How big and long does a track record account need to be in order to be taken seriously?

[Al_Bundy]

Yes, that does matter. Around here you'll see a ton of quotes about how "trading $1MM is the same as trading $100MM", or "$10K is no different than $1MM, it's just bigger trade size". That is absolutely untrue, and almost every capital allocator out there knows it.

If your account is only $10K, you're gonna have a tough time for several reasons.

1) There are hundreds of jokers claiming 100% annual returns on a $10K account. They are completely unable to scale it, both mechanically and mentally.

2) If you're getting such good returns, why do you only have $10K?

3) You don't have any serious skin in the game. The worst that can happen to you is that you lose $10K, while you're clients are risking millions.

If you wanna be taken seriously, you'd better at least have $100K (preferably closer to $400-500K) of your own capital at risk along side your investors. If that seems daunting, you just aren't ready to manage OPM yet. Allocators don't want to send money to some joker who thinks $100K is a lot of money. You need to be able to trade millions without giving it a second thought. If you can't pull that money together, the only way to speed it up is to take on a partner who has it and is willing to risk it. Obviously, he'll be taking a large portion of the company too. Also, the trading system becomes property of the company.

How about this guy, he doesn't have any track record at all ? http://wealthwithforex.com/andrew-mitchem/
all he has is talk. Just by looking at his face and the prices he charges for his 'educational' services ($20k for a day ? Are you out of your f@cking mind ? ) I can tell this guy is a cheat. Yet, I'm kinda certain there are enough fools falling for his managed accounts pitch.

 

[Butterfly]

At 3-4 years audited history and $10MM AUM, you'll be taken seriously by most family offices and high net worths.

Institutions (banks, endowments, pensions, etc.) won't even consider you until close to 5 years audited history and $20MM AUM.

You are being very optimistic, even with $100M AUM and a 10 yr history of strong performance, it's very unlikely you will find interested parties in Family Office, Pension Funds or even HNW individuals.

The Fund Sponsor industry is much more complex than simply looking at performance numbers and audited accounts. I know a few "Fund managers" with $200 AUM and spectacular performance and it's very hard for them to raise money. It's all about marketing and who you know. Even with good numbers, the Fund Sponsors will look at other risk criteria (strategy logic, deviance from Benchmark etc...) and turn you down. You will need special "agents" to promote your fund, and they can be very expensive, taking half of your fees and sometimes more.

Just my 2c from experience,

 

[Epic]

You are being very optimistic, even with $100M AUM and a 10 yr history of strong performance, it's very unlikely you will find interested parties in Family Office, Pension Funds or even HNW individuals.

The Fund Sponsor industry is much more complex than simply looking at performance numbers and audited accounts. I know a few "Fund managers" with $200 AUM and spectacular performance and it's very hard for them to raise money. It's all about marketing and who you know. Even with good numbers, the Fund Sponsors will look at other risk criteria (strategy logic, deviance from Benchmark etc...) and turn you down. You will need special "agents" to promote your fund, and they can be very expensive, taking half of your fees and sometimes more.

Just my 2c from experience,

I think your experience mainly applies to the highly saturated spaces. Sure, if you go out there selling a long/short equity fund, you are gonna have difficulties. Tons of competition in that space. Difficult to stand out. Regardless of performance and size, there must be a differentiating factor.

You are correct that before making an allocation they are going to examine all aspects of the strategy including risk measures. I never said it would be easy to raise money at those levels. I just said he would be taken seriously. Being taken seriously gets you in the door and in front of the right people. High level performance, strategy basics, and infrastructure are covered during that first meeting. You know that you're seriously considered when they initiate due diligence follow-up. The big allocators have a team for this. At the smaller FOs the managers do it themselves or hire a third party.

At that point you've got to have standout numbers. It used to be that low equity correlation and decent performance was good enough. Not anymore. To have the best shot, you really need;

• near zero correlation to all other asset classes
• unique analysis and trade selection processes
  
• low downside vol
  
• fast recovery periods
• annualized returns at least double the max drawdown
• around 20% annualized returns
• low margin usage

Even better if you have an uncommon strategy in a liquid niche market and you can explain the technicalities in a very concise and impressive manner.

Hiring agents and marketers is common, but I've never seen one that takes 1/2 the fees. Industry standard is 20% of both management and incentive fees. Some charge a retainer, but that is less common. I once had a group try to pitch me on a 40% fee split because they thought I was new and would go for it. They backed off quick when I laughed.

 

[Epic]

How about this guy, he doesn't have any track record at all ? http://wealthwithforex.com/andrew-mitchem/
all he has is talk. Just by looking at his face and the prices he charges for his 'educational' services ($20k for a day ? Are you out of your f@cking mind ? ) I can tell this guy is a cheat. Yet, I'm kinda certain there are enough fools falling for his managed accounts pitch.

How do you know he doesn't have a track record? Did you request it in an email. By and large, managed accounts cannot post performance on public websites, but he claims to have it available for anyone who requests it.

Anyway, without the performance and infrastructure, he might land a few low end HNWs who otherwise would be trying to trade their own accounts. He's not gonna close many deals with legit allocators. That's why he offers educational services. Those services are targeted at the $200K to $1MM net worth crowd. That wouldn't be worth his time if he were managing a decent book for legit clients.

 

[Al_Bundy]

I didn't ask, but know someone who did. She received a .jpeg with a few profitable trades closed. Couldn't even make out if the account was trading real money. )

 

[jack hershey]

I don't really have to get into it with you Jack. It really has nothing to do with whether or not your trading was legal or profitable. It is obvious that your fundraising claims are very dislocated from reality. I'm sure it seems very realistic to everyone here that there are sophisticated managers sitting on expert panels at the conferences jumping at the chance to make a $20MM hard money loan to some completely unknown trader without conducting any diligence. That is what you are suggesting, not anything related to managed accounts. Managed accounts are discretionary advisory accounts where the managing trader has power of attorney only in placing trades and charging a fee to do so. There is no taking custody of capital, or guarantee of income. The fees are stated up front and all other profits are retained by the investor.

