Educate me. I thought 50% a year was good

[jerryz]

so he had about $3-$15 million during that time period and banks were knocking on his door.

what would you say is the minimum amount of capital to get a bank/prime broker interested? or is it really a matter of trading commissions instead of amount managed?

how did the banks find him if he's so secretive? did they

 

[illiquid]

Quote from ElectricSavant:

What I mean is that we have seen the highs and the lows and can trade contracted between them for a long enough time to plan survival.

Who can say? But perhaps another scenario more pernicious to your methods in the (very) long term is the gradual convergence of world currency rates towards 0; worldwide recession/deflation causes competitive devaluation and incessant easing from all central banks as liquidity sinkhole goes global (Japan all over again and everywhere), presaging the ultimate demise of the fiat currency system? By then you could have a problem. . .

 

[catmango]

Quote from ElectricSavant:

Not enough. 5k in Forex.

Do you realize that 100k would net me a about 7k/yr. if I traded opm at 2/20. Plus I could still trade my own money.

Sheesh a HF could let me trade just 10% of their pool and I would be a millionaire..Trading my own money would take a few years to make millions, I want to do it now.

I am small time, looking to supercharge my career. Big numbers do not bother me, not that I do not respect money.

I have an institutional version of my system just made for the conservative approach to trading. For more information read that thread I posted in the beginning of this Thread.

Michael B.

Wow. I would say 50% on 5k is not going to turn anyone's heads. Do you have any guess as to how much you can scale up your system before slippage eliminates your profits? Even for the most widely traded assets, if your system requires that you get in/out completely and immediately upon receiving an entry/exit signal, then you're begging for a liquidity issue.

I've had pretty good success with my equity daytrading system so far, and my average bet has increased to ~$32k. Unfortunately, I don't think I can go above $50k/bet before the slippage really starts hammering my profitability, so my scalability and future returns are severely hampered.

 

[rufus_4000]

Quote from jerryz:

so he had about $3-$15 million during that time period and banks were knocking on his door.

what would you say is the minimum amount of capital to get a bank/prime broker interested? or is it really a matter of trading commissions instead of amount managed?

how did the banks find him if he's so secretive? did they

This is a funny story, he made the mistake of first clearing all of his
business with the clearing arm of an investment bank (he really didn't
know any better) and soon their asset management division started calling
him, offering him a split to manage money.

So he was angry, switched clearing firms, that's how him and I met (waiting
for a slow elevator of all places). I advised him to split up his trading to
different clearing firms. That's pretty much it, him and I have a beer now
and then, and talk about baseball and sailing. As much as I want to, I would
never ask to invest, too many have asked.

Disclosure: I used to work a fairly large (#3-4) prime broker on the Street,
doing mostly portfolio risk analysis stuff.

Getting a prime broker interested is not all that hard. I know people who have
gotten good attention with 3-5M. In my mind, it is a function of:

1) How much capital
2) Reputation, if one partner used to be big ...
3) How frequently the fund trades, therefore commission generated.
4) How different the strategy, say a macro fund would need heavy Repo,
therefore generating good Repo revenue, so if the Repo desk need P&L ...
5) Does it test / prove out new offerings, for instance, anything that
would test out the new DMA platform would get a lot of attention
in 2004.

Then there are prime brokers (BofA comes to mind) that specializes in
startup situations. Some of these guys have known to take people on < 2M.

 

[ElectricSavant]

You realize I am trading Retail Spot Forex?...Now you see why I need more capital. The system is valid.

Quote from catmango:

Wow. I would say 50% on 5k is not going to turn anyone's heads. Do you have any guess as to how much you can scale up your system before slippage eliminates your profits? Even for the most widely traded assets, if your system requires that you get in/out completely and immediately upon receiving an entry/exit signal, then you're begging for a liquidity issue.

I've had pretty good success with my equity daytrading system so far, and my average bet has increased to ~$32k. Unfortunately, I don't think I can go above $50k/bet before the slippage really starts hammering my profitability, so my scalability and future returns are severely hampered.

 

[jerryz]

Electricsavant, with 5K of capital, institutional investors will not give your track record credibility. it is just too small of an account regardless of whether or not you can prove that it's scalable. keep in mind that this is not just a matter of someone believing in you. it's a matter of the fiduciary responsibility of the fund manager and the need for him to cover his behind. even if he believes in you, too much of his behind is on the line if he makes an allocation to you.

i am not trying to pour cold water on your goals. i am telling you this to help you set your fund raising plan. unless you have really good personal contacts, forget about trying to raise money from institutions. start adding to your capital from your salary savings and try to raise some more from individuals. the incremental amount that you ask for should be reasonable relative to your existing capital base. if a start up fund has $10 million it can't go around asking for $100 million investments right? with 5K, it may be fine to ask for another 5k from someone, but the ratio will change as your capital grows. i hope you know what i mean.

lastly, 50% a year is great. if your system is truly consistent year after year then you will be fabulously rich some day by trading your own money. however, if this 50% return is of high volatily comes and has 20% drawdowns, you may never be able to raise significant amounts of money from institutional investors.

