incubator hedge fund

P

propslave

Hi guys,

I'm trying to decide whether or not I need to use a law firm to officially form an incubator fund for what I'm currently doing.

Here's my situation.

I've developed a strategy that I'm currently trading with a small amount of money (<50k). The account is registered under my corporation (which is Canadian). I'm based in Canada but I trade US equities and options. I use leverage in my strategy (occasionally).

I've built up a decent track record... I'm up around 25% year to date, including all fees. Before going live at the end of last year I paper traded the strategy for over a year and had excellent results and was able to iron out some of the kinks to get the system to a point where returns are excellent but so is risk management.

I would like to advertise my track record and bring in investor funds. I would feel comfortable managing 5 million in this strategy - liquidity would allow for that amount, and I'd like to see where I can go with this. My background is as a prop trader and I have traded millions before, managing 5m would not be foreign to me.

Now, is it necessary for me to consult with a law firm and set up an official "incubator fund" or can I simply have my corporate account audited by a third party and advertise those results?

Obviously I'd prefer to spend less money in the startup phase if it's possible, at least until I have large enough investor interest that the potential account size would be self-sustaining and I could start the fund properly.

Any advice from those who have started a hedge fund is greatly appreciated.
 
With any hedge fund, you got to have a plan to hit SCALE, or else you will crash and burn with all the front end costs involved in setting up one. For this, the strategy must be good/great and you got to have an easy access to a market that would jump at that strategy. Without those, the odds are greatly stacked against you.
 
assuming there are no other trades going on in your corp account, you could submit that to potential investors/auditors as proof of your track record without setting up another legal entity. Where you will most likely run into issues will be if you actually get any investors and the vehicle you put them into (fund, managed account, etc.) as well as if you're registered with the provincial body (depending again on where the investors are located).

I'm in Toronto and work at a hedge fund. If you want to discuss more, feel free to PM me.
 
Quote from Petro:

assuming there are no other trades going on in your corp account, you could submit that to potential investors/auditors as proof of your track record without setting up another legal entity. Where you will most likely run into issues will be if you actually get any investors and the vehicle you put them into (fund, managed account, etc.) as well as if you're registered with the provincial body (depending again on where the investors are located).
More...

Thanks for the replies - that's what I figured and legal counsel in Toronto confirmed it. The biggest hurdle I'm facing right now is registration with the provincial body. The legal firm I spoke with advised me to complete the CIM designation and PDO exam to meet registration requirements. After that the plan is to form a Private Investment Club and register with the OSC. This will take some time, my hope is to complete all of this by year end.

In the meantime, I'm going to set up a website to display my track record and build some interest.
 
Quote from propslave:



In the meantime, I'm going to set up a website to display my track record and build some interest.
More...

I don't believe you can do this without registration.
 
Hello, propslave.
Thanks for sharing your experience. Possibly I am being a little naive, but it seems to me that you have a nice story to tell to the financial industry. With you track record, have you considered to send your resume' around? May be you could work for a while for someone else, get even better performance and then start your own business.
 
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