You are suggesting that the OP, who evidently would have difficulty coming up with $10K to trade in a personal account, try to go get a $10MM hard money loan without providing any history on himself or the trading methodology. Instead you are suggesting that all he needs to do is look smart as an attendee at a conference and ask intelligent questions. Even if he could manage to figure out a way to legally contract the hard money loan, the allocator could be sued for negligence if things went bad. Taking commingled client capital and making zero doc hard money loans with it is just asking for a law suit.

Even better if the OP were to make a few of these deals. Then as he hit a slow period and was unable to generate enough trading profits to make the guaranteed minimum he could start using the commingled principal to make the minimum profit distributions. Wait, I think there might already be name for that kind of situation!

Let's get back to reality here. To the OP, you are literally NEVER going to attend a conference in your situation and walk away with any kind of big investor without lying to them. The old days of completely opaque private funds are long gone. The regulators require greater disclosure now, even for exempt funds, and virtually every legitimate investor or allocator has a pretty extensive due diligence process. There are exemptions from registration and disclosure, but they don't exempt you from the anti fraud provisions of the investment acts. So even a 3c7 exempt manager still cannot mislead investors. Anyone who says otherwise is completely unfamiliar with modern regulations.

I am sorry I was unable to communicate to you with sufficient detail. What I said may have appeared to be a loan as you read it.

the gist of people offering money to be traded is simply in the domain of how people with money strive to put it to work. They generally have limited expectations and they see a range of traders who have various performance levels. The basic negotiation between the two parties is to reach a mutual level that involves the variables I mentioned. Personally, I would never expect the capital provider to ever consider losing control of his capital at any time.

I'm glad you brought up some of the protections offered by NFA, etc. Thank you.

My orientation was to just point out how people with capital as a commodity go about connecting to traders who are willing to trade OPM. The FI sets performance rates as low as possible; therefore any other traders can take advantage of this poor level of performance as compared to the actual full offer of the market.

since some of you do research on names and places and activity, you could find at least a dozen names of traders I have mentioned who do lay off capital to other traders. By researching these guys, you can see the range of variations on how they have negotiated such relationships.

 

[Epic]

I didn't ask, but know someone who did. She received a .jpeg with a few profitable trades closed. Couldn't even make out if the account was trading real money. )

What you're describing is not at all compliant with the regs. He'd better not invite too much exposure.

 

[Al_Bundy]

By and large, managed accounts cannot post performance on public websites,

I like Salem Abraham, he's very transparent. There doesn't seem to be a law against posting performance - although with how crazy the regulators in the US are, one never knows.

 

[Sergio77]

To be taken seriously by institutions you must trade > 50M and have 5 years of record.

 

[jack hershey]

To be taken seriously by institutions you must trade > 50M and have 5 years of record.

This belief is very important. It is the main negotiating advantage that traders have. A trader uses these performance characteristics to gain negotiating advantage. The low performance of other trading organizations with 50M AUM and five years of existence has become a FI "standard". Traders have performance which is compared to the market's offer instead..

The amount of ROI on the table for negotiating is the difference between the low performance and the market's offer.

Allocators spread most money around at this low performance level.

Here is an example from Greenwich, Conn.

I wanted to trade stocks. The Fairfield County Bank and Trust Co. said "okay" we will put the stock in street name and you can trade it. Keep the stock at 100% of your debt and pay interest only.

I concluded the deal in 24 months by converting the stock to cash and FCB&T took out the principal and wrote me a check for the residue. The check was larger than the principal.

To trade for an allocator is not difficult. The allocator is like the bank. He wants interest or something equivalent. He expects to get the going rate. Fill in the rate and the payment schedule. The capital involved is just always available. In a trading account it is called BP. What is traded is the BP in an instrument from in a specific market. When the allocator wants his capital back he says so. He gets cash at that time and he has his rate payments along the way.

Look at a market performance and the allocator's rate. Here, a person mentioned the value of 40%. He laughed at the value and broke the negotiations. A trader looks at 40% and compares it to the market's performance and his operating effectiveness and efficiency.

Go from the opening entry to the place where a portion of 40% occurs. In ES about 20 points doubles capital. Therefore, 2 points would be about 10% of the way.

The allocator is looking for 40% a year payable in quarterly installments probably. After the open the market creates an ATR. The trader is going to trade a multiple of the ATR as RTH unfolds.

As days pass (once every 90 days) the payments are made. The allocator can end the arrangement any time. To do so he closes the account, keeps the initial capital, makes sure the payment rate is met and then he writes a check to the trader as the trader's residue.

As the trader in the deal, my preference is to allow the allocator's profits to be put in play whereby he gets the rate on the profits as well. I do not ever want to pull my earnings since I do better by letting them ride.

Traders who are growing their operations, do not have to do much additional work as they grow. It is a parallel growth process. As is known, an MAT operation has one lead account and all other accounts are slaves attached electronically. The partial fills in each account ripple down whereby the fills come from the order book limit orders facing the market orders of the MAT accounts. The prints I post occasionally are only for the "master account" and do not include the slave account fills.

One of the facets of my trading is to track when I get to the annual ROI of the mystical 2 and 20 of the FI. 2 and 20 is what corps in the FI want to make in a year. the rest is what they give clients. I deal to give clients what they want and I can keep the rest. Instead of keeping anything, I just let the clients have it so they can better solve local problems.