How to split partnership for a CTA firm

C

chinook

Hi all,

I'm about to get into a partnership with another person to start a CTA venture. At this stage, we'll go for the managed futures route.

I will be responsible for all of the technical stuff such as trading system maintenance, trading, research etc.. I will also do the daily trading related back/middle office work such as trade reconciliation, allocations and record keeping.

The other person will be responsible for money raising at this time. He already has clients in an advisory service he owns. He will also handle the part for incorporating us into a company, and potentially pay $4-5 k for initial expenses.

We haven't discussed this yet, but I'm trying to figure out how to split the partnership. If we are profitable (hopefully), what would be a fair way of dividing the profits? I put many years of research and $$$ into developing a viable trading program. However, I don't have any way of raising (quick) money at this time... He does... He has also 10+ years direct futures industry experience. I have research and trading experience...

Also I think that after the initial 1-2 months, I'll be putting in lot more time day-by-day into this venture than him.

From what I understand, money raisers, 3rd party marketers usually get 20% of the profits from funds. My prospective partner would at least deserve that since he's raising money. Plus, he'll handle company formation and initial expenses so I think he deserves at least 30%. I'll feel comfortable even with 40%. But I can't say no even if he asks for 50%, although I might have some resentment for that. Anyways your inputs are welcome.

Thanks.
 
Trading and being profitable is the hard part. If you can build a solid track record you'd find lots of people willing to and capable of raising money for you. I'm thinking 30 to 40 percent to that other guy is more than fair
 
Quote from olias:

Trading and being profitable is the hard part. If you can build a solid track record you'd find lots of people willing to and capable of raising money for you. I'm thinking 30 to 40 percent to that other guy is more than fair
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Thank you for your reply. The problem is that it'll be almost impossible for me to raise enough money to start trading to build a track record. So I need him or similar people at this time. So the question of how to split the partnership will come up again. I also feel that 30-40 percent is a good split!

Have a great weekend.
 
Is there any fixed fee not linked to the profit? If you belive in success of your trading you may want to negotiate a higher fraction of the fixed fee for your partner (as you earn fixed fee because he bring clients) and lower fraction of performance incentive.

In any case, don't be afraid to be a tough negotiator. The partner needs you as much as you need him. Ultimately, being a CTA doesn't make any money from the status alone.
 
Quote from LeeD:

Is there any fixed fee not linked to the profit? If you belive in success of your trading you may want to negotiate a higher fraction of the fixed fee for your partner (as you earn fixed fee because he bring clients) and lower fraction of performance incentive.

In any case, don't be afraid to be a tough negotiator. The partner needs you as much as you need him. Ultimately, being a CTA doesn't make any money from the status alone.
More...

We are planning the usual 2/20 fee structure. You brought in an interesting idea that I haven't thought of. Thank you very much!
 
It depends on your situation, but raising money is very difficult these days. There are a LOT of guys out there, who are registered, trying to raise capital, of course he may not be able to raise it. What's your track record? How much assets do you need to survive? How long can you last on your own? What are your fees? What are your costs (compliance, legal, audit, accounting, insurance, etc)?

IMO, you should be happy with 50%, but if he wants that and you don't, have him contact me. I'm a professional trader with an excellent system and I'd be happy with 50%.

Also, those guys offering 20% are taking a percentage of the fees off the top, an equity partner is splitting the costs and you can still keep your precious system to yourself with a confidentiality agreement (or simply don't tell him too much).
 
Quote from chinook:

We are planning the usual 2/20 fee structure. You brought in an interesting idea that I haven't thought of. Thank you very much!
More...
My pleasure to help!

No harm in being creative. I remember George Lucas made most of his money by reserving rights for the name "Star Wars" and souvenirs.
 
Quote from NorthernLimit:

It depends on your situation, but raising money is very difficult these days. There are a LOT of guys out there, who are registered, trying to raise capital, of course he may not be able to raise it. What's your track record? How much assets do you need to survive? How long can you last on your own? What are your fees? What are your costs (compliance, legal, audit, accounting, insurance, etc)?

IMO, you should be happy with 50%, but if he wants that and you don't, have him contact me. I'm a professional trader with an excellent system and I'd be happy with 50%.

Also, those guys offering 20% are taking a percentage of the fees off the top, an equity partner is splitting the costs and you can still keep your precious system to yourself with a confidentiality agreement (or simply don't tell him too much).
More...

The track record is only 3 months old, but it's inline with historical calculations of about 20% / year with sharpe ratio~2.5. .. I think he can raise 1 M with relative ease and perhaps 2 M.

Thank you.
 
Quote from chinook:

We are planning the usual 2/20 fee structure. You brought in an interesting idea that I haven't thought of. Thank you very much!
More...
If you split the management and performance fees differently, there will be an obvious questions regarding how expenses are paid... So, you'll need to pool all fees together, pay the company's expenses, split the fees... Or pool the expenses and use the same fraction of the 2% and 20% funds to cover the accumulated fees... or some other set-up.
 
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