Considering starting a small hedge fund good idea? bad idea? advice?

[lazar206]

Hi everyone,
Just looking for some feedback about an idea I’m considering. I have been in the stock market for the last 2 years and had some pretty good success. I started 2009 with around 175k invested, had around 100% return bringing my NAV to 366k, in 2010 I started with 366k and invested an additional 50k, YTD had a 30% return bringing my total account value to 538k.
I was considering starting a small hedge fund/money management business and want to get some feedback.

Thanks

 

[TWORIP]

Depends. You'll have to have full disclosure. So what is your current strategy? A lot clients won't be willing to take a lot of risk in start up hedge funds, so your explanattion of how you intend to make the returns is vital. Just as it is to us answering this question. Remember, each client of a hedge fund typicall has to be worth 1.5 mil, and invest no less than 100k. At that level of investment per clientel, they want to know everthing. PM me if you want to talk about it some more.

 

[dave4532]

Quote from lazar206:

Hi everyone,
Just looking for some feedback about an idea I’m considering. I have been in the stock market for the last 2 years and had some pretty good success. I started 2009 with around 175k invested, had around 100% return bringing my NAV to 366k, in 2010 I started with 366k and invested an additional 50k, YTD had a 30% return bringing my total account value to 538k.
I was considering starting a small hedge fund/money management business and want to get some feedback.

Thanks

My uncle invested 600K in AAPL at an avg. price of $75 four years ago and he is still in it with no immediate plans to sell. He is making around 300% Should he start a fund? I am asking you.

 

[toc]

if u can raise funds, any idea is worth a try

 

[LEAPup]

Quote from TWORIP:

Depends. You'll have to have full disclosure. So what is your current strategy? A lot clients won't be willing to take a lot of risk in start up hedge funds, so your explanattion of how you intend to make the returns is vital. Just as it is to us answering this question. Remember, each client of a hedge fund typicall has to be worth 1.5 mil, and invest no less than 100k. At that level of investment per clientel, they want to know everthing. PM me if you want to talk about it some more.

I've been here before. If you're wanting to pitch a HF, your prospects (if individuals) must be Accredited. That is a Reg D offering of SEC rule 501. An Accredited investor has to have a new worth of $1M (excluding their primary residence), AND an income of at least $200,000/yr for the last two years, AND expects that income in the current year. If married, the joint income has to be $300,000 and of course, that has to be for the last two years as well.

Your investors can invest whatever YOU have had put into the PPM as an investment "unit." For example, you can set up a unit at $100,000, and make investments in the fund agreeable in 1/4 unit increments. i.e., they can show up with $25,000 and that could be a 1/4 unit investment. There are no limits on the amount you let them in at. You could literally word the PPM to allow Accredited investors to come in at $5,000 if you wanted to do that...

If you're a start up HF, I'd recommend you entertain letting them in at $25,000.

In terms of money you'll need to be ready to paper the first Client, I'd say you'll need about $15,000 to get from A to Z. THEN you will need to have other thongs done such as admin, and yearly audit which also cost $$$$.

Hope this helps you. Best of luck

 

[LEAPup]

Quote from dave4532:

My uncle invested 600K in AAPL at an avg. price of $75 four years ago and he is still in it with no immediate plans to sell. He is making around 300% Should he start a fund? I am asking you.

Did your Uncle invest <5% of his portfolio in AAPL or >5%?

 

[the1]

This is not true. An accredited investor has to have a net worth of at least $1M or have earned at least $200k in the past 2 years single, or $300k married. The minimum investment is $25k. A fund can accept up to 35 non-accredited investors but these investors cannot be charged a performance fee. If the fund starts as an exempt fund -- 15 investors or less and $400k or less -- all of these requirements get waived.

Quote from TWORIP:

Depends. You'll have to have full disclosure. So what is your current strategy? A lot clients won't be willing to take a lot of risk in start up hedge funds, so your explanattion of how you intend to make the returns is vital. Just as it is to us answering this question. Remember, each client of a hedge fund typicall has to be worth 1.5 mil, and invest no less than 100k. At that level of investment per clientel, they want to know everthing. PM me if you want to talk about it some more.

 

[toc]

Quote from the1:

If the fund starts as an exempt fund -- 15 investors or less and $400k or less -- all of these requirements get waived.

What does $400K mean............is it that each investor has to have net worth of $400 or that this exempt fund of <15 investors can only take upto $400K in its portfolio.

 

[toc]

I think you are referring to the NFA rule on CTAs where a non-CTA can manage upto 15 clients with total of 400K max in the portfolio and still not require registeration.


Hedge Funds exemption rule does not lay any limits on the amount of funds in the portfolio, it however does limit on the number of investors in the direct advisor client relationship with the Hedge Fund manager.

Hedge Fund manager is a different animal than a Commodity Trading Advisor in the eyes of both SEC and NFA.

 

[LEAPup]

Quote from LEAPup:

I've been here before. If you're wanting to pitch a HF, your prospects (if individuals) must be Accredited. That is a Reg D offering of SEC rule 501. An Accredited investor has to have a new worth of $1M (excluding their primary residence), AND an income of at least $200,000/yr for the last two years, AND expects that income in the current year. If married, the joint income has to be $300,000 and of course, that has to be for the last two years as well.

Your investors can invest whatever YOU have had put into the PPM as an investment "unit." For example, you can set up a unit at $100,000, and make investments in the fund agreeable in 1/4 unit increments. i.e., they can show up with $25,000 and that could be a 1/4 unit investment. There are no limits on the amount you let them in at. You could literally word the PPM to allow Accredited investors to come in at $5,000 if you wanted to do that...

If you're a start up HF, I'd recommend you entertain letting them in at $25,000.

In terms of money you'll need to be ready to paper the first Client, I'd say you'll need about $15,000 to get from A to Z. THEN you will need to have other thongs done such as admin, and yearly audit which also cost $$$$.

Hope this helps you. Best of luck

Guys, please re-read this post.

Btw, some of the other posts about the number of accounts, is based on State Blue Sky laws on not having to register with the SEC as an Investment Advisor due to # of accounts managed in that state, and amount of assets under management. Smaller IA's simply register with that state and avoid the SEC registration as an Investment Advisor. A HF will be apples to oranges when it comes to what I've read in this thread's recent posts.

Let's not derail the OP's thread.

Edit: in the first paragraph, that's NET worth, not new worth. Trader types and typing skills...