'Fund' / Structure

J

JTrader7

Hello fellow Elite Traders,

I have around 4 investors wishing to invest their money with me in the commodity and equity markets. It’s my intention to manage each account on a ‘segregated’ basis until I have more investors involved, however I’ve been advised to register a ‘fund’ in Cayman Islands for this purpose:

My understanding of a ‘fund’ is that investor monies are pooled together in the form of a ‘collective investment’ scheme, and not on a ‘segregated account’ basis.

Please correct me if I’m wrong, but I don’t think a fund under the definition above is the best structure for managing a small number of investor’s funds?

Can anyone please advise whether funds do operate investors monies on a ‘segregated basis’ or have I been given bad advice?

Thanks for your help
JTrader7
 
Yes, a hedge fund is like a mutual fund in that the funds are pooled and each investor owns some portion of the fund (shares or a percentage).

The alternative is separately managed accounts where each investor opens their own account and gives you authorization to execute trades in their account.

I don't know your or your investors' domicile, but you might consider an onshore, US-based fund if you are US-based. It is a lot cheaper to set up if you choose to go the fund route. And even easier to set up are separately managed accounts all through a single broker -- check out Interactive Brokers Friends and Family Advisor account.

Good trading, JTrader7!

Aaron Schindler
Schindler Trading
 
Quote from Aaron:

The alternative is separately managed accounts where each investor opens their own account and gives you authorization to execute trades in their account.

... It is a lot cheaper to set up if you choose to go the fund route. And even easier to set up are separately managed accounts all through a single broker -- check out Interactive Brokers Friends and Family Advisor account.
More...

Hi Aaron,

As you operate both pool and SMA as many managers do, why's that? Are these managers usually trading both with the same signals and expecting/ having the same/ similar results, of course based on same capital?

BTW, Congragulations to your great month and year performance. :cool:
 
Thanks, OddTrader!

Schindler Trading offers both a pool and separately managed accounts because they have different advantages for the manager and investor.

A pool is easier to trade than multiple separate accounts, is easier to invest in for the investor, has limited liability for the investor, and allows an investor with a small investment to get a diversified portfolio.

A separately managed account is safer from fraud and has better transparency. Sometimes separately managed accounts can be cross margined with other accounts owned by the same investor.

Schindler Trading trades our pool and separately managed account (we only have one, currently) through a Financial Advisor (FA) account at Interactive Brokers. We have standing orders (called a "Profile" at IB) on how trades are to be allocated between the two brokerage accounts, then we execute one single trade and it gets divvied up between the two accounts. We get similar results in both the pool and separate account.

Aaron Schindler
Schindler Trading
 
Quote from Aaron:

A separately managed account is safer from fraud and has better transparency. Sometimes separately managed accounts can be cross margined with other accounts owned by the same investor.

Schindler Trading trades our pool and separately managed account (we only have one, currently) through a Financial Advisor (FA) account at Interactive Brokers. We have standing orders (called a "Profile" at IB) on how trades are to be allocated between the two brokerage accounts, then we execute one single trade and it gets divvied up between the two accounts.
More...

Does anyone know if the following is still true?

http://www.elitetrader.com/vb/showt...33&highlight=IB+financial+advisor*#post328833

Quote from vhehn:

Dear Advisor,

Please be advised that Stop orders of any kind are not available for Financial Advisor accounts. Although the IB system would allow you to enter Stop orders, you would not be able to modify or cancel the Stop order you have entered. IB technical staff are addressing the issue. Accordingly, we ask that you do not enter any stop orders until you receive further notice from Interactive Brokers.
More...
 
Many thanks for the replies:

Is it possible to start a 'fund' with just one investor? I have one investor secured, with 3 others lined up to invest once I'm up and running.

Also can anyone please recommend how to deal with redemptions in a small fund with widely varying sizes of capital - Ie investor 1 puts in £1M, investor 2 puts in £20K - I invest £1,020,000 in commodities and split shares accordingly - If investor 1 pulls, investor 2 also gets pulled as positions can’t be maintained.....

Thanks again
Jtrader
 
Quote from JTrader7:

Many thanks for the replies:

Is it possible to start a 'fund' with just one investor?
More...

Yes.

Also can anyone please recommend how to deal with redemptions in a small fund with widely varying sizes of capital - Ie investor 1 puts in £1M, investor 2 puts in £20K - I invest £1,020,000 in commodities and split shares accordingly - If investor 1 pulls, investor 2 also gets pulled as positions can’t be maintained.....

Thanks again
Jtrader
More...

Make the lockup long enough to work out that situation and anything else that might come up.
 
Thanks KTM.

Is there anything to prevent managing both commodities and equities together in the same fund - legal, cost or otherwise?

Good trading to all.

Best
JTrader7
 
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