How to evaluate funds under the radar?

Evaluating under-the-radar funds, especially those with limited visibility on platforms like WSO, can indeed be challenging but also potentially rewarding. Here’s a structured approach to help you analyze the opportunity:

1. Performance Metrics Analysis:

   • IRR vs. Multiple: The funds you mentioned have varying IRRs and multiples. Fund 1 and Fund 2 both have a 1.8x multiple but differ significantly in IRR (20% vs. 40%). This suggests different efficiency in capital use or different risk profiles. Fund 3, with a 1.1x multiple and 17% IRR, indicates lower performance but it's also newer (Vintage 2022). Assessing these in the context of their strategies and market conditions during their operational periods is crucial.

2. Strategy and Market Fit:

   • Complex Situations and Value Add: This strategy can be lucrative but requires deep industry knowledge and operational expertise. The long holding period aligns with their focus on IRR over multiples, indicating a strategy focused on continuous value creation rather than quick exits.

3. Fundraising and Growth:

   • The growth from 1bn to a projected 10bn AUM and successful fundraising rounds suggest strong LP confidence and successful fund management. This is a positive indicator, especially when assessing the fund's stability and potential for long-term success.

4. Team Composition:

   • The unorthodox hiring strategy focusing on industry and consulting professionals over traditional finance backgrounds can be a strength, bringing diverse perspectives and operational expertise. However, it’s essential to consider how this aligns with your career goals and whether the environment will foster your desired skill set.

5. Reputation and Industry Recognition:

   • The lack of recognition can be concerning but isn't necessarily a red flag. It could indicate a focus on niche strategies or a preference for privacy, common in certain funds. Networking with industry professionals or those familiar with the fund, if possible, could provide more insights.

6. Career Impact:

   • Long-term Career Goals: If your goal is to move to a larger, more recognized fund or transition to a hedge fund or corporate role in the future, consider how this position could bridge to those opportunities. The unique experience might set you apart, but the lack of a well-known brand could also be a hurdle.
   • Promotion and Growth Opportunities: The internal promotion policy suggests good upward mobility, which can be more challenging in larger, more structured funds.

7. Personal Fit and Preferences:

   • Given your dislike for traditional banking and preference for operational roles, this fund’s focus on value-add and operational improvement might be a good fit. However, weigh this against the fund's obscurity and your career aspirations in more recognized firms.

In conclusion, while the fund shows strong internal metrics and growth, your decision should also consider personal career goals and the potential trade-offs regarding industry recognition and future mobility. Engaging with current employees or alumni from the fund, if accessible, could provide additional valuable insights.

Sources: Top under the radar hedge funds, Random Musings on the HF Interview Process, https://www.wallstreetoasis.com/forums/the-only-post-about-active-investing-you-will-ever-need-to-read?customgpt=1, Where / How can I learn more about funds?, How do you know if a less well-known fund is good?