How to raise capital for a Hedge Fund?

E

Erick Gomez

Hi

I have been trading with personal capital for 6 months I had analyze the returns from other hedge fund managers. I have read most of the strategies out there that currently most of them are using. I have a background on Computer Science. So my edge it is technology and trading algoritms from stock picking for dividend growth, ETF rotation, Futures and Options trading. I had realize that in order to do a substantial cash you need to raise capital. Here it is the plan.

1. I need to clearly defined strategy and why I have chosen that strategy.
2. Get my Bio ready why I am capable of doing this.
3. I am in US, need to follow compliance rules and regulations.
4. One year audited track record, (should be GIPS compliant) probably 20%~30% annual returns with maximum draw down of 7~10%
5. I need to market it and raise capital

So the purpose of this post is to help me to figure out how I can start to raise capital? and if it is possible in the first stages. Thanks in advance for your guidance.
 
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So this kind of biz it is worth or mouth right? So how do you seek for investors? I guess I have to start with family and friends any other ideas?
 
Erick Gomez said:
Hi

I have been trading with personal capital for 6 months I had analyze the returns from other hedge fund managers. I have read most of the strategies out there that currently most of them are using. I have a background on Computer Science. So my edge it is technology and trading algoritms from stock picking for dividend growth, ETF rotation, Futures and Options trading. I had realize that in order to do a substantial cash you need to raise capital. Here it is the plan.

1. I need to clearly defined strategy and why I have chosen that strategy.
2. Get my Bio ready why I am capable of doing this.
3. I am in US, need to follow compliance rules and regulations.
4. One year audited track record, (should be GIPS compliant) probably 20%~30% annual returns with maximum draw down of 7~10%
5. I need to market it and raise capital

So the purpose of this post is to help me to figure out how I can start to raise capital? and if it is possible in the first stages. Thanks in advance for your guidance.
More...

Yes, it all starts with your track record. A verifiable track record is normally fine to start (Having the ability to print out monthly statements from the clearing firm that can't be altered). I would not spend money on an audit unless investors demand it. Then most managers, that don't know if they can raise AUM fast, start with Separately Managed Accounts (SMA). Investors prefer to have their own account to view on a daily basis with new managers. As to if you need to be a RIA in your state for that, you will have to consult an attorney or the Securities division of your state for clarity.

What you need to understand if you move in that direction, is that wealthy investors invest in the manager, his strategy and a business. They are turned off by an individual trading on their own. They want to know there is a business behind it all. A common question is, "what is his back up if something happens to him".

We work with managers looking to do just this. We don't put up capital, but as Introducing Brokers we help our clients built a business and when possible, help raise money in the future. Cap-intro is not our primary business, but we do what we can to help our clients grow. What we are good at is the guidance along the way.
 
Truth is, track record Has very little importance when it comes to raising capital.

Everyone who starts a hedge fund has a great track record, otherwise they wouldn't be doing it. Therefore, the 3 most important things are why is your strategy different and better than the 1000's of other funds doing the same thing?
Try telling hedge fund investors you buy stocks and look at charts to make decisions-- u will be laughed at and not raise dollar one outside of naive friends family. The reason is if an investor
Wanted that strategy he would invest with a known superstar type fund that does the same thing - not a risky start up.

Next, does your strategy make sense going into the future? Real hedge fund investors understand that its not some track record of past results that makes money-- only unsophisticated investors think this way. Rather its the robustness of the strategy for the future.

Thirdly, who is your 3rd party administrator? After Madoff, trust has left the business -- you need a respected 3rd party administrator.

surf
 
Starting a Hedge Fund isn't something you start from trading a personal account. It's like fantasizing to be a Formula One driver while driving the kids to school. Most people who start hedge funds already have experience (and seed Money of several tens of millions) from managing money in an institutional setting. The compliance requirements are enormous.

However, the easiest route to managing other people's money in the least constrained manner from a strategy and regulatory perspective will be as a managed fund service (account linking) or as a CTA/CPO.

Even then, you better think long and hard if your making money consistently with a solid strategy. Another way to leverage your expertise is to form a trading group.
 
xandman said:
Starting a Hedge Fund isn't something you start from trading a personal account. It's like fantasizing to be a Formula One driver while driving the kids to school. Most people who start hedge funds already have experience (and seed Money of several tens of millions) from managing money in an institutional setting. The compliance requirements are enormous.

However, the easiest route to managing other people's money in the least constrained manner from a strategy and regulatory perspective will be as a managed fund service (account linking) or as a CTA/CPO.

Even then, you better think long and hard if your making money consistently with a solid strategy. Another way to leverage your expertise is to form a trading group.
More...

Hedge funds have become institututional -- the days of guys starting with personal accounts ended about 6 or more years ago. Although it can be done its far from ideal.

surf
 
marketsurfer said:
Truth is, track record Has very little importance when it comes to raising capital.

Everyone who starts a hedge fund has a great track record, otherwise they wouldn't be doing it. Therefore, the 3 most important things are why is your strategy different and better than the 1000's of other funds doing the same thing?
Try telling hedge fund investors you buy stocks and look at charts to make decisions-- u will be laughed at and not raise dollar one outside of naive friends family. The reason is if an investor
Wanted that strategy he would invest with a known superstar type fund that does the same thing - not a risky start up.

Next, does your strategy make sense going into the future? Real hedge fund investors understand that its not some track record of past results that makes money-- only unsophisticated investors think this way. Rather its the robustness of the strategy for the future.

Thirdly, who is your 3rd party administrator? After Madoff, trust has left the business -- you need a respected 3rd party administrator.

surf
More...

Thanks! Good points! The second point seems a bit hard to prove (in advance)! How?
 
So maybe, we should just reword the thread title. How do you raise money for a "Managed Fund Service"?

I have actually met some ET folks with who offer these types of services. However, I would rather meet them personally, now that I am back in Chicago.

My strategy? Trader meetups and academic conferences since I am a returning student. Not that I am seriously looking to manage money, but it would be nice to have a good Rolodex with contacts. I already have target investors who won't give me headaches.
 
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