Why would anyone want to trade for themselves when they can just raise money and invest with someone like Dunn or John W. Henry? It seems like a no brainer to me. I take it that a CTA may take in much less than if he was running his own system but then on the other hand he has that much more free time to raise more funds. What is wrong with this logic?
CTA "Fund of Funds" questions
- Thread starter rokafella
- Start date
Notice how Dunn and Henry are in DEEP drawdown now. I am great at losing money for my clients, I dont need some third party individual to lose my clients money.
Most people who start CTAs to trade believe they have a superior system. Henry and Dunn dont have some magical system that makes money for them. There are quite a few individuals with solid methods and techniques that can consistently make money. Heck even in the world of trend following there are MUCH better CTAs than Dunn and Henry. Eckhardt, Campbell, Winton are much better at this game than the former two.
Most people who start CTAs to trade believe they have a superior system. Henry and Dunn dont have some magical system that makes money for them. There are quite a few individuals with solid methods and techniques that can consistently make money. Heck even in the world of trend following there are MUCH better CTAs than Dunn and Henry. Eckhardt, Campbell, Winton are much better at this game than the former two.
Apparently you've had a bad year but do you have as good a track record as Dunn and Henry? Besides, who doesn't have drawdowns? It's part of the plan.
And I don't mean specifically startting a fund of funds utilizing Dunn and Henry. Those names just popped into my head head. It could be anyone.
Anyone else?
And I don't mean specifically startting a fund of funds utilizing Dunn and Henry. Those names just popped into my head head. It could be anyone.
Anyone else?
Psychologically, it is completely different being an investor vs a speculator. Sure, for most people, trading on their own account won't make much more than if the money was put into a good investment vehicle. However, the self-satisfaction is non-existent with being an investor.
To become an investor in John Henry's fund, you are talking about fairly big numbers. I am not even sure if his fund is open for new investment anymore. I believe the minimum for individuals was around $2-5MM, with institution managed seperate accounts start at $25MM.
If you can raise $5M in short order, then all the power to you. Raising a lot of capital is very hard, it is very different than raising $1-2M from friends and family. I believe most people can find $1-2M from the immediate circles, but > $2M, you either needs very very good contacts, or a great vehicle.
To become an investor in John Henry's fund, you are talking about fairly big numbers. I am not even sure if his fund is open for new investment anymore. I believe the minimum for individuals was around $2-5MM, with institution managed seperate accounts start at $25MM.
If you can raise $5M in short order, then all the power to you. Raising a lot of capital is very hard, it is very different than raising $1-2M from friends and family. I believe most people can find $1-2M from the immediate circles, but > $2M, you either needs very very good contacts, or a great vehicle.
On the contrary my year has been pretty darn nice
. My track record isnt as long because well I havent lived that damn long yet haha. And I really dont think 48% drawdowns are acceptable. There are MANY other players in this game that return levels higher than Henry and Dunn with MUCH lower drawdowns. Well yes many people use the concept for fund of funds. However, typically people actually WANT to control the cash for themselves. But your idea of giving cash to different managers has already been utilised. There are quite a few fund of funds out there. Russell is one. Simon's Renaissance also gives cash out to other managers to diversify.
The difficulty is in raising capital and convincing your clients that they need a middleman (i.e. you) to put them into funds -- if you have to lots of capital sources, then this could be the game for you. But you better add some value in the portfolio selection process, otherwise you're just another cost that will get cut out of the process. The other advantage of a FoF is getting access to capacity in these funds. Some guy with $1 MM isn't going to have access to henry and dunn. A FoF can provide that for them.
You'll have to check around. I've heard FoF fees at 1% AUM and 7% of new profits. I have no idea how this compares with the industry. They usually have to get the fund they are investing in down on fees too. I've heard getting the funds that you're investing in down to 1% and 17% is decent (from 2 and 20), but again you'll have to check around.
You have to take the follow situation of an FOF investor: the investor gets a double whammy on the fees.
Say you raised 10MM. You distributed it to the managers and the net return for the year was 2MM before the managers took their 20% fees. So the net return for the FOF is 1.6MM. Now the FOF will also take its fees, I am using 15%. So thats a return for the FOF investor of 1.36MM. Which comes out to 13.6% for the year.
Typically CTAs charge 1 and 20. FOF I am not sure. Go to www.iasg.com There is a really good CTA FOF there with really nice results. Let me see if I can pull that up.
Say you raised 10MM. You distributed it to the managers and the net return for the year was 2MM before the managers took their 20% fees. So the net return for the FOF is 1.6MM. Now the FOF will also take its fees, I am using 15%. So thats a return for the FOF investor of 1.36MM. Which comes out to 13.6% for the year.
Typically CTAs charge 1 and 20. FOF I am not sure. Go to www.iasg.com There is a really good CTA FOF there with really nice results. Let me see if I can pull that up.