Update on FirstWave Fund
Hi everyone,
Hope you had a nice weekend. This update is long overdue but as I’ve come to find out, when you launch a hedge fund everything moves slower than you expect.
Here is the term sheet (it’s 6+ months old but nothing meaningful has changed)… https://docs.google.com/document/d/1C1-reSJ_Dy-odD2kXKQKOlPOe0lN_9uC/edit?pli=1#heading=h.gjdgxs
If you have not filled out form2 at FirstWaveFund.com, please do so but only after you review the term sheet.
The launch timeline might change but as of today, I believe the launch date for the FirstWave Fund will be late June or early July.
As of today, 90% of the legal work is done. All of the fund formation legal work is completed which includes Delaware fund (for US investors), Cayman Islands fund (for non-US investors), the management company (FirstWave Fund GP) and the holding company (FirstWave Holdings LLC). This week I expect all of the investor docs to be completed which includes the LPA (Limited Partnership Agreement), PPM (Private Placement Memorandum) and the Subscription Agreement.
We have already sent the legal docs to our Prime (BTIG) and Custodian (Goldman Sachs) to start getting accounts opened and approved. This can take up to 6 weeks.
Once the investor docs are finalized we will send them to our Fund Administrator (South Watch) so they can prepare them to be sent out to investors. Once those docs are received, investors will have 2-3 weeks to review and send them back. Once they are sent back with the required documentation, South Watch will review all docs to make sure they are signed properly then begin their KYC/AML checks. Clients will have direct access to South Watch (Fund Admin) which handles everything from forms to reporting (monthly/quarterly statements) to online access.
Once we have a confirmed launch date for the fund we will inform investors at which point they’ll have 10-14 days to get the funds wired. We’re still planning to use JP Morgan for business banking and escrow which means clients will send funds to our escrow account at JP Morgan. Funds will sit in our escrow account until we’re ready to transfer them to our custody account at Goldman Sachs and from there we can being trading through the master account at BTIG. As I’ve mentioned before, if the investors want to split up their contributions over a few months that is fine with me but please don’t let it drag out.
I still don’t have the final numbers but it’s looking like these will be the minimums:
accredited investors will be $650,000 to $750,000
qualified investors will be $400,000+
non-US investors will be $300,000+
We are still on track to launch with at least $100-150 million in AUM; we should be at $200-300 million in AUM within 3-4 months after all investors have gotten in their initial contributions.
For the past month I’ve been doing some light recruiting but it’s about to get much more intense as I need to have a team assembled prior to launch. I’m planning to hire 8-9 people over the next 6-8 weeks including admin, operations, research, trading, sales and client support. As the fund grows we’ll hire accordingly. I’m excited to have 2-3 people helping me with research and another 2-3 people helping me with trading (hedges & swing trades). I expect to hire 2 people for each position prior to launch then add 1-2 more as AUM gets closer to $300 million. We’ll be outsourcing CFO (finance) and CCO (compliance) positions/work until we hit $300+ million in AUM at which point I’ll look to hire someone full time.
I’m still planning to open offices in Boston and Miami, nothing too fancy. Both offices will be approx ~2000 square feet which should be big enough to accommodate 6-7 employees comfortably. I still have no intention of allowing any employee to work remote. I think it’s incredibly important to have everyone in the office to discuss & debate throughout the day, especially during these turbulent times. I also think it’s critical to build a great culture which doesn’t happen over Zoom from everyone’s kitchen table or home office.
FirstWave Fund will only accept cash, we’re not accepting individual stocks or any other investments.
I know some of you were hoping to form an LLC with friends or family members in order to meet the minimum for Accredited Investors but I’ve been informed by my lawyers that is won’t be possible unless the LLC has been around for a while and/or already holds other assets. If you are forming an LLC with other members for the sole purpose of investing in my fund, it will be disallowed by the SEC and then each member counts as their own seat which does not work for me.
FirstWave Fund will accept retirement assets from an IRA or Roth IRA however it needs to be coming from a self-directed IRA that allows hedge fund investments. I’m still trying to confirm whether or not Fidelity and/or Schwab allow this but here are two firms that definitely do:
if anyone knows of any other firms that allow hedge fund investments in an IRA, please let me know.
Of course this can change but my plan is to close the fund at $2 billion AUM because I care too much about performance and beating the benchmarks to allow my fund to get so big where performance suffers in a meaningful way. This also means I get to focus on raising capital from individuals and family offices, not getting distracted by institutional investors which is a completely different ballgame.
My investment strategy with the fund will be very similar to the investment strategy I’ve been running for the past few years. I’m looking for undervalued growth stocks that I can own for 2-3 years, taking advantage of underappreciated fundamentals and/or upcoming catalysts. I will continue to use hedges and shorts to protect the portfolio from significant drawdowns in bad markets. I will also try to add alpha on a daily basis by trading the hedges intraday as well as protecting against those mid-day reversals.
With regards to my Substack investment service, I have not made any final decisions but it certainly looks like I will need to shut it down because the compliance concerns are significant not to mention my unwillingness to disclose positions or activity whereby it might negatively impact the fund and our holdings. Once the fund launches, everything I do or say needs to be in the best interest of the fund and the investors — trying to maintain a Substack newsletter likely contradicts this and becomes a constant compliance headache.
Investors will receive monthly statements but they’re unlikely to show any holdings, just account values. I expect quarterly statements to be much more detailed and show all or most holdings. I know many of you are used to full transparency but that’s going to change with the hedge fund. I need to be able to manage positions in secrecy otherwise I end up chasing a stock higher or lower which hurts the performance. To the extent I do maintain a Substack newsletter, I would use it for sharing an investment thesis after building out a full position in a new holding or perhaps explaining why I sold a long-term holding. If I did shut down my Substack newsletter, all paid subscribers would receive prorated refunds.
In the next couple weeks I will setup another form at FirstWaveFund.com — all accredited investors will need to submit their best and final contribution amounts. From this data I’ll be able to determine who gets to fill those 100 spots. I hate doing it this way but I have no choice, the SEC says I only get 100 spots for accredited investors so I’m just playing by their rules (as dumb as they are).
I’m sure I left something out so feel free to email me at jonah@firstwavefund.com with any questions.
Regards,
Jonah
PS: I’m up approx ~15% YTD in my portfolio but I’d be at least 25-30% if I wasn’t trying to juggle all of this hedge fund stuff during the day because there’s been multiple days when I’m on Zoom, reviewing legal docs, looking at office spaces, etc and the markets are dumping or ripping and I’m not in front of my screens to react in real time.