Originally Posted by
Waterstpub87
What Regulations do you speak of? A quick look at HFR or EurekaHedge shows 1000's of funds with an AUM of less than 10M. If the regulatory burden was so terrible, they wouldn't exist. I know of dozens of hedge funds where it is a single trader running a small hedge fund, with very small amounts of outside capital. Depending on where, and how, you structure, it is not as bad as one might think. If you are not going after institutional money at first, then you do not need a large capital base to start. Added bonus, if its your money in hedge fund and you win, you are taxed at carried interest.
On risk return. Say that you are a small hedge fund, with 50M in AUM. You make 50 bets a day at 10,000 a piece, putting 500,000 into play. With all American sports plus tennis plus all soccer leagues plus all basketball leagues it would be hard, but not impossible to do this every day .If you average a 2% return on each bet, you make roughly 10,000 a day x 365 to make a profit of 3.65 million or 7.3%, which beats many hedge funds, especially because your vol will be lower.
If they are even money odds your stdev of bets will be 3.55 bets or roughly 35,500 or .71% daily, 9.55 annually standard deviation, so you would have roughly a .75 sharpe, which would be worse than fixed arb or vol arb funds, but which will out perform many macro and equity hedge funds. On top of that, sports bets are liquid, so you wouldn't have lockups and gates.
It wouldn't be easy. People would be skeptical. They would pull their money completely as soon as you had a losing streak. Its not impossible.