Funding a hedge fund...
- Thread starter praetorian2
- Start date
Mike, what I am trying to say is that these 2 positions should not be calculated for my p/l. They are actually in a seperate third account so that the IRS knows that as well, and doesn't mark them to market. I'll be holding these 2 stocks for well over a year or three. I do include open losses on open positions in my p/l when I mark those positions to market. I am using my gains and continually plowing them into these 2 positions and you are correct that I am averaging down on both of them. I have no problem with averaging down though as long as the fundamentals of the companies do not change but instead the stock prices are dogged by sloppy sellers. Lower prices = better values.
I agree that if I suffer a drawdown, people will pull out, possibly very fast. I intend to set it up in such a way that there are only 2 or so times a year that someone could pull money out unless the fund is down a certain % for the year. I dont' think that to achieve these larger gains I'll take on more risk. Most likely, I'll be taking on less risk than now because my the fund will be more spread out over multiple positions and it will not be using leverage. I have never had a drawdown of over 15% from peak to trough since I started trading in the manner that I do (I'm not including my very early years). Of the five or so drawdowns of over 10%, I'd say that all but one were the results of gap downs or stock halts. By spreading the capital to many more positions, I think that the odds of a drawdown of that magnitude occurring are rather slim. Once people get accostomed to the volatility that I often experience in my funds, I think that they'll get used to drawdowns of 5-12% or so possibly in a single day as long as they are also used to the 10-20% up days that I experience. As I have said before, I've not had a down period from peak to trough of more than 15%.
AAA- What use would there be for an army of analysts and traders. If they were so good, I'm sure they'd be trading on their own. I have never listened to an analyst in my life, and I dont intend to start now. I admit that in the future if my account gets considerably larger, I might need a second trader, but I know people who can fill that gap who I trust very much. As for now, if I am running just 10-20m, I think I can take care of all the transactions necessary. I may need a secretary at some point to answer phones, but I think that at the startup stage I am at now, I will just need myself and maybe one additional person (at most). A 1% fee on 10m is 100k. That should definately cover any CTA or legal expense plus give me enough money for my dsl and utilities. I don't think people want to see mahogany walls. They just want to see their capital earnings extreme returns.
I agree that if I suffer a drawdown, people will pull out, possibly very fast. I intend to set it up in such a way that there are only 2 or so times a year that someone could pull money out unless the fund is down a certain % for the year. I dont' think that to achieve these larger gains I'll take on more risk. Most likely, I'll be taking on less risk than now because my the fund will be more spread out over multiple positions and it will not be using leverage. I have never had a drawdown of over 15% from peak to trough since I started trading in the manner that I do (I'm not including my very early years). Of the five or so drawdowns of over 10%, I'd say that all but one were the results of gap downs or stock halts. By spreading the capital to many more positions, I think that the odds of a drawdown of that magnitude occurring are rather slim. Once people get accostomed to the volatility that I often experience in my funds, I think that they'll get used to drawdowns of 5-12% or so possibly in a single day as long as they are also used to the 10-20% up days that I experience. As I have said before, I've not had a down period from peak to trough of more than 15%.
AAA- What use would there be for an army of analysts and traders. If they were so good, I'm sure they'd be trading on their own. I have never listened to an analyst in my life, and I dont intend to start now. I admit that in the future if my account gets considerably larger, I might need a second trader, but I know people who can fill that gap who I trust very much. As for now, if I am running just 10-20m, I think I can take care of all the transactions necessary. I may need a secretary at some point to answer phones, but I think that at the startup stage I am at now, I will just need myself and maybe one additional person (at most). A 1% fee on 10m is 100k. That should definately cover any CTA or legal expense plus give me enough money for my dsl and utilities. I don't think people want to see mahogany walls. They just want to see their capital earnings extreme returns.
p2,
I don't really disagree with you about the need to have these people around, only that the people who will be funding you will expect it. Their question will be who looks after the money if you are traveling, meeting investors, get sick, playing golf etc?
I don't really disagree with you about the need to have these people around, only that the people who will be funding you will expect it. Their question will be who looks after the money if you are traveling, meeting investors, get sick, playing golf etc?
If they are even asking me questions like that, then they don't realize how dedicated I am. I have taken 7 trading days off in the last 17 mos. That's pretty impressive. I have showed up with the flu and I doubt that anything could take me out of the game. If I have no open positions, then no one needs to watch a thing. The small cap part of the fund will probably only trade like 10-25k shares a day anyway. That part doesn't need to be watched daily. The rest can have just stops put in. I don't think anyone would expect to have analysts. Or I'd hope that they're smart enough to realize how useless they are. I don't play golf anyway... lol. I may need someone to handle annoying issues though and for that I'd probably need a secretary.
