The Right Vehicle
The Right Vehicle
The vehicle selected for my journey to 9 million in seven years is to start and manage a business, this selection is appropriate for the compounded annual growth rate necessary to achieve 9 million in seven years. The business I plan to start is essantialy a money managing business also know as a hedge fund (In the past several decades the title “hedge fund” has become more of a blanket title then an acurate description of how money is managed in most “hedge funds”, because usually very little “hedging” is actually happening).
The fund I plan to manage will initially use purely long/short equites for investing purposes, using an aggressive yet risk adverse strategy to atract institutional investor’s as well as high net worth individuals. Most of the revenue from the fund is generated from from fee’s taken from the investors capital appreciation, this is generally 20%-25% and usually 1%-2% of the principal for administrative costs. The fee structure of hedge funds is the main attraction for me to this business model because when comparing to mutual fund’s, the fees guarantee that profits to the firm will only be paid when capital appreciation takes place, thus aligning the managers and investors incentives perfectly.
Judging from the fee structure, anyone can see that the more money under management, the greater the profit potential is, although it is arguably harder to make 50% per year with 1 billion dollars then 1 million dollars, so the competition to earn the greatest return for investors becomes more difficult as more and more money pores into the fund.
The path to the initial starting capital for the fund will come almost entirely from the what I saved up and continue to earn and make from investments. As certain milestone amounts have been reached it will become feasable to start the fund. There is no dought in my mind that managing a hedge fund has the potential to increase my net worth past my number of 9 million.
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