hedge fund question

[dumbgai]

Please remove this post if it belongs in another forum.

The question is, what kind of performance is generally good enough to attract capital for someone looking to start a hedge fund.
Of course, this depends on many things, but let's say a person manages to return 100%+ per year over a period of 4 years, trading his 7 to 8 digit personal account, with his worst year being say 85% and no more than a 20% drawdown over the 4 years time... with that being his only history, would these numbers be "a sure thing" to attract large amounts of money. Assume these results are scalable up to 50 million, with results definitely suffering (but no more than a 50% cut in return) if more capital is used up to say 1 billion.

In this case, would it be better to limit the fund to a max of 50 million, or let in more money, and have a lower return.

 

[nonlinear5]

Quote from dumbgai:

let's say a person manages to return 100%+ per year over a period of 4 years, trading his 7 to 8 digit personal account, with his worst year being say 85% and no more than a 20% drawdown over the 4 years time

Even if you can deliver an average return of "only" 50% every year over a significant period of time (let's say the last 10 years) with relatively low drawdowns (let's say 10%), the entire world would beg you to manage their money. You would be more famous than George Soros, Warren Buffet, and Britney Spears combined. Your picture would be on the "Person of the Year" edition of Time magazine.

To put things in perspective, take a look at the performance of the Medallion Fund, which is probably #1 in terms of long term performance and consistency among the many thousands of hedge funds: http://en.wikipedia.org/wiki/Renaissance_Technologies

What's Medallion Fund performance? About 35% annually since 1989. And it's reportedly down year to date.

 

[HedgefundTrader2]

Quote from nonlinear5:

Even if you can deliver an average return of "only" 50% every year over a significant period of time (let's say the last 10 years) with relatively low drawdowns (let's say 10%), the entire world would beg you to manage their money. You would be more famous than George Soros, Warren Buffet, and Britney Spears combined. Your picture would be on the "Person of the Year" edition of Time magazine.

To put things in perspective, take a look at the performance of the Medallion Fund, which is probably #1 in terms of long term performance and consistency among the many thousands of hedge funds: http://en.wikipedia.org/wiki/Renaissance_Technologies

What's Medallion Fund performance? About 35% annually since 1989. And it's reportedly down year to date.

I just calculated my 2007 yearly returns since Jan 1, 2007 at 112% . Would I qualify ?

Best months Sept, Oct, Dec 2007. Worst months July, August and November with a loss in August trading SPX condors.

 

[tommo]

these are great returns but it depends what you are trading because you might not be able to use your current strategy with a huge increase in size. It has to be scalable. If you have turned $100,000 into $200,000 scalping 5 lots in the mini dow then thats fantastic, but try doing it with a 500 lot. This is why a lot of funds (not all) use longer term strategies because they are far more scalable

 

[BJL]

Quote from dumbgai:


Of course, this depends on many things, but let's say a person manages to return 100%+ per year over a period of 4 years, trading his 7 to 8 digit personal account, with his worst year being say 85% and no more than a 20% drawdown over the 4 years time... with that being his only history, would these numbers be "a sure thing" to attract large amounts of money.

Why would a person who earns 100%+ comfortably on his own 8 digit account want to attract outside money, especially if performance would halve?

 

[timcar]

quote from BJL
Why would a person who earns 100%+ comfortably on his own 8 digit account want to attract outside money, especially if performance would halve?

Above quote is 100% true. If somehow a trader can earn 100% a year this is amazing. If trader can earn 100% for 2 or 3 years he goes into Trader Hall of Fame.

Most traders hope for 30 to 40% a year.