I think the fact that it is exempt from regulation and most investment company and 33 Act requirements gives it greater flexibility in charging management/performance fees and such.
How to compensate referrals?
- Thread starter mahras2
- Start date
Surf, it's the best to my knowledge that in order to raise money for a fund it has to be through an Introducing Broker (IB). These people are registered as IB's through the NASD. This is a very very dangerous area as has been pointed out on this thread. If you lose your clients money, a sharp lawyer will come after you for any i's you didn't dot and t's you didn't cross. That's their job.
I also find it funny that people on ET think that their Aunt Betsy can raise funds for them. I believe however the loophole in the law does not pertain to family members or close relatives. So if your father talks your uncle into putting money into your fund, you are safe. I think this also applies with your spouse and in-laws.
I'm waiting for your neighbor Mr. Morgan to invest in my fund too.
Or should I say, his wife, Mrs. Morgan. I'm glad she could at least help you out.
thanks, maverick.
as you know, there are tons of investment bankers and ex sales people who introduce money to hedge funds. they are certainly not broker dealers, and i can't imagine them even being IB's.
if capital referer did not make any representations about performance outside of the actual documents, i don't see what they could be held liable for in the event of loss. remember, we are dealing with sophisticated investors per the guidelines.
it seems to me that there is a fundamental confusion between introducing money to a private partnership and raising money for mutual funds, et al. .
best,
surfer
How much do you charge for correct punctuation?
rm+
look....if you run your own fund and have a good track record...investors will line up at your door asking to get in, there is no shortage...forget these leaches...
)) ... incredible the kind of b/s we have to sit thru from no-value-adding asset gatherers sometimes.... agree with the first few lines tho'...market surfer,
The only confusion on this board is coming from you. You absolutely cannot pay a fee to anyone for raising money for your hedge fund unless they are a registered broker dealer (without extreme liability of course). You can pay a few K to present at a conference, roundtable, etc or you can go to dinners with your high powered law firm/ cpa firm / prime broker, etc who put on dinners with clients just so they can meet/find capital (but they don't charge you a fee). You are absolutely dead wrong on this one. Does it happen, of course and the reason....because some people are desperate to raise money and will do anything even if it is illegal and causes them great personal liability (hey no one is getting hurt right).
The only confusion on this board is coming from you. You absolutely cannot pay a fee to anyone for raising money for your hedge fund unless they are a registered broker dealer (without extreme liability of course). You can pay a few K to present at a conference, roundtable, etc or you can go to dinners with your high powered law firm/ cpa firm / prime broker, etc who put on dinners with clients just so they can meet/find capital (but they don't charge you a fee). You are absolutely dead wrong on this one. Does it happen, of course and the reason....because some people are desperate to raise money and will do anything even if it is illegal and causes them great personal liability (hey no one is getting hurt right).
It amazes me how people who are unqualified and inexperienced are the first to offer their opinions on forums like these.
so, to address a few points-
yes, you do have to pay a marketer through a broker dealer to raise capital for a hedge fund.
yes, industry standard is 20% of a manager's fees- that is both the management and incentive fees- and that is for a manager charging a typical 2 and 20. for a fund of funds charging a 1 and 10, we're talking about 40% of fees to be comparable- thus why most 3PMs do not like to work with FOF products.
no, raising money is not easy- in fact this past year has been one of the toughest in the past 8 years- as money has poured out of hedge funds into private equity
for those who think that they can just start a fund and money will flock to them- they are seriously deluding themselves. unless you have a phenomenal track record of managing assets for a large institution- and an amazing pedigree- think every certification/license you could possibly need, coupled with an advanced degree from a top tier school- it will be a long and slow road. you will need to put a track record together under a fund structure, which takes a long time- and during that time, you will not be earning much money.
I have been in the industry a while and most people will not look at managers with a track record under a year. Institutions usually will not look at a fund under 100 M AUM and under a 3 yr track record.
there are some investors who will look at emerging managers, but a generalization is that it is more the high net worth crowd- which correlates into lower allocation sizes.
regarding fees, fund managers do not realize the amount of work that a third party marketer must do to bring even one truly interested lead to them. it's a lot of ground work, calling around, drumming up interest- then putting the fund manager in touch with an investor that the 3pm has qualified- and gotten interested in the fund. 20% is not that much, especially for some of these funds that only have 10-20 M in assets..... the value that a 3PM brings to the table is they have relationships with the people who control billions of dollars. as you know, under SEC law, hedge funds or their representatives cannot just cold call investors, nor could they find the kind of people that I know....
The alternative for managers who are averse to paying 3pm fees is to populate the major databases, but this is obviously a much more passive approach- and you had better be in the top 10% of funds in your strategy or forget about it....
so, to address a few points-
yes, you do have to pay a marketer through a broker dealer to raise capital for a hedge fund.
yes, industry standard is 20% of a manager's fees- that is both the management and incentive fees- and that is for a manager charging a typical 2 and 20. for a fund of funds charging a 1 and 10, we're talking about 40% of fees to be comparable- thus why most 3PMs do not like to work with FOF products.
no, raising money is not easy- in fact this past year has been one of the toughest in the past 8 years- as money has poured out of hedge funds into private equity
for those who think that they can just start a fund and money will flock to them- they are seriously deluding themselves. unless you have a phenomenal track record of managing assets for a large institution- and an amazing pedigree- think every certification/license you could possibly need, coupled with an advanced degree from a top tier school- it will be a long and slow road. you will need to put a track record together under a fund structure, which takes a long time- and during that time, you will not be earning much money.
I have been in the industry a while and most people will not look at managers with a track record under a year. Institutions usually will not look at a fund under 100 M AUM and under a 3 yr track record.
there are some investors who will look at emerging managers, but a generalization is that it is more the high net worth crowd- which correlates into lower allocation sizes.
regarding fees, fund managers do not realize the amount of work that a third party marketer must do to bring even one truly interested lead to them. it's a lot of ground work, calling around, drumming up interest- then putting the fund manager in touch with an investor that the 3pm has qualified- and gotten interested in the fund. 20% is not that much, especially for some of these funds that only have 10-20 M in assets..... the value that a 3PM brings to the table is they have relationships with the people who control billions of dollars. as you know, under SEC law, hedge funds or their representatives cannot just cold call investors, nor could they find the kind of people that I know....
The alternative for managers who are averse to paying 3pm fees is to populate the major databases, but this is obviously a much more passive approach- and you had better be in the top 10% of funds in your strategy or forget about it....