Creating Your Own "Super Fund"

By Wayne Mulligan, on Thursday, March 20, 2014

A “hedge fund” is a fancy way to describe a straightforward investment vehicle:

Basically, hedge funds are like mutual funds that offer – theoretically, anyway – higher returns.

Most funds have high investment minimums and are privately held – therefore, they’re usually reserved for extremely high-net-worth individuals and institutions.

The thing is, those higher theoretical returns can come with additional risk.

This risk is why many of the world’s wealthiest investors opt to invest not in hedge funds directly, but in something known as a “fund of funds.”

Essentially, a “fund of funds” is a collection of hedge funds.

The manager of this “super fund” will identify the top-performing hedge funds.  Then he or she will place a portion of the super funds’ capital into each hedge fund – thus giving them access to higher returns while diversifying away some risk.

Although this strategy is common for funds focusing on publicly-traded stocks, you don’t often hear about it being used for early-stage, private companies.

But recently, we discovered proof that a “fund of funds” strategy has been extremely profitable for early-stage investments.

In fact, one of these early-stage “super funds” just reported a 400% profit.

Today we’ll show you exactly how to execute the very same strategy with your own money – without being worth millions of dollars.

“Syndicate Strategy”

Yesterday, my partner Matt wrote to you about an early-stage investment approach known as the “Syndicate Strategy."

Simply put, it involves investing alongside successful, well-connected and well-informed investors.

Matt showed you one way you could partake in the Syndicate Strategy: by investing directly into something called an AngelList Syndicate.

AngelList syndicates allow you to co-invest alongside notable investors through the AngelList website. Whatever deals they invest in, you also invest in.

If you think about it, these Syndicates are very similar to hedge funds.

They’re private pools of capital and their goal is to own a basket of assets that have above-average returns.

So one question that recently popped into our head is this:

Could we use these Syndicates to create a “super fund” of our own?

As it turns out, someone beat us to the punch...

Equity Crowdfunding Super Fund

Early last week a new fund called Maiden Lane announced that they had raised over $20 million to invest in AngelList Syndicates.

Essentially, Maiden Lane is a “super fund” for early-stage deals.

In fact, the fund had been operating in “stealth mode” for some time (in other words, they were already making investments, but hadn’t announced it to the rest of the world).

The returns were staggering.

The stealth fund has already returned all of its initial capital to investors, and is currently sitting on an unrealized gain of 400%.  (“Unrealized” because they haven’t exited their remaining holdings yet.)

Maiden Lane is no longer accepting investors, and from what I understand their investors weren’t individuals anyway – they were larger institutions.

But this begs the question I asked earlier: is there a way we can create a “super fund” on our own?

Create Your Own Super Fund

Of course we can!

Simply visit the AngelList syndicates page and take a look at the 182 active syndicates listed there.

If I were constructing my own super fund, I’d look for 4 to 5 managers who:

  • Have a verifiable track record of success – For instance, Gil Penchina has been an early investor in some of the most successful IPOs of the last 5 years, including LinkedIn.
  • Have a reasonable investment minimum relative to your portfolio size – Again, you don’t want to allocate too much of your portfolio to early-stage deals.  The magic number is around 5% to 10% of your assets. So be sure you don’t join a bunch of syndicates that expect you to put $10,000 into each of their deals when you have $100,000 in total investable assets.
  • Are different from one another in terms of focus – Look at the companies each syndicate has already backed. Just like a “fund of funds,” you want to be sure your super fund is well diversified.

So if you’ve ever wished you could invest like the rich, but didn’t have the capital… or weren’t comfortable putting that kind of trust into one investment manager… this could be just the strategy for you.

Happy investing!

Best Regards,
Wayne Mulligan
Wayne Mulligan


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Tags: Equity Crowdfunding Angellist Angel List Angellist Syndicates

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