Funding a Hedge Fund, How Easy?

C

Corso482

How easy is it to find clients for a hedge fund?

Just for the sake of discussion, how easy do you guys think it would be to draw in money if you did the following:

You have a couple hundred thousand of your own money that you trade. You create a hedge fund structure then start to trade your own money just as you were doing. At the end of every year, quarter, whatever, you have your results professionally audited and post them to various organizations that keep tabs on hedge fund performance. You do well, make good returns with relatively small drawdowns, and you perform consistently. You don't make any effort whatsoever to find clients or bring in money. You don't get an office. You don't hire employees. You don't do anything. You just trade your own account and post results.

Do you think that people would start to offer you money to manage? If so, how many years would it take for the offers to come in? Does performance even matter if you're not managing millions?

I always hear that in the hedge fund industry, the results speak for themselves. But am I over simplifying things? Would simply setting up a fund and posting a few years good results start to draw in money?
 
Well, you become a CTA, audit your trades everyday(I think you have to), pay few thousand dollars to NFA for the CTA status, trade like how you would...

But...

You'll have to deal with all the extra work maintaining the fund. First, there are the calls you'll be getting. All these questions about how you trade. Systematic? Discretionary? OK, you have a prospectus.... still, they'll have questions about the prospectus.

Then you'll have the legal fees and contractual thing going on. They'll call and bother you about that too.

Let's say you get customers, they'll be calling you on each major move of the market.

It's their money and they think they own you because you're trading their money. Try having a naive investor next to you asking you about every win/loss, decisions, opinions... all day... hard stuff...

They also tell you that you might be risking too much and expect you to change how you trade...

Then let's say you account becomes big, then you'll have liquidity problems and performance will drop. Then they'll whine all day about that.

They don't care about you.... they'll annoy you in everyway a trader can think of.

If you can go through that and wouldn't bother you... sure... great idea...

They are 10000000% more annoying than any boss you can work with...
 
Quote from Corso482:

How easy is it to find clients for a hedge fund?

Just for the sake of discussion, how easy do you guys think it would be to draw in money if you did the following:

You have a couple hundred thousand of your own money that you trade. You create a hedge fund structure then start to trade your own money just as you were doing. At the end of every year, quarter, whatever, you have your results professionally audited and post them to various organizations that keep tabs on hedge fund performance. You do well, make good returns with relatively small drawdowns, and you perform consistently. You don't make any effort whatsoever to find clients or bring in money. You don't get an office. You don't hire employees. You don't do anything. You just trade your own account and post results.

Do you think that people would start to offer you money to manage? If so, how many years would it take for the offers to come in? Does performance even matter if you're not managing millions?

I always hear that in the hedge fund industry, the results speak for themselves. But am I over simplifying things? Would simply setting up a fund and posting a few years good results start to draw in money?
More...


it is extremely difficult. results generated with several hundred thousand are meaningless in the real hedge fund world. i work with a small fund that has excellent returns and the ONLY way we have been able to raise capital is thru previous contacts. you are better off trading your own capital unless you can raise in excess of 10 million to start, 100 million is better. 10 million you will still be a po boy--trust me.

best,

surf
 
Quote from WDGann:

Well, you become a CTA, audit your trades everyday(I think you have to), pay few thousand dollars to NFA for the CTA status, trade like how you would...

But...

You'll have to deal with all the extra work maintaining the fund. First, there are the calls you'll be getting. All these questions about how you trade. Systematic? Discretionary? OK, you have a prospectus.... still, they'll have questions about the prospectus.

Then you'll have the legal fees and contractual thing going on. They'll call and bother you about that too.

Let's say you get customers, they'll be calling you on each major move of the market.

It's their money and they think they own you because you're trading their money. Try having a naive investor next to you asking you about every win/loss, decisions, opinions... all day... hard stuff...

They also tell you that you might be risking too much and expect you to change how you trade...

Then let's say you account becomes big, then you'll have liquidity problems and performance will drop. Then they'll whine all day about that.

They don't care about you.... they'll annoy you in everyway a trader can think of.

If you can go through that and wouldn't bother you... sure... great idea...

They are 10000000% more annoying than any boss you can work with...
More...


very well said, gann. that is the way it is.

surfer
 
Quote from Corso482:

You do well, make good returns with relatively small drawdowns, and you perform consistently.
More...

Easier said than done. If you can do this, you'll be well ahead of most of the hedge funds out there in today's investment climate. Heck, I'll find you some clients for a reasonable commission...
 
