How to establish formal track record?

I think you'll just have to hire a third party/independent accountant -- so whichever one you can negotiate with to verify your statements etc. at the lowest rate. At this stage that's probably all you need...
 
Quote from ktm:

One consideration to keep in mind with a HF vs. CTA/CPO structure is regulation. While registering as a CFTC/NFA regulated entity is easier, if you deal in anything regulated as a security you may fall into SEC required registration as an RIA and be subject to ADV filings - or state filings.
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KTM is right about this -- and I believe (although this should not be construed as legal advice) if you are under $25 MM in assets you CANNOT register with the SEC as an advisor -- in other words, funds/pools trading securities with less than $25 MM are exempt from registration. I believe the threshhold is something like $25 MM + 15 clients (or is it 10?). There are also state specific laws -- I know that California is one of the more strict states, and may require registration prior to the SEC registration.
 
Unfortunately, with hedge funds, you cannot use any prior track record from a prior fund or personal trading (even if audited). So if you are a famous fund manager you will raise all you want off your reputation because everyone is aware of the returns you have generated in the past, but you still cannot use them to market your new fund. So if you are a famous prop trader I imagine it would work the same way, with less capital. As far as an audit goes, the minimum from a top name firm is 30K, usually per year. It is so expensive because of their liability supposedly. But it would be a waste of time anyhow since no one (institutional) really gives a shit about a track record with less than 40M, and wouldn't even look at a fund with less than that, even the FoF looking to invest in small time start ups don't look under 10M. So the first many millions are all up to you impressing people you know enough to contribute and building a track record in the fund. The problem with start-ups that have little capital is the expenses of audit/tax/legal. But even then if your fund lays down an audited track record that is a better risk/reward than 90% of hedge funds then your fund will grow nicely over time. If you don't know anybody then the only way to get noticed is to perform better than everybody. That is not easy to do.
 
Though I'm not a new yorker, I spoke with a New York based money manager / advisor and there is registration in most states and nationally. If you solicit clients in certain states, you have to register and may be audited, regardless of the $25 million fence that exists nationally. You can get around it by getting clients out of state by setting the minimum account at $500k ( to make registration in that state worthwhile) as this manager / advisor does. Most of these advisory firms are fundamentalist traders, not short-term traders common on EliteTrader. So the whole strategy advisors use wouldnt appeal to the trading crowd. Like dealing with people questioning every position you have when they look at their statement or account online every month.
 
Many states require registration if you are under 25M. MyDemaray is correct that you cannot register with the SEC with less then 25M but MUST register once you have 30M. In most cases, SEC registration precludes the need for state registration. The point being that someone is able to look at you. All of this applies only to those dealing securities, not commodities. From my research, most states leave commodity dealing to the CFTC/NFA. Disclaimer: These are just my findings from my research and I'm not qualified to give professional advice on these matters.
 
In case I was vague. It would be a waste of time/money to have your personal trading audited by a top CPA firm, because it couldn't be used to market your fund anyhow. However, as someone just mentioned, it is absolutely imperative to have a well known firm audit your fund, which is one of the reasons starting a very small fund is cost prohibitive.
 
Quote from jerryz:

Thanks for the input. When you say it's not too expensive to start a fund, what is the cost that you have in mind? I've heard of places that offer low cost HF formation docs, but I hear different reviews about the quality of the service. I've also heard that institutions will not take your documents seriously unless they are prepared by a well known or brand name firm. I'd be very interested in hearing people's views and experience with this.
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ETG used to do this..dont know if they are around.
 
Quote from jerryz:What counts as a formal track record for someone starting a hedge fund?
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A LLC that keeps strict separation of LLC activity from personal matters would be a good way to start. Then having a CPA firm audit you. If you can afford it, use someone like Arthur F. Bell, Jr. & Associates who is a leader in that sort of thing.
 
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