Growing AUM with "first loss" funds

Hello B,

Thanks for sharing your insights here.

I do not think the issue has to do with the amount you invest, but the structure.

A structure in which you assume no losses, with no guarantee of you providing the manager with any future capital, I think is grossly unfair to the manager.

There are various structures of "seed" deals in which risk to the "seed capital" provider can be contained and minimized by the seed investor while providing incentives or preferred terms to the seed investor. Your structure does NOT do that. Your structure on the other hand, seeks to assume zero risk in exchange for levered, scared, unstable "capital" that can be pulled at once. You then throw in the "bonus" of the future "assurance" that more capital will be provided in the near future.

Unless, I am missing something, I absolutely do not see the incentive to ANY manager, in your structure.


Quote from bborgia:

Yeah I won't reveal your real name...it was good talking to you. There are some real good points on this thread. I do concur that if the manager/trader is looking for less than 10MM then our structure makes little sense - for them and us - I am more looking for managers that I can leg 25,50,100MM to over the course of 12-18 months. As such I have not done business with too many "prop" guys becuase they typically do not need much capital. That said - I really like prop guys becuase they usually are "eat what they kill" type guys...and when they find strategies they need more capital for I am usually a willing provider.

Anyhow - appreciate the referals....and nice to know this website exists, as I didn't know it till this AM.

B
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Quote from heech:

I just had a bit of a "duh" moment. I could achieve exactly the same desired outcome just by opening a managed account for myself with a total of $15mm, and just notionally fund 10%. (In reality, probably 20%.)

I could then claim, with all accuracy and legality, $10-15mm in AUM.
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how does this work? what do you need to do to claim that you manage $10-15 million when you've only funded 10% of that?
 
Quote from bidask:

how does this work? what do you need to do to claim that you manage $10-15 million when you've only funded 10% of that?
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Be a good liar or be deluded. Either way works.
 
Quote from bidask:

how does this work? what do you need to do to claim that you manage $10-15 million when you've only funded 10% of that?
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Please see:

http://www.nfa.futures.org/NFA-faqs...losure-documents/what-are-notional-funds.HTML

And:

http://www.nfa.futures.org/news/newsComment.asp?ArticleID=306

NFA's proposal is based on the premise that all similarly traded accounts should have the same ROR, regardless of the amount of funds on deposit with the FCM. ROR should accurately reflect the results of the CTA's trading decisions over time, not the clients' differing cash management strategies. Using actual funds on deposit as the denominator in the ROR calculation distorts performance by overstating both positive and negative returns. It also exaggerates the volatility of the trading program. NFA's proposal, on the other hand, calculates ROR using the amount the CTA bases its trading decisions on as the denominator, thereby reflecting the CTA's actual performance.
 
Quote from CPTrader:

Hello B,

Thanks for sharing your insights here.

I do not think the issue has to do with the amount you invest, but the structure.

A structure in which you assume no losses, with no guarantee of you providing the manager with any future capital, I think is grossly unfair to the manager.

There are various structures of "seed" deals in which risk to the "seed capital" provider can be contained and minimized by the seed investor while providing incentives or preferred terms to the seed investor. Your structure does NOT do that. Your structure on the other hand, seeks to assume zero risk in exchange for levered, scared, unstable "capital" that can be pulled at once. You then throw in the "bonus" of the future "assurance" that more capital will be provided in the near future.

Unless, I am missing something, I absolutely do not see the incentive to ANY manager, in your structure.
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I think what you are missing is the context. I agree that the various seed deals you are referring to have some distinct advantages, but the biggest disadvantage is scarcity. Seeders are few and far between, and even the ones who do seed managers will only close deals on 1% of the managers they speak to.

Seeders typically back elite managers coming from a top grade pedigree and spinning out of the blue-chip multi-strats or I-banks. If you fit this profile then you could potentially be a seeding candidate, if not then there is no reason to not reasonably consider all available options.
 
I think any statement of "fairness" doesn't belong in conversations like this. It's a trade, period. If you have someone else ready to give you up to $20 mm with 10x1 leverage with no other conditions, then take it. (I question whether Bright et al backs traders that large, and whether primes back traders that small.)

Otherwise, if you want the juice, then you pay for it. Market decides whats fair and what's not.
 
Can I ask for some clarification...?

Both Bright and Topwater seem to be offering leverage - the difference as I understand it is that with Bright, one cannot say they have an AUM of $20M (to pave the way for further inflows), but with Topwater, one can, as it is in cash...

Is that accurate...?
 
The first question is, does Bright back traders up to $20 mil? And is that regardless of what you're trading and holding overnight? In addition to equities... Fx, futures, options, debt foreign and domestic?
 
Quote from heech:

The first question is, does Bright back traders up to $20 mil? And is that regardless of what you're trading and holding overnight? In addition to equities... Fx, futures, options, debt foreign and domestic?
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No, I assure Bright does not back traders. You might be able to get one million in overnight bp with 100k in your account but it has to be completely hedged. No way on earth would he allow someone to hold 20 million overnight.
 
LeeD said:
Regarding just getting 10x leverage, ask your prime broker and a few others. If prime brokers wouldn't give 10x leverage, I can't see why anyone else would...
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Curious.

Do prime brokers provide additional leverage? Other than what is provided by say the general margining rules (SPAN for example).

-gariki
 
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