Starting a hedge fund and making millions remains one of the most glamorized paths to fame and fortune in America. It's the tried and true storyline in Hollywood hits from Wolf of Wall Street and The Big Short.
But who actually does this in real life, and how does one successfully thread that needle?
I recently talked to Mitchell Ng, who is a rising star in Wall Street investment world at only 23-years-old. He only recently graduated Princeton University and is currently in medical school, but still has some good insight to offer.
Ng's Thessalus LLC fund is biotech focused, and Ng says it was among the highest performing funds in 2018. His three biggest investments last year, Kite Pharmaceuticals, Juno Therapeutics, and Ignyta were each acquired by multinational pharmaceutical giants and returned over 200%, per Ng.
How did he pull this off? Ng says it comes down to three big principles:
- Do start with an idea; don't worry about capital: "Many people who start a fund think you need to start off with a massive initial contribution to get attention. That's not the case," says NG. "I started two years ago with six figures from friends and family. But far more important, I had a clear investment thesis on areas I wanted to focus on, and what value my team could create others couldn't. We stuck to the thesis and produced the returns. If you produce, word gets around on its own. Now, we're exponentially larger and flush with incoming interest and contributions. I've had to turn down or hold off on incoming funds."
- Do the work: The chief pitch of his "boutique" biotech fund, according to Ng, is technical competence. "Because we're run by MDs and PhDs from top medical institutions, we successfully make the case we're a step ahead in anticipating and capitalizing on the biotech opportunities out there," adds Ng. "My team, and this includes me, spends hundreds of hours reading FDA clinical trial results, IND patent filings, and biotech media." According to Ng, the "worst thing possible" is to waste time "dreaming" about rewards without "putting in the hours."
- Don't micromanage, trust people you rely on: "Chances are you picked those people for good reason and the trust was built up over many years for good reason too. Micromanaging a large complex operation is always counterproductive," says Ng. For that reason, says Ng, it's important to delegate and "put in place a structure where others present you with options that you can take a deeper look at and ultimately decide." However, the man or woman in charge should also remain sufficiently engaged that "you're able to know Option C when others only present Options A and B."
It sounds pretty straightforward, but is easier said than done. The vast majority of hedge funds fail, as the average investment fund has underperformed the market since 2001, according to the Hedge Fund Return Index (HFRI).
Thus, what this 20-something fund manager has achieved so far is undoubtedly significant, and his words of advice to entrepreneurs everywhere worth paying attention to.