Limited Partnership

S

Swan Noir

I have been asked by a few friends to manage a modest amount of truly speculative capital. It represents a tiny portion of their net worth and they want me to, as they have phrased it "put it in harm's way and shoot for the moon." I am very reluctant to do it but frankly there is a part of me that simply likes the profit split they have suggested. I know that IB and others have a "friends and family" option but I would like those that comment to ONLY comment on the option I prefer -- a small limited partnership.

The facts are: They have approached me; the total amount will be under $200,000 and distributions will be made before $300,000 is reached (assuming good fortune); I will contribute 1% of the capital as the GP and either two or three others will contribute the other 99% limited partners; Futures ONLY ... primarily currencies, indexes and occasionally metals.

Does anyone see any need to be involved with regulators in any fashion? Is this clearly what the 15 participant under $300,000 (I think) exemption was designed to exempt?
 
For the partnership you will likely want an accountant who specialises in trading (working for individual traders and companies that make trading a business). Such a person will likely have much better idea regarding the regulatory burden than an average ET member.
 
I am not seeking comment from the "average" ET member. I am hoping for a quick, costless read from one of the ET members that do have this type of experience. When it comes down to doing a deal I get the professional help I require.


Quote from LeeD:

For the partnership you will likely want an accountant who specialises in trading (working for individual traders and companies that make trading a business). Such a person will likely have much better idea regarding the regulatory burden than an average ET member.
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I have previously managed a hedge fund and started with the exemption you are talking about -- 15 people, 400k. There is a lot more to this than you realize. A broker will not open an account for you unless you have a Private Placement Memorandum, an Operating Agreement, and a Subscription Agreement. You also have to file your exempt status with the NFA. Then there are taxes....putting a 1065 and K-1 together is no easy task. It's easier since you are just doing futures but it's still a complicated return.

If you pay someone to do these services for you it will cost a load of money. When I did my exempt fund I did all this myself. Once I grew to a full-fledged fund I outsourced all of this and I can tell you, it's extremely expensive!
 
Quote from the1:

You also have to file your exempt status with the NFA.
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I take it from your comment that unlike many exemptions that can simply be relied on if you conform this one requires a specific filing that is not optional.

BTW ... by focusing on the limited partnership structure as I requested you have made your answer valuable me. I already know that the managed account route is much simpler and, unless I am misinformed, requires no filling with the NFA.
 
Correct, with this exemption the NFA will allow you to fly below the radar but they want to know you are flying below the radar. I don't recall the exact form I had to file but if you search the NFA site you should find it. If not, a quick phone call will get you the answer.

Beginning on page 11 read through section 4.13.

http://www.cftc.gov/files/foia/fedreg03/foi030808a.pdf

I don't have any experience with the Friends and Family accounts at IB but that may be a better route for you. The downside to that -- I think -- is you have to manage separate accounts for each person where the pooled account is one account. Apples and oranges there.

Good luck with whatever path you choose.

Quote from Swan Noir:

I take it from your comment that unlike many exemptions that can simply be relied on if you conform this one requires a specific filing that is not optional.

BTW ... by focusing on the limited partnership structure as I requested you have made your answer valuable me. I already know that the managed account route is much simpler and, unless I am misinformed, requires no filling with the NFA.
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I have the impression that at some firms you can allocate the trades according to a preset formula so you can trade 10 cars and have five go to account A, three to account B and two to C.

Thanks ... your input is helpful.


Quote from the1:

The downside to that -- I think -- is you have to manage separate accounts for each person where the pooled account is one account. Apples and oranges there.

Good luck with whatever path you choose.
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I can confirm the information so far from the1, you need to notify the NFA if you are going to have an exempt commodity pool and you are required to do a few things, like give them a copy of the monthly futures statement for the account. You are exempt from full registration, but you are in no way exempt from their oversight and rules. Most all commodity pools are set up as LLCs with something like an S corp as the general partner. You can find copies of disclosure documents for managed accounts and pools on the web. It all depends on your future plans as to what is better now. You can’t make enough money from a few hundred thousand to justify the work and liability you will undertake, so the reason to do it is to grow larger at some point. So do you want to be a CPO or CTA? The NFA is quite helpful so giving them a call with your questions will be beneficial for you. If you eventually have a larger pool that requires registration it will cost you about $20k to set up and several thousand a year in ongoing legal/accounting costs at a minimum. You will want to take this all very seriously because exemption from full registration does not in anyway reduce your liability, and you will be required to disclose your trading results from any pool you run going forward so you don’t want to screw around.
 
It is clear that the "pool" approach makes no sense for a few hundred thousand. Thanks to all. To be able to rule out one of two possible approaches with finality is a very valuable thing. With that a dead issue can anyone comment on the managed account route including which firms lend themselves to that structure? I take it that one can manage a few accounts (well under 15) for friends and (God forbid!) family without any regulatory fillings or sending regulators account statements etc.

It has been a long time since I had to make a decision that is akin to taking home the drunk girl from the bar at 2 am. If she doesn't puke in the car it could be fun ... but she might! The problem with such a decision is that in the moment the most reasonable approach (calling her a taxi) goes against all human instinct!
 
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