Setting up a hedge fund is not so easy

Candia Peterson spent 16 years in Japanese equities sales, most recently with ABN Amro. A few months ago she decided to set up her own hedge fund with two partners. Here she describes how raising the necessary money proved an impossible task....

I think it was my giggles at the thought of being set upon by a private investigator that killed the deal.

The setting was a wonderfully, self-consciously, trendy office in SoHo, downtown Manhattan. Opposite us were a pair of very glamorous women, dripping designer labels and large rocks, who managed to convey the impression that everything we had to say in our lovingly crafted presentation was the most desperately boring thing they had ever had the misfortune to hear.

My partners and I were a trio of ex-stockbrokers rash enough to think we might make our fortunes launching a hedge fund in the market of which we had, collectively, some 60 years experience.

The bored duo across the table - who came alive only when asked to talk about themselves - clearly had no intention of taking the matter further. They ran a fund of funds that seed-invested in hedge funds and it was obvious that they met everyone and gave succor to none.

I suspect the private eyes with whom we were threatened as part of their due diligence (should, of course, we have gone on) were not often dining out on the pickings of this particular client.

Generally, after years of stock broking, one becomes inured to the insouciance of the average institutional fund manager. The sycophancy with which one is forced to ply one's trade, the timidity with which one would approach the greater intellect of the great god 'Buyside' with a new analyst or, worse, a deal and, ultimately, the necessary grovelling with which one begs for business creates a very particular - though not particularly attractive - thick skin.

The hedge fund world couldn't be more different (the duo in Manhattan being an exception). Contacts beget more contacts much in the manner of breeding rabbits. All are delighted - desperate even - to meet you and to hear you sell their wares. They are friendly, outgoing and open.

Peter asks you if you've met Paul and gives you Paul's card if you haven't; both Peter and Paul want to give you the full run-down on what they and all their other friends are doing, where the money is, what kind of funds it is going into and where we poor hawkers are likely to score.

All give every outward impression of having only just graduated from short trousers, they are sweet, happy, fast-tracked children who will move just as easily through the delights of their latest snowboarding adventures as through the more technical details of the fund you hope to launch.

The vast majority of meetings leave you with that warm and fuzzy glow of success and you step out with increasing optimism from one to the next.

Follow-up calls are greeted with instant recognition, interest and appreciation, monthly mail shots are responded to with constructive, informed and well-intentioned comments that show they've really been read. Even the most hardened ex-salesman learns to relax in this new and benign environment in which everyone is nice to you and no-one rude.

The only snag is that none of them - Peter, Paul or any of their buddies - have the remotest intention of giving any money to a bunch of brokers with no long-only track record.

As, one by one, they fell by the wayside, I decided to take drastic action. I rewrote our lovingly crafted Powerpoint presentation, condensing it into just three pages and called it The Good, The Bad and The Ugly.

The Good was us - talented, experienced, knowledgeable, altogether brilliant. The Bad was what we lacked - a track record in managing funds, even though we knew the business area inside out.

The Ugly was our plight - the promise of a substantial day-one investor so long as they were in second, and the likelihood of strong demand with six months under our belts but no-one willing to take the plunge and leap in first.

Gone were the ninety-minute explanations of the theory and practice of the virtual fund, gone were the lengthy dissertations on why we were the right people, our market was the right opportunity and the package was the only one to bring it all together.

We rattled them off in 10 minutes now. The Good, the Bad the Ugly: will you seed us? No. Bye. It was a cathartic way to get through the last few buddies on our list - brutal, fast and inevitably unsuccessful.