For the 2000 and 2001, they are total and include all returns I have made. I only split up my account in sept of 2001 I believe. For 2002 it is more confusing. When I say I'm up 150% for this year, I am only talking about my much smaller trading account. It is kind of hard to calculate because of taxes and past expenses that I owed. I have mainly used my second larger account as a source of funds for taxes that I knew were due and bill paying and I barely even traded it. But I'll still include it in my calculations as it was capital available to me and I do now have some large positions in it. My father paid my estimated taxes in 2001, and in 2002 I have to pay what I still owed for 2001 and all my 2002 taxes which continue to reduce my funds. If you assume that I started 2002 at the account level that does not include what I owed the IRS above estimated for 2002 and some bills/expenses that I took out in the first 6 weeks of the year that had to be paid but I had put off. By the way I calculate it, and marked at market, I'm now up a mere 25% for the year as of 5/24, 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. I would never make about 40% of my account be only 2 positions in a hedge fund. I would never go over probably 5-6% per position, 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). It is just that the illiquidity and the size of the positions make it so that whereever the last trade of the day occurs usually affects my open p/l about 15k per day. Excluding these positions, and just including my short term trading activities, I'm up still over 100% for the year. I intend for these positions te be very much green by year end though, so I think that marking to market these losses is premature, especially b/c I would never let 2 positions be such a large percentage of someone else's funds. With my own funds however, I look at them as free call options on the future of 2 companies and better investments than cash/bonds or any other securities. I realize that these stipulations make for a very long and drawn out discussion of my current performance, and marking to market is ineffective, especially b/c a 2k buy in both stocks would bring my total returns for the year up about 15%. For this reason, if either of these positions go up the few hundred (or thousand) percent that I would expect, I would never include it in my yearly performance. 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 therefore think it's best to not include whatever results are achieved by these positions. So not marking the 2 of them to market or including them in my calculations, I get a performance of a little over 100% so far this year. I hope this makes sense to you.
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Funding a hedge fund...
- Thread starter praetorian2
- Start date
Babak, I appreciate your concern. I really have a lot to learn. I am going to buy a few books and really read up on the types of things I need to know. I have just reached the conclusion that I can't trade myself rich no matter how hard I try. I seem to constantly tread water. The combined forces, or trading expenses/ personal expenses/ and most importantly taxes, have really destroyed my accounts. I have lost nearly 75% of my total assets over the last 4 months to the twin forces of taxes and expenses. It is very difficult to compound at the rate that I am b/c the tax crunch is just so severe in % terms of my total assets b/c my estimated payments are so much below what my real payments should be. I'd much rather manage a larger account where I get a cut of it than to compound like I am and have the feds take so much of it.
It might be your answer. The one big advantage of institutional trading, even at a firm like Worldco is that compounding is irrelevant. Get yourself to a high class firm like First New York Securities. They will fund you, feed you capital as you grow and compounding will be the least of your worries. FNYS is recruiting still I believe. With a stellar track record, you should have little trouble getting in (my assumption of course). Then there are a few firms in Chicago and the like which are still looking for people. Hedge funds are great but having a big institution w/ tech support, accounting, funding all taken care of is nice too.
I was told that a lot of these firms wouldn't let me trade how and what I like. Many of them have stocks which they refuse to let people trade, or i'd be forced to trade them in 100 share increments. Many of these stocks are the ones I trade.
Worldco won't be happy with your style at all. They have a restricted list. But w/ experience and profits, all things are negotiable. FNYS is probably not as rigid. Investors in a hedge fund may come w/ certain restrictions as well (ie max drawdown in a month or a cutoff after a certain drawdown). It's just a matter of talking to the people in charge.
Originally posted by Gene Weissman
Just a note. We have discussed this topic in the forum in detail. In the current market environment, it's very hard to get funding for a hedge fund. Assume you do have a proven track record with a 200k account, could you get the same results with $2,000,000+ dollars or more? It's alot easier to trade 200k than $2,000,000. What strategies would you use. Even if you have a $2,000,000
hedge fund and you make a 30% return, assume your share would 20% of the net profit or (.2 X 600,000) $120,000. This is
not a bad payout, however a good stock trader trading his own account would make alot more with no regulatory headaches.
A startup hedge fund would cost between 15K-75K . You will also have the headaches of running a business and the possibility of
litigation with unhappy investors, should your fund not perform.
If I was a good trader, I would rather trade 200K and make
a good living for myself , than start a hedge fund. If anyone wants to start a hedge fund, I would suggest you work at a real one first and gain experience. Many successful hedge funds are started by traders that work at another hedge fund and go on their own.
