Hedge Fund New Money Troubles

[Ripley]

New money coming into my fund is negatively affecting my fund performance.

This is so because if I'm holding onto a stock at an average price of $20, and when the new money is coming in, the stock maybe worth $25, and I would have to add more of that share at a higher price. Or on a profitable short position, I would be adding more onto a profitable position at a lower price.

How can I keep my performance up while adding new money coming into the fund. Any thoughts or ideas on this would be greatly appreciated.

 

[RCG Trader]

Quote from Ripley:

New money coming into my fund is negatively affecting my fund performance.

This is so because if I'm holding onto a stock at an average price of $20, and when the new money is coming in, the stock maybe worth $25, and I would have to add more of that share at a higher price. Or on a profitable short position, I would be adding more onto a profitable position at a lower price.

How can I keep my performance up while adding new money coming into the fund. Any thoughts or ideas on this would be greatly appreciated.

I would guess you would not consider the new money in the old month, for example, positions deployed after May1 was done with a certain balance in place. Money that comes in thru May would not be deployed until June, so that you have a static number to determine % ROI. That would be how I would do it, being the piker that I am

 

[Ripley]

Quote from RCG Trader:

I would guess you would not consider the new money in the old month, for example, positions deployed after May1 was done with a certain balance in place. Money that comes in thru May would not be deployed until June, so that you have a static number to determine % ROI. That would be how I would do it, being the piker that I am

This is what I'm doing currently. Since positions are held for longer than a month, it still affects the performance negatively. This is a complicated issue with no easy answer. It doesn't matter when you add new money into the fund, it has a negative affect on the fund since your break even point on each security is affected.

 

[SamGold]

The solution is trivial: One client per fund/account. If they don't have enough money, then you shouldn't be taking their money to manage it.

 

[Ripley]

Quote from SamGold:

The solution is trivial: One client per fund/account. If they don't have enough money, then you shouldn't be taking their money to manage it.

Then its not a hedge fund, but rather a financial advisor managing money for individual clients.

 

[oldtime]

that's the beauty of a closed end fund. Putting money in at the top, you should have it so bad, but wait until they all want out at the bottom when you have finally built up a decent position at a good price

If someone wants out, you or one of your investors will buy their shares (at a discount) and if someone wants in, you or one of your investors will sell shares (at a premium.)

And all you have to do is trade the account

 

[oldtime]

Quote from oldtime:

that's the beauty of a closed end fund. Putting money in at the top, you should have it so bad, but wait until they all want out at the bottom when you have finally built up a decent position at a good price

If someone wants out, you or one of your investors will buy their shares (at a discount) and if someone wants in, you or one of your investors will sell shares (at a premium.)

And all you have to do is trade the account

usually these are set up as LP's with a max of 50 partners. If someone wants in you can put them on a waiting list. In almost every case some partner will be going through a divorce and want out.

 

[SamGold]

Quote from Ripley:

Then its not a hedge fund, but rather a financial advisor managing money for individual clients.

Semantics. Some individual clients are bigger than the average hedge fund. Why trade for paupers and do their accounting?. Unless, of course, you are incompetent, which is the norm.

 

[darkhorse]

Quote from Ripley:

New money coming into my fund is negatively affecting my fund performance.

This is so because if I'm holding onto a stock at an average price of $20, and when the new money is coming in, the stock maybe worth $25, and I would have to add more of that share at a higher price. Or on a profitable short position, I would be adding more onto a profitable position at a lower price.

How can I keep my performance up while adding new money coming into the fund. Any thoughts or ideas on this would be greatly appreciated.

This doesn't sound like a legitimate issue. It sounds more like a hypothetical complaint that is another way of saying you've run out of ideas.

If you don't have any ideas that are worth putting money into in the present, i.e. names that haven't yet run up to your price or valuation targets, then you probably shouldn't be accepting new money.

I find it hard to believe you have taken all the steps to actually test your methodology, confirm the validation of your methodology, and then go to the trouble and expense of setting up a fully functional fund that is accepting outside capital, without having thought about this previously.

As a general rule, trading funds have enough turnover that new capital may raise the cash balance for a short period, but will quickly enough find its way into new trades; investment funds, meanwhile, should have a roster of long and short ideas that are still within actionable range, i.e. have not run to levels where entry is no longer desirable.

But again, this concept is so basic, so fundamental to the issues of running money, that asking about it makes you sound like an alleged pro race car driver who wants braking and acceleration tips.

 

[oldtime]

Quote from darkhorse:

This doesn't sound like a legitimate issue. It sounds more like a hypothetical complaint that is another way of saying you've run out of trading ideas.

If you don't have any ideas that are worth putting money into in the present, i.e. names that haven't yet run up to your price or valuation targets, then you probably shouldn't be accepting new money.

I find it hard to believe you have taken all the steps to actually test your methodology, confirm the validation of your methodology, and then go to the trouble and expense of setting up a fully functional fund that is accepting outside capital, without having thought about this previously.

As a general rule, trading funds have enough turnover that new capital may raise the cash balance for a short period, but will quickly enough find its way into new trades; investment funds, meanwhile, should have a roster of long and short ideas that are still within actionable range, i.e. have not run to levels where entry is no longer desirable.

But again, this concept is so basic, so fundamental to the issues of running money, that asking about it makes you sound like an alleged pro race car driver who wants braking and acceleration tips.

don't be such a spoil sport. It's Sunday and we are all just dreaming. Some about the past, some about the future.