While hedge fund managers are lining up to launch a raft of new multi-billion dollar multi-strat funds this year, they could be doomed to failure because of ‘insane’ start-up costs, industry veteran Tom Wagner has warned, according to a report by Bloomberg.
While hedge fund managers are lining up to launch a raft of new multi-billion dollar multi-strat funds this year, they could be doomed to failure because of ‘insane’ start-up costs, industry veteran Tom Wagner has warned, according to a report by Bloomberg.
The report quotes the Knighthead Capital Management co-founder as saying at Bloomberg’s Hedge Fund Startup Conference on Wednesday, that: “There are some really high cost structures in the hedge fund world, like 8% fixed costs. That’s insane. Insane.”
With alumni from industry giants Millennium and Citadel finding themselves in direct competition to attract top-tier talent for their new start-ups, hiring costs have escalated, while the tougher fundraising environment is adding additional pressure.
Wagner believes that a failure to control costs and expectations of “stratospheric” growth are the main reasons why funds fail in their first three-to five years.
“The reality is, it can be really lumpy. You just don’t know,” said Wagner.
