in a different fund. Suppose you set up shop inside this bigger firm. Suppose you do well and establish a track record for 5 years. AT that point, I doubt they will let you take away your fund. So, your only hope is to quit and start a new fund, if that is what you want. But then you are back to square one. Seems to me that if you are set on the idea of running an independent fund, you need to suck it up and simply go on the circuit and try to raise a few hundred more million yourself.

We agreed on $50m to start with. Thanks all for their input.

any incubators anyone would recommend? am ex-CSFB in Asia, cld be wrong but... i don't see them seeding me with $5mio anytime... not the type of house...thanks in advance