- February 11, 2016
- Posted by: Kinjal Amin
- Category: Direct Lending, Fund Administration, Fund of Funds, Hedge Funds, Management, New Funds, Private Equity / Venture Capital, Real Estate, Tax Liens
The E-Myth or Entrepreneurial Myth, the best-selling book series written by Michael E. Gerber, states that most new businesses are started by technicians who enjoy (or are successful with) hands-on work themselves rather than entrepreneurs who aim to build a strong self-sustaining business. This article is aimed to hedge fund managers and how they can relate their business to this book.
Basically, those who are extremely talented in their trade or profession don’t necessarily succeed when it comes to owning and running a “business” in their respective trade or profession. Unless of course, they have certain skills and attributes which make them a good business operator. But conversely, someone who has good business skills can successfully run a company in which they have no specific hands on experience with that service or product. As a fund administration firm, focused on small to mid-sized hedge funds, Tower Fund Services thinks that investment managers starting out can learn a lot from this book.
The key example from one of his books is Sarah who owned a pie shop. She learned how to bake pies from her aunt and loved baking them. She is touted by her friends and family as being the best pie maker ever! She dreamed of owning her own pie shop and through sheer will, made it come true.
Sarah learned over a very short period of time, baking pies has little to do with running and growing a successful bakery. There is so much more than putting delicious fillings of apple, blueberry and cherry into delicate pastry shells. Accounting, inventory management, negotiations with vendors, customer service, grooming employees for success, making capital expenditure decisions; these are the things that the entrepreneur deals with every day. Managing the people who will be executing on your ideas and products versus putting the pies in the oven yourself. Her hard work and long hours seemed unrewarding and she grew to hate the pie business.
Many hedge fund managers leave their successful career with large institutions with optimism and the expectation of growing a fund with relative ease. They do not realize or maybe they tend to forget, that the infrastructure, network, and other resources provided by the larger institution they left allowed them to focus on their core strength, investing!
When a hedge fund manager breaks away from the comfort of the infrastructure they came from, there should be a lot of forethought on how time can be allocated to all the important functions needed to run a firm. Talk to your peers and the other professionals in this industry to get guidance on what works and what doesn’t. Work with people who are similar to you or work with fund managers like you. Not all hedge funds or firms are alike. Find ones that are like you in personality and strategy and talk to them about what makes you get from where you are today to where you want to be down the road. As you talk, take note of things that work and especially things that don’t. Don’t try to cut corners, there are no quick fixes.
A hedge fund manager has to pay attention to the business, not just investing. Proactive measures to research and partner with the right service providers is one key to success. It may be naïve to believe that the only thing you have to do is invest well and generate great investment returns and all those other things needed to have a successful business will either just fall into place or be minimized because your investment returns wash away those things. When making decisions, consider the question, “What is the road that will lead to long term success, when making decisions for your business?”
About Tower Fund Services
Tower Fund Services is a third-party administrator offering a full spectrum of tailored outsourced solutions for hedge funds, funds of funds, separate managed accounts, multi-manager platforms, private equity, venture capital, tax lien, and real estate funds. Its suite of services includes fund startup, accounting, valuation, NAV reporting and tax services to alternative investment managers in all strategies and structures.