I'm basically at this same point in my career. I figure that I am willing for the thing to be a money pit for a few years as long as I can get an audited track record for others to see. Most of the money that I've gotten so far is from friends and relatives. I have not really asked any of them for money. They just offered it to me. Surprisingly, I got a few offers from people who I've never met just from word of mouth from friends/relatives and from people who have wandered into these boards and a few others where I have posted or written articles for. In all, it's very small money at this point. I really don't want too much to start with anyway. Do anything that you legally can to get exposure though, assuming you want money.

If you just post numbers and make no effort, I'm sure you'll get money all the same. Money always chases hot numbers. Problem is that it's all hot money that will leave when you have your first slump. You need people who understand what you do, and how you do it.

I figure that you just need the results. If you have good numbers, you'll be noticed. Partners will tell their richer friends, the momentum will build.

I'm quite interested to hear from you on how it works if you try that approach with no effort. I think that depending on how good your numbers are, you could get a tidal wave of interest. There is a lot of money looking for a home, and after three years of bad markets, that number is growing and growing in restlessness every down quarter.

I have put in very little effort looking for partners so far, and am surprised at how many I've ended up with, or at least people who are sitting on the fence to see how my first few months are.

I'd love to hear from others who are a bit further along though.
Aaron, Surf, any others... I'm quite curious how you did it. I assume it's basically in the same manner as Corso said.
 
Quote from goldenarm:



Easier said than done. If you can do this, you'll be well ahead of most of the hedge funds out there in today's investment climate. Heck, I'll find you some clients for a reasonable commission...
More...

Same here... reasonable commission... also gives me a reason to get hold of old contacts...

LOL

Added after reading pret's post...

It's true about the word of mouth. But most good traders know to meet the person too.

They look at both your performance and who you are as a person.

Who you are as a trader is equally important along with the performance.
 
I recently read this book it gives you good information on hedge funds.
Getting Started in Hedge Funds
Daniel A. Strachman, Strachman
To answer your question the hedge funds are marketed by intermediaries. There are companies who specialize in marketing hedge fund. large financial institutions also offer solutions to hedge fund which involves a package of services which includes trading desk and fund raising. they typically sell the product to high networth clients or institutions.
 
Quote from praetorian2:

I'm basically at this same point in my career. I figure that I am willing for the thing to be a money pit for a few years as long as I can get an audited track record for others to see. Most of the money that I've gotten so far is from friends and relatives. I have not really asked any of them for money. They just offered it to me. Surprisingly, I got a few offers from people who I've never met just from word of mouth from friends/relatives and from people who have wandered into these boards and a few others where I have posted or written articles for. In all, it's very small money at this point. I really don't want too much to start with anyway. Do anything that you legally can to get exposure though, assuming you want money.

If you just post numbers and make no effort, I'm sure you'll get money all the same. Money always chases hot numbers. Problem is that it's all hot money that will leave when you have your first slump. You need people who understand what you do, and how you do it.

I figure that you just need the results. If you have good numbers, you'll be noticed. Partners will tell their richer friends, the momentum will build.

I'm quite interested to hear from you on how it works if you try that approach with no effort. I think that depending on how good your numbers are, you could get a tidal wave of interest. There is a lot of money looking for a home, and after three years of bad markets, that number is growing and growing in restlessness every down quarter.

I have put in very little effort looking for partners so far, and am surprised at how many I've ended up with, or at least people who are sitting on the fence to see how my first few months are.

I'd love to hear from others who are a bit further along though.
Aaron, Surf, any others... I'm quite curious how you did it. I assume it's basically in the same manner as Corso said.
More...


hey p2,

remember your investors need to be accredited. if they are not, you WILL LOOSE any legal action taken against you. i had close to 400 people interested in my fund, and it turns out that just ONE of them was an actual proven accredited investor. i am sure you check your partners out, just wanted to pass this along.

best wishes,

surf
 
Surf, Gann-

Is it really that annoying? I have heard this from quite a few hedgies, and ex-hedgies. It must be true.

Why don't you just take the approach that Buffett took in his fund?

You get 1 yearly statement. There's 1 day a year when you can add or take out funds. On that one day each year, you can question him on anything under the sun til you collapse from exhaustion. Besides that one day, if you mention the fund to him, or even worse, come to see him, he immediately hands you a check for your money and sends you home.

He just didn't want to deal with all the crap. That's probably why he did so well. He had much more time to think and spent less time on meaningless back office and marginal type issues.

I think that one of the main reasons that my results suffered this year was that I spent increasingly large amounts of my free time either working on the fund, researching the fund, or talking to people about the fund. I also spent quite a bit of time on taxes and tax planning to minimize them. This was time that a year ago I would have spent reading reports, newspapers or stock charts.

This is one of my main concerns going forward.
 
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