Ideal Investment Fund Terms

[heech]

Still here, with little more to add... all I can say is that investment terms in my fund continue to not be an issue. It's never really discussed.

We probably focus so much on this topic because it's one of the few things that we, as managers, can control. But I think, quite honestly, for a new emerging fund "investment terms" are really a minor issue. Whether you're 2/20 or 0/30 is not going to be a deal-breaker (or deal-maker) for the vast majority of investors interested in putting money in your fund at this stage. At the end of the day, we're more akin to entrepreneurs in any industry: investors are as (more?) interested a strong hand-shake.

The discussion *I* keep coming back to with potential investors: managed accounts. There are a lot of people pinging me monthly asking how much money it would take for me to take a managed account.

 

[CPTrader]

heech, I fully agree with you. However, a lot of consultants, 3PMs, service providers continue to argue the contrary positon; i.e. investmet terms DO MATTER. I do not agree with that position, but raise it here as a way of seeking other 's opinions.

Yes, Managed Accounts is another issue I keep on hearing about.

What's your take on Managed Accounts? Would you ever offer it? At what investment minimum?

Personally, I think security and even transparency concerns can be addressed within a Fund Vehicle that has an independent Administrator, so I do not see what magic a Managed Account perfroms other than given the investor instant ability to redeem funds.

Your thoughts?

Quote from heech:

Still here, with little more to add... all I can say is that investment terms in my fund continue to not be an issue. It's never really discussed.

We probably focus so much on this topic because it's one of the few things that we, as managers, can control. But I think, quite honestly, for a new emerging fund "investment terms" are really a minor issue. Whether you're 2/20 or 0/30 is not going to be a deal-breaker (or deal-maker) for the vast majority of investors interested in putting money in your fund at this stage. At the end of the day, we're more akin to entrepreneurs in any industry: investors are as (more?) interested a strong hand-shake.

The discussion *I* keep coming back to with potential investors: managed accounts. There are a lot of people pinging me monthly asking how much money it would take for me to take a managed account.

 

[heech]

Quote from CPTrader:

Yes, Managed Accounts is another issue I keep on hearing about.

What's your take on Managed Accounts? Would you ever offer it? At what investment minimum?

Personally, I think security and even transparency concerns can be addressed within a Fund Vehicle that has an independent Administrator, so I do not see what magic a Managed Account perfroms other than given the investor instant ability to redeem funds.

Your thoughts?

I basically agree with you. I think I should be able to reassure investors on the security issue by aggressive use of third-party admins + auditors.

Transparency is a slightly different issue... in theory, investors can monitor you for style drift, risk exposure, etc. In practice, that doesn't really happen anyways.

I'm really leaning against the idea of offering managed accounts, but I keep getting pushed on it. I'm telling those interested I will re-evaluate in 3-6 months. I've had a very good first 15 months of performance. My theory is, if I'm unable to raise money thru the fund structure, I will have to reconsider. But I've boosted my AUM by 3x in the last year, so...

 

[CPTrader]

Quote from heech:

I basically agree with you. I think I should be able to reassure investors on the security issue by aggressive use of third-party admins + auditors.

Transparency is a slightly different issue... in theory, investors can monitor you for style drift, risk exposure, etc. In practice, that doesn't really happen anyways.

I'm really leaning against the idea of offering managed accounts, but I keep getting pushed on it. I'm telling those interested I will re-evaluate in 3-6 months. I've had a very good first 15 months of performance. My theory is, if I'm unable to raise money thru the fund structure, I will have to reconsider. But I've boosted my AUM by 3x in the last year, so...

You are right, they do not monitor style drift, risk exposure - they want the info but rarely use it - until it's too late, if at all. There are ASPs and Administrators that can provide risk exposure, and other transparency detail at various granularity levels that should satisfy virtually all iinvestors.

So even with respect to transparency, I do not think, a Managed Account is essential. In my opinion, the only things an investor can achieve only via a Managed Account is the ability to (a) instantly redeem their investment even on an intraday basis, (ii) mimic your strategy in a separate account (if the strategy's frequency permits), thus depriving you of fees or (iii) reverse engineer your trading strategy.

In sum, there is relaly no benefit to the Manager to offer a Managed Account. As you can see from your direct experience, many investors still invest in fund vehicles. Congrats on your stellar success! Wishing you a great 2011!

 

[heech]

Quote from CPTrader:

[B[In sum, there is relaly no benefit to the Manager to offer a Managed Account. As you can see from your direct experience, many investors still invest in fund vehicles. Congrats on your stellar success! Wishing you a great 2011! [/B]

Haha, I'm not sure I've had "stellar success" on the fund-raising front so far.

The number of outside investors I have are still in the single-digits, and most of them are due to specific professional relationships associated with my broker. I haven't had any "true", unsolicited outside investors come into the fund as of yet.

So, to be honest, the question of whether I have to support managed accounts is still an open one in my mind...