Quote from freedinner:
"Editor's note: This story has been corrected to reflect the fact that QFS is shutting down its sole remaining fund, and not QFS itself."
They have had 2 consecutive years of negative returns. This has two consequences fee-wise. First, asset levels have decreased by the losses itself and by redemptions from impatient investors, so the absolute base fee is much lower now; maybe not enough to cover their fixed expenses. And second, they and their employees have no reasonable expectation to get over the high water mark in the next 2-3 yrs. So no performance fees either.
Somehow this reminds me of this other hedge fund guy, similar strategy:
http://www.ai-cio.com/channel/NEWSMAKERS/The_Downfall_of_John_Taylor.html
The bad thing is this: Sometimes I read that these guys, immediately after shutting the old fund (way below high water mark), turned around and opened a new one with a slightly different strategy. With the ability to earn perf fees from day one. That way they earn those performance fees twice.
If I ever get anyone to actually be a CTA client the solution I had for this is simple: high water marks are unfair to the businessperson managing the fund.
My solution was a Managed Futures Fund Account that would be able to allow me to make a market in my own fund with the MFF, charge a semi-annual clawback with annual periodic reset which means that in the first half of the year, if fees are owed, pay up to 35%, and up to the amount of the fee can be clawed back later meaning that if the second half of the year were to be negative the amount of the fee would be paid back to the investor at the end of a calendar year. The Annual Periodic Reset date would allow the business to continue even if the market happened to go down and for sure it will go down below the lowest low last year so when that happens most funds won't be able to make money but as a CTA who owns a stock exchange this unique compensation schedule is more fair (?) to the business owner.
If you started in the second half of the year you would only be eligible to pay for performance and could not earn any fees from the clawback in the first half since you weren't a client.
It should not be allowed for this attrition to continue because the NFA might be able to allow the semi-annual clawback with annual periodic reset if I were to actually be compensated that way it would only be done for millions and I wouldn't sacrifice the 1%-2.5% per month I'm paid now.
There's really not that many takers for managed futures accounts but as long as I can be paid the clawback simply complicates things and I'd rather get paid no matter what which is an obvious preference.
It's just most people who actually use advisors with performance based compensation don't grant a lot of freedom to really pursue excessive compensation anyway so when you talk about funds with businesspeople shutting down the fund is just the same as re-tooling a factory though I don't believe this particular one can come up with any different of a strategy that may just be a marketing ploy such that practically every other operation of the new fund would be the same and, otherwise, the staff probably wouldn't change either. It's just something new and while I like the fact I have a two year anniversary for one of my models tomorrow, in fact, I'm not getting the attention I expected from another model I run on a different website that trades the 3x ETF version of one of my futures accounts.
Basically investor's are stingy and try to time me when the correlation with the losses incurred do not appear to be taken at the right time so either way you lose business if you lose money trading anyway. Thus, it's not so much an issue of compensation I think but just that Wall Street has to find a way to pay big bonuses or they can't retain their talent, so even though I'm sure 2 years is a squash mark where you can just throw away everything you've been doing, the fact is there probably would be no difference in the way it's run or how they go about establishing a reasonable basis.
I find that sort of activity untrustworthy, and I'm sure investor's would, too, but if the businessperson can't retain personnel then the fund would have been dismantled anyway and I'm sure the new fund won't even come close to their previous level of AUM when they do this.
I find the clawback annual reset periodic compensation schedule can be implemented if there is a large enough market for that type of payment and while I see retail investors all the time miss huge gains after drawdowns, they're leaving due to some dissatisfaction and you can't prevent this.
