When it comes to the reality of starting up and managing a hedge fund, $3-billion launches and astronomical pay packages remain the exception, not the rule. Many managers face a stark choice between focusing exclusively on performance with a small capital base or extensive pre-launch marketing in the hopes of raising enough cash to hire staff and build infrastructure, said several current and former portfolio managers. Those managers who aren’t immediately successful at one or the other will often face difficulty in surviving.

Two months ago, former Goldman Sachs partner Eric Mindich launched Eton Park Capital Management with $3 billion in capital, believed to be the largest ever hedge fund launch. On Monday, former Goldman Sachs partner Gavyn Davies announced he had opened Prisma Capital Partners, a $1.5 billion fund-of-funds. The challenge for both funds, according to officials at rival hedge funds, is finding places to profitably invest all of the capital.

This is not the problem facing funds started by men and women who lack the high profile of Messrs. Mindich and Davies. One of the biggest challenges facing many hedge funds is simply having the necessary “scale,” or size, in risk-management systems, trading or research talent and regulatory compliance necessary to impress larger institutional investors, said GNI Capital’s partner Charles Norton.

Without all of the personnel, systems and administration in place, managing a fund can be a very brief affair. The days of launching a fund with some personal savings and a few dollars from friends and family are over, said a partner at the recently shuttered Currahee Capital Management fund, Doug Millett. The fund launched last summer with $30 million and shut down in December. “We simply could not run the fund well with that capital base given the structure that regulators and investors demand,” he said, explaining that compliance with new Securities and Exchange Commission rules, accountants, third party research costs and personnel – the fund had 11 employees – proved too much to pay out of the fund’s capital base.

“The days of the ‘Mom and Pop’ start-up fund are now gone. New funds that launch will need about $50 million in capital to succeed,” said Mr. Millet. His White Plains, N.Y.-based fund, a long/short equity fund that focused on stock selection, was down 2% at closing.

Given the tension between focusing attention on performance and the desire to raise money, it was better to be profitable, concluded T2 Partners cofounder Whitney Tilson. He added that if a fund’s partners become marketing-driven to the exclusion of performance, they will be forced to seek risk. “The more assets they have to deploy, the more return they will be forced to seek via trades with greater risk than reward,” he said. “Financial history makes pretty clear that if you seek risk, you will eventually get hurt pretty badly.”