244 The Business of Value Investingdetermine whether running an investment partnership is the right
path to follow. I was fortunate enough to have some very gracious
assistance from highly regarded value investors in setting up my
investment partnership. Throughout my process I learned a lot,
and this chapter is intended to help those just as I was helped when
starting out several years ago.
Many part - time market participants with a value invest-
ing orientation desire to run investment partnerships similar to
Warren Buffett ’ s legendary partnerships of the 1950s and 1960s.
Unfortunately, many fail to consider some key questions before
starting out, and this often leads to costly mistakes and disappoint-
ing expectations. For those willing to devote the time and effort
required to pursue a career investing sums of money, here are some
pointers to help you launch an investment partnership.Two Key Considerations
The fi rst question that must be answered involves the initial capital
base of the fund. Will the partnership be seeded initially by friends
and family, or will it seek to attract capital from outside investors?
This question is critical, especially to fi rst - time fund managers, since
it may determine how the fund is initially set up. An initial fund
with friends and family may not demand all the bells and whistles
needed for a partnership that will seek out investors far and wide.
For instance, a very good set of legal documents can be prepared for
$ 5,000 by a competent securities lawyer. And since your initial inves-
tor base is people you are very familiar with, the formal demands of
the partnership structure may be easier to accommodate.
The second question is how much capital you can realistically
begin with. A full - blown investment partnership can cost a mini-
mum of $ 25,000 a year in operating expenses, and those expenses
increase as the fund size increases or the investment strategy goes
beyond a long/short equity fund. So if you are starting up with aCH012.indd 244CH012.indd 244 9/2/09 11:52:36 AM9/2/09 11:52:36 AM