Gene Weissman
Lieber & Weissman Sec., LLC
gweissman@stockltrade.net
Gene,
I would tend to agree totally. Having come from the institutional funds world, I think it doesn't even make sense to run a hedge fund unless you can raise at minimum - $20M And you can't be "comfortable" until you read probably $50-$100M. That's your management fees can barely cover your costs if you are under $50-$100M. That's only $500K-$1M for operating expenses. Hiring staff, accountants to aduit, lawyers, marketer, IT,etc.
Because the 1% plus 20% does add up much unless you produce some incredible returns.
Now, that I've done this prop trading thing I think it's a pretty good route if you plan to manage only a few million. But if you
want huge size then the hedge fund structure makes more sense.
There's no wrong or right way to go about this. It's all up to you and what you decide to do.
good luck!
trader99
I guess those fees do sound high but remember, when people hand over 15-20 mill to you they expect more backup than a couple of pc's in your parent's spare bedroom. You need a couple of traders or analysts, which means highly compensated MBA types, plus someone to answer the phone and do paperwork, plus someone to deal with investors. You think you can do all that yourself? You can, provided you are dealing with friends and family. You can't, or won't be allowed to, if you are expecting to attract large pools of professionally handled money.
.......By the way I calculate it, and marked at market, I'm now up a mere 25% for the year as of 5/24, 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. I would never make about 40% of my account be only 2 positions in a hedge fund. I would never go over probably 5-6% per position, 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). It is just that the illiquidity and the size of the positions make it so that whereever the last trade of the day occurs usually affects my open p/l about 15k per day. Excluding these positions, and just including my short term trading activities, I'm up still over 100% for the year. .........
I have to say I'm real confused by this, not that it really matters but seeing as how the discussion was opened up.
I have never calculated my account by excluding open positions that are underwater. I always take cash and equity value. Not sure what you mean by free trades either, it looks to me that you are taking short term trading profits and ploughing them into losing positions, which is averaging down the price of the original purchase.
I have never run a hedge fund but know a few people who do run small funds and they say that their investors are all of them, wanting to know allocation, risk, hedging, drawdown etc. The slightest whiff of any excess risk and they pull their funds. They don't want to be last one in if the fund can't meet a everyone pulling out at once.
Let's say that you open the fund with 500k of your own money and draw investors of 10M. Based on returning 50-100% you are going to have to assume a greater risk than could be met by positive allocation of your own funds. So if you have a few losses and drawdown of 5% you are already under 10M. If you are exposed with a large number of open positions that are unhedged then you might have total fund risk of several million.
Sounds like a heap a hassle to me.
The premise is that life will be easier managing OPM than working your own capital and compounding it at 300% pa. Not sure but I would love to know if you go ahead and do it.
Good luck.
Cheers
Mike
I have to say I'm real confused by this, not that it really matters but seeing as how the discussion was opened up.
I have never calculated my account by excluding open positions that are underwater. I always take cash and equity value. Not sure what you mean by free trades either, it looks to me that you are taking short term trading profits and ploughing them into losing positions, which is averaging down the price of the original purchase.
I have never run a hedge fund but know a few people who do run small funds and they say that their investors are all of them, wanting to know allocation, risk, hedging, drawdown etc. The slightest whiff of any excess risk and they pull their funds. They don't want to be last one in if the fund can't meet a everyone pulling out at once.
Let's say that you open the fund with 500k of your own money and draw investors of 10M. Based on returning 50-100% you are going to have to assume a greater risk than could be met by positive allocation of your own funds. So if you have a few losses and drawdown of 5% you are already under 10M. If you are exposed with a large number of open positions that are unhedged then you might have total fund risk of several million.
Sounds like a heap a hassle to me.
The premise is that life will be easier managing OPM than working your own capital and compounding it at 300% pa. Not sure but I would love to know if you go ahead and do it.
Good luck.
Cheers
Mike
Originally posted by praetorian2
I have a quick question about hedge funds. If someone asks me
"what percentage of the management company's equity are you willing to share with the seed investor (assuming you receive the maximum amount of capital sought and the most favorable terms)?
What does this mean. Does this mean giving a percentage of a management fee to the provider of seed capital, or does it refer to what % of the fund's assets (and future assets) the seed investor can control?
I've started and run a couple of technology startups. Here is my advice on seed capital and giving an equity stake to early investors: IF these are good investors (ie Goldman Sachs, some well known money manager etc.) you should not hesitate to give them a sizable chunk of your company. Even in the range of 25% to 50% (depending on the deal details, obviously). Their contacts will more than make up for any loss of equity you have.
You, as an individual, will very likely not be able to get in front of the "big money" on your own, but with a phone call or two from someone with a good reputation - all doors open.
entrepreneurs (me included) hate giving away equity. Often, though, it's the best deal you'll make.