Best way to establish CTA track record?

S

seekevinc

Looking for input on the best way to establish a CTA track record. My goal is to eventually become a CTA or at least manage up to 15 accounts under the friends and family setup at IB. I have already set up an LLC and a friends and family Advisor account at IB. Now I need to start establishing my track record, these are my thoughts:

Start trading an account under my LLC with $30,000 to $50,000 starting capital. Each quarter withdraw fees the same as I would for any customers account, as a percentage of profits made in that quarter. I do not plan on charging a management fee to clients, but will charge a 30% of profits as a performance fee so I will do the same with this account.

I’ll keep this account going for years to come, never depositing any more money to it and only withdrawing the performance fee on a quarterly basis. This account will become an exact measure of how a customers account will perform with me.

Is this the common way to establish a track record? When CTA’s, Mutual funds, Hedge funds etc. advertise their annual returns, is it the return that the fund makes in total or the return that the customer receives, as in after fees?

Do I need to have this account monitored and verified by a CPA to make it valid? If so, how often, monthly, quarterly, yearly? Can I go to any local CPA and have them do it or is it better to use a CPA that specializes in this?

Is $30,000 a large enough account to validate or should I go with $50,000, and will that be enough?
 
I would suggest opening your account with an FCM that also has a managed futures division. Once performance is established and depending on terms, this can be a source for raising funds.

So that your account is "noticed" fund it with as much as you have available. If you are serious I would suggest $100,000. A higher base will also dampen some of the %age swings and give you more flexibility in your trading.
 
Quote from seekevinc:

Looking for input on the best way to establish a CTA track record. My goal is to eventually become a CTA or at least manage up to 15 accounts under the friends and family setup at IB. I have already set up an LLC and a friends and family Advisor account at IB. Now I need to start establishing my track record, these are my thoughts:

Start trading an account under my LLC with $30,000 to $50,000 starting capital. Each quarter withdraw fees the same as I would for any customers account, as a percentage of profits made in that quarter. I do not plan on charging a management fee to clients, but will charge a 30% of profits as a performance fee so I will do the same with this account.

I’ll keep this account going for years to come, never depositing any more money to it and only withdrawing the performance fee on a quarterly basis. This account will become an exact measure of how a customers account will perform with me.

Is this the common way to establish a track record? When CTA’s, Mutual funds, Hedge funds etc. advertise their annual returns, is it the return that the fund makes in total or the return that the customer receives, as in after fees?

Do I need to have this account monitored and verified by a CPA to make it valid? If so, how often, monthly, quarterly, yearly? Can I go to any local CPA and have them do it or is it better to use a CPA that specializes in this?

Is $30,000 a large enough account to validate or should I go with $50,000, and will that be enough?
More...

1. Return numbers must be what the customer receives, net of all fees and expenses.

2. You do not *need* to have your results audited at this stage. When you get to the point that you "hold yourself out" to the public as being in the business, then you will be required to have an annual audit. However, you should keep meticulous records so that your results are "auditable" and would verify your claims. When it's time to have audited results, any CPA who accepts the task will be OK.

3. Longevity and consistency are more important than starting capital. You'll probably have to get 2-3 years results before anyone will give you much of a look, so don't expect too much too soon.

4. Many potential investors want to see monthly results and are sensitive to drawdowns. Lower return with less downside volatility will serve your business objectives better than higher return with greater volatility.

Good luck,
 
Your return is a combination of the return of all of your customers accounts. You will find that you may have different fee structures for different clients and this causes some clients to realize more or less than the fund reports.

I would suggest actually starting the fund and running it for real, even with the small amount. It is more expensive but in the long run I think it would benefit you more than running proprietary or hypothetical results. Some may look at your record and wonder why it pre-dates your NFA registration - since having NFA registration forces certain parameters to be met.

There are elements of running a fund that are not as they seem before you are on the inside and actually doing it. The sooner you can get exposed to all of the day to day pressures and requirements, the better you'll be.

There are plenty of guys here who run funds who can help you along.
 
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