I am not aware of anything like that and there are good reasons why that model would not work. Now, if want the economy of scale that comes with large AUM, you kinda have two choices (neither is very pleasant). You can take first-loss money to pad your AUM - scary but effective and you gain the optics of larger AUM for your statements. Alternatively, find a PM gig at a multimanager shop (harder but usually if you are good and decide to go on your own, they'll give you capital). Pretty much anything else like HF hotels are a gimmick designed to get a cheap pound of flesh from you.
Are their any pro trading clubs out there?
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Robert Morse
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I have talked close to 25 managers out of first loss programs because the math breaks down.
This is a typical program.
E.G. Manager put up $1mm in program. Money is commingled with many other managers and you get $10mm in BP with risk controls. Now you trade and get your returns. Assuming they allow you to show returns from their accounts to potential investors, what do you market? Let say you made $2mm in year one. Is that a 200% return on capital or 20%? The program often takes 50% of profits. Do you remove that? You want to tell investors you traded with $10mm not $1mm. If you took the same $1mm and opened a PMA to build your track record, you would have $6.6mm in Day trading BP and likely a little less overnight. (That means the program really only set a aside $500K. $1.5mm*6.67 = ~$10mm). Then any allocator looking at the returns has to ask, how will this relate to my investment without the program? What other benefits did the program offer that might have helps?
1st loss programs are terrible for the managers and awesome for the program.
Usually it's 8-10x leverage, as long as you avoid instruments that are inherently leveraged like futures.
I know a few people that have used first loss money at the inception of their funds, but not via any commingled program. The way it was described to me it looks like a regular SMA but you pledge your assets ("first loss tranche") against it's balance. They do want detailed account statements on daily basis and hold you to a very well defined mandate, which might be annoying for a discretionary manger. However, when you are showing your AUM and track record, people see that leveraged amount as the AUM and returns on the leveraged amount as your track record.
PS. I have never dealt with them myself, so this might be not completely accurate
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Robert Morse
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sle, your description is more of an angel investor deal.
This are first loss programs. I would not do these,
https://www.bloomberg.com/opinion/articles/2018-04-24/putting-the-hedge-back-in-hedge-fund
Here’s how first-loss works: Managers like Paulson put their own money into an account within a first-loss fund, and any of the three firms contribute nine times as much from their investors. Managers get to keep about 55 percent of the trading profits, more than double the standard industry cut. But should the strategy go awry, all of the losses come out of their invested capital until it’s gone.
“The upside, if you do well, is good,” said Karl Cole-Frieman, whose law firm advises hedge funds on seeding deals and other structuring issues. “The downside, if you do poorly, is disastrous.”
That's from this article about "first-loss funds" provided by firms like Topwater Capital, Prelude Capital Management and Boothbay Fund Management, and specifically about how Paulson & Co., "after suffering years of losses and redemptions," is signing up to be the at-risk manager of some of those funds. The profile here is almostthe one I laid out above, except that (1) the manager keeps 55 rather than 50 percent of the profits, and (2) the manager is only at risk for the first 10 percent of losses. But first-loss providers "can shut down an account once most of the hedge fund manager’s capital is gone," to try to minimize their exposure to losses past 10 percent. "Believe me, Prelude and Topwater never get a loss," says a hedge-fund lawyer.
I think we are describing the same thing. It's an SMA that takes 45-ish percent of profit in exchange for the leverage with you pledging the first loss. Coincidentally, I am meeting one of these guys today and will ask what was his motivation for using this setup years ago. Also, as you said, it's interesting how it is reported.