 

[jerryz]

so the banks regularly screen their accouts for high performers so that it can ask the account owners to manage money?

how does the prime broker capital introduction work?

what can you expect from a prime broker if you have $3-4 million?

Quote from rufus_4000:

This is a funny story, he made the mistake of first clearing all of his
business with the clearing arm of an investment bank (he really didn't
know any better) and soon their asset management division started calling
him, offering him a split to manage money.

So he was angry, switched clearing firms, that's how him and I met (waiting
for a slow elevator of all places). I advised him to split up his trading to
different clearing firms. That's pretty much it, him and I have a beer now
and then, and talk about baseball and sailing. As much as I want to, I would
never ask to invest, too many have asked.

Disclosure: I used to work a fairly large (#3-4) prime broker on the Street,
doing mostly portfolio risk analysis stuff.

Getting a prime broker interested is not all that hard. I know people who have
gotten good attention with 3-5M. In my mind, it is a function of:

1) How much capital
2) Reputation, if one partner used to be big ...
3) How frequently the fund trades, therefore commission generated.
4) How different the strategy, say a macro fund would need heavy Repo,
therefore generating good Repo revenue, so if the Repo desk need P&L ...
5) Does it test / prove out new offerings, for instance, anything that
would test out the new DMA platform would get a lot of attention
in 2004.

Then there are prime brokers (BofA comes to mind) that specializes in
startup situations. Some of these guys have known to take people on < 2M.

 

[rufus_4000]

Quote from jerryz:

so the banks regularly screen their accouts for high performers so that it can ask the account owners to manage money?

how does the prime broker capital introduction work?

what can you expect from a prime broker if you have $3-4 million?

Well, Banks are not *supposed* to screen their customers. Clearing and
asset mgmt supposed to have a "chinese wall" between them. But this
guy just became a Myth, so people would gossip about him, that's why he
was p*ssed off, since it is supposed to be confidential.

For $3-4M, prime broker can offer, from fairly simple to complex:

1) financing, through off-shore or structured products, leverage
2) Structured products, exotics, I have seen small (~5M) funds do
three-legged swaps
2) soft dollar, if you are managing money and passing on the costs, this
is a bonus, can pay for office rent, etc
3) Research and access to analysts, obviously
4) Technology, algorithms, portfolio accounting, aggregation
5) Access to desks, even at times, to the bank's own internal prop desks (!)
6) Capital introduction, through a few ways (since you asked):
- Direct hedge fund conferences, HNW workshops
- Periodical show to own private wealth management clients
- Internal fund of funds
- Introduction to external fund of funds

Access to relationships some of the Bankers have is absolutely huge, I
have seen small hedge funds got introduced to Pension funds in 1-2
months. Some of the access I wish I have today ...

Some of the bankers really do have a "Rolodex of Gold", I went on a
pre-presentation review of a hedge fund client for a pension fund. And I
was flipping through the list of prospect investors , and my jaws dropped, the
list included, GM Pension, Paul Tudor Jones, Thomas H. Lee, Vulcan (Paul
Allen of Microsoft), etc.

Hmmm, I may have said too much, people can probably guess which
investment bank this is ... heh.

 

[rufus_4000]

Quote from jerryz:

so the banks regularly screen their accouts for high performers so that it can ask the account owners to manage money?

how does the prime broker capital introduction work?

what can you expect from a prime broker if you have $3-4 million?

Oops, you might be asking how much investment banks charge for capital
introduction. The number ranges from zero (friends, or important clients), to a
norm of 50-125 bps. Sometimes the bank would structure a different deal,
the bank can invest (or get a call option) on the LP interest in the fund,
with reduced fee structure.

 

[jerryz]

thanks for the info rufus.

for capital introduction, i can see how access to the banks' private wealth management people is unattainable by the hedge fund without a relationship with the bank. however, would you say that meetings with fund of funds, pension funds, and attendance in hf conferences are real benefits? can't a HF get meetings with FOFs and pension funds on their own? or would you say the banker's relationship with the FOF or pension fund matters? what does a FOF or pension fund have to gain by maintaining a good relationship with the banker?