Back to the core of the question:
You can try for example to contact Global Capital Strategies LLc in New york a marketing firm specialised in hedge fund.
In starting a hedge fund you have 3 composants: marketing and funding ( G.C.S. can do this for you and you have to give them back some fees deducted from the Entry fees).
legal and accounting ( this is done by your prime broker unless you are very big and can hire people) and trading ( done by you
.
Very few wants to deal with the first two aspects.
Not to afraid investor you do not have to announce 100% return .
For example in the Hedge fund i manage ( i created it with a friend) we announce a Performance Target: +20% net of fees per year.
And the performance fees is 30% above the performance target of 20% so everybody understand that the real target is far more than 20% ( kinf of trick)
You can try for example to contact Global Capital Strategies LLc in New york a marketing firm specialised in hedge fund.
In starting a hedge fund you have 3 composants: marketing and funding ( G.C.S. can do this for you and you have to give them back some fees deducted from the Entry fees).
legal and accounting ( this is done by your prime broker unless you are very big and can hire people) and trading ( done by you
.Very few wants to deal with the first two aspects.
Not to afraid investor you do not have to announce 100% return .
For example in the Hedge fund i manage ( i created it with a friend) we announce a Performance Target: +20% net of fees per year.
And the performance fees is 30% above the performance target of 20% so everybody understand that the real target is far more than 20% ( kinf of trick)
You may want to check the April 2002 issue of Futures Magazine. There's an article on page 64 titled "What are asset allocators looking for?"
P2:
Another source of funding (which I don't think has been mentioned yet) are other hedge funds. It is common practice for a medium-large hedge fund to farm out chunks of their capital to start ups. I don't know how easy it would be to get in to see them but at least they would be able to provide some feedback and give you the lay of the land (even if they don't hand over some cash).
Another source of funding (which I don't think has been mentioned yet) are other hedge funds. It is common practice for a medium-large hedge fund to farm out chunks of their capital to start ups. I don't know how easy it would be to get in to see them but at least they would be able to provide some feedback and give you the lay of the land (even if they don't hand over some cash).
Spieler, Thankyou for the info. If you don't mind me asking, how did you get your funding? Did you have to pay a percentage for seed capital? What percentage is standard in the hedge industry?
Jim- I'll check that now. Thankyou.
Babak- I wish I had access to these fund managers. I however dont' know any of them personally. If you would like to give me an introduction to any of them, I'd really apprectiate it.
Jim- I'll check that now. Thankyou.
Babak- I wish I had access to these fund managers. I however dont' know any of them personally. If you would like to give me an introduction to any of them, I'd really apprectiate it.
No one in there right mind would invest with someone that said this:
?? but that does include a number of option positions that are now out of the money, that I show open losses on and have confidence in, and most importantly that includes about a 50k open loss that I show on 2 very small cap issues that I have very large open positions in????..but when I put these trades on I felt that they were free money type trades (and I still feel that way, and add almost all my gains to them weekly)????. I intend for these positions the be very much green by year end though, so I think that marking to market these losses is premature???I look at them as free call options on the future of 2 companies??., if either of these positions go up the few hundred (or thousand) percent that I would expect???? These are once in a lifetime opportunities and I wouldn't be able to reproduce results like what I anticipate for years to come. ???.. I am using my gains and continually plowing them into these 2 positions and you are correct that I am averaging down on both of them. I have no problem with averaging down though as long as the fundamentals of the companies do not change but instead the stock prices are dogged by sloppy sellers. Lower prices = better values"
This to me spells Disaster with a capital D. Your day trading looks very good, so why or why are you involved with this rubbish.
Are you in possession of fundamental information about these stocks that NO-ONE else does?
If not, remember that price often leads the future fundamentals.
?? but that does include a number of option positions that are now out of the money, that I show open losses on and have confidence in, and most importantly that includes about a 50k open loss that I show on 2 very small cap issues that I have very large open positions in????..but when I put these trades on I felt that they were free money type trades (and I still feel that way, and add almost all my gains to them weekly)????. I intend for these positions the be very much green by year end though, so I think that marking to market these losses is premature???I look at them as free call options on the future of 2 companies??., if either of these positions go up the few hundred (or thousand) percent that I would expect???? These are once in a lifetime opportunities and I wouldn't be able to reproduce results like what I anticipate for years to come. ???.. I am using my gains and continually plowing them into these 2 positions and you are correct that I am averaging down on both of them. I have no problem with averaging down though as long as the fundamentals of the companies do not change but instead the stock prices are dogged by sloppy sellers. Lower prices = better values"
This to me spells Disaster with a capital D. Your day trading looks very good, so why or why are you involved with this rubbish.
Are you in possession of fundamental information about these stocks that NO-ONE else does?
If not, remember that price often leads the future fundamentals.