When Your Hedge Fund Fails

Running hedge funds are heavy tasks.
Running a Hedge Fund can be a heavy task.

The other day I had a friend ask me,

“Bridger, what is it like running a fund? How do you feel that responsibility weighs on you?”

It was a great question.

Now I will admit that running a fund is not for everybody.

If you have the desire however, I think you should chase it.

But it certainly isn’t easy.

It can get to the point of being a pretty passive job, but it requires work.

Responsibility, Accountability, & Ownership

And to answer his question I do believe there is a weight that you take on when running a fund.

I mean you have other people’s money in the palm of your hands.

They expect you to make them money,

And frankly they expect you to make more money than they could on their own investing in the market.

The second thing is that you need to be an honest person…

If you are not deeply honest to your core, then funds are not the business model for you.

It certainly requires integrity and humility.

You will make mistakes.

If you aren’t deeply honest then you will eventually be caught in your lies and you will end up in jail.

You see this happen all the time when these types of people get too big.

They’ll do great for a few quarters and investors are loving it,

And then they’ll have a bad month…

They want to please their investors so what do they do?

They might try to justify to investors and say that even though they lost some money that everything is still doing fantastic.

Some might go as far as to lie about losses.

In either case they know they will eventually get caught and so the take riskier and risker bets trying to make up for losses.

This is similar to a gambling addiction where gamblers do what’s called “chasing losses“.

9/10 times those bets don’t pay off.

They lose almost everything.

All along the way they lied to investors so that they didn’t know how bad it was and those managers are in jail.

Heavy stuff.

So what do you do if your fund does fail?

If it fails then it fails.

Investors will probably be pissed off.

You’ll have to liquidate as much as you can to pay investors back.

You may not even be able to ever raise money again because of lack of faith.

But at the end of the day you won’t be in prison and you know you did the right thing.


However, you are going to be okay.

Your fund documents (the PPM and the LPA) outline that losses can happen.

And if you’re honest then those documents protect you from those losses.

I had a close friend whose fund failed and the SEC investigated and audited it and found basically that it was by ignorance that the money was lost,

And not fraud.

Honesty is the principle that will allow you to scale and become a great fund manager.

The more that investors recognize your transparency, the more they will trust you with their money.

And others see and hear about that.

We all lie hundreds of times a day. The first step in becoming a great fund manager, and frankly a great person, is by being brutally honest with yourself and others.

We all lie hundreds of times a day. The first step in becoming a great fund manager, and frankly a great person, is by being brutally honest with yourself and others.


There is a cliche saying, “honesty is the best policy”.

Well in funds it is true.

It should be your number one policy.

Imagine if someone could look you in the eyes and tell you that they will be honest with you no matter what.

You’d probably trust that person more,

Especially if their actions reinforce it.

When you talk to investors make sure you tell them, truthfully, that you are going to be honest with them no matter what.

What are some other characteristics you think are important for fund managers to have?

Let me know in our free facebook group below!

Take Care,

Bridger Pennington

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DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.

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