The general thrust of Joetrader's post is accurate...however, it (starting afund with less than $20M) can be done without the US$20M AUM. Iâve learnt in my life not to focus on why something CANNOT be done, but why it CAN! Thatâs my personal philosophy.
Legal Firms: There are many solid legal firms that will charge less than the 80K from a "brandname firm" and from my experience many of the law firms - brand name and non-brand name don't care about you, have boiler plate docs which they just modify for you. Frankly in this era, one (any smart person who has done some research ) can modify any existing offering memo to create theirs, because this is what the lawyers do anyway. I hired a brand name firm in the BVI, paid less than 80K, but have been quite disappointed with their work. I had to make substantial edits to their work, was the victim of a bait and switch from their vis-à -vis the fees, etc./ and have jus been thoroughly non pleased. All my docs were boiler plate docs, and I found myself correcting them, and like I said making substantial edits. Iâve seen many an offering memo and know the general structure/requirements and there is nothing incredibly specialized in preparing an offering memo, if you know what you want/need. Legal advise is always good, but legal advice is also typically generic for similar/vanilla situations. Setting up a vanilla offshore fund has been done tens of thousands of times and the docs for this exist everywhereâ¦is this really worth $80K? NO, NO!!
Administrator: As for the need for Administrators. yes many of the top administrators require minimum of 50K p.a. to bring you on board. I even heard that some now require 100K and if you were a prior client paying less than $100 p.a., they politely tell you to take your biz, elsewhere. And some of these so called brand name firms, use recent college grads with minimal experience to do the work..the result lots of errors. Again, unless you are trading exotic OTC instruments, administration work can be frankly done in-house or even with software. After all, every Administrator uses Advent or some variant of same to do your reporting. But again, there are many good firms that charge less and now even some software/ASP providers that cost you a minimal amount.
Prime Brokers: Many of the top ones require 20-50M to even talk to you and even then may require you do all your biz with them. But again, there are a few good PBs that aren't so AUM selective. There are many very good introducing PBs. GSEC (formerly SLK) will talk to you with even $2M, maybe even $1M. If you are in futures MAN will take you on with AUM in the 6 figures. Calyon & Fimat require you to have at least $1M. So it can be done. Frankly for a pure futures trader, Calyon, Fimat and Man are better shops than Morgan, Bear Stearns or Goldman Sachs. For a pure long short equity guy, GSEC or Merlin or Grace Financial or MS Howells are great places. You can still have the cachet of the GS name via GSEC (the old SLK). If I had enough AUM to choose any broker would I switch form my current PB, NO. They treat my small account as if itâs a $1B account and I get all the service I need. Now a Barclays Capital, UBS or Credit Suisse can provide me greater electronic access, access to exotic OTC instruments and probably better in house reporting, but this is a bonus NOT a necessity. So when my AUM does increase, Iâll open accounts with Barcap, CS and/or UBS, just to have options but I wonât leave my current PB, due to loyalty and the great service I get from them. You have to respect and be loyal to a house that treats you well, when others wonât even return your phone call.
Audit: Again, many good shops provide an audit for less than the steep fees the big four charge. Again do you research and NEGOTIATE. These prices arenât the 10 commandments.
Summary, if you have a viable strategy, STRONGLY believe you can generate performance and have a clear business plan and have enough assets to run your strategy AND are prepared to live frugally, WORK 24/7 then go for it. Don't let all these imaginary hurdles of $20M minimum AUM prevent you from pursuing your dream.
In essence, the key is do you have enough assets to demonstrate your strategy, a valid strategy and the desire to work hard to excel NOT having a certain AUM threshold.
As proof, Iâm doing it...it's tough, very tough, I have frustrating moments, but I know outstanding success will be mine!
I wish you all success!
P.S. Raising assets will depend on your performance AND your marketing skills. Therefore it is key to develop a track record in a fund structure, no matter how small that fund is. Don't trade your assets in a personal account with the intent to start a fund when you turn your grubstake into $20M. The reason for this is that if the track record is not for the fund, it will be HEAVILY discounted by potential investors.
P.P.S. As for the cachet of big name firms, itâs another myth. Investors want honorable fund mangers with good viable strategies. Period. Having GS or Morgan Stanley as your PB is not going to generate you returns, nor necessarily prevent fraud. A fraudulent manager will find a way to commit fraud no matter who are the service providers. Wise investors know this. Dumb investors donât. and you donât want dumb investors, the kind of investors s who are herd followers. If you have no-name service providers, will that prevent you from landing that 20M investor, noâ¦as long as you can explain why you hired those no-name service providers initially. And when the large investors do come in, if you want to change service providers, you can always do so. The key is having a valid story and the confidence to convey this to potential and existing investors.
P.P.P.S. A key nugget here expressed succinctly: Aim to build a skyscraper but start building it floor by floor from the foundation up. Donât attempt to build the skyscraper on day one, because all your neighbors have skyscrapers. If you do so, with no foundation, your skyscraper will just collapse!
Legal Firms: There are many solid legal firms that will charge less than the 80K from a "brandname firm" and from my experience many of the law firms - brand name and non-brand name don't care about you, have boiler plate docs which they just modify for you. Frankly in this era, one (any smart person who has done some research ) can modify any existing offering memo to create theirs, because this is what the lawyers do anyway. I hired a brand name firm in the BVI, paid less than 80K, but have been quite disappointed with their work. I had to make substantial edits to their work, was the victim of a bait and switch from their vis-à -vis the fees, etc./ and have jus been thoroughly non pleased. All my docs were boiler plate docs, and I found myself correcting them, and like I said making substantial edits. Iâve seen many an offering memo and know the general structure/requirements and there is nothing incredibly specialized in preparing an offering memo, if you know what you want/need. Legal advise is always good, but legal advice is also typically generic for similar/vanilla situations. Setting up a vanilla offshore fund has been done tens of thousands of times and the docs for this exist everywhereâ¦is this really worth $80K? NO, NO!!
Administrator: As for the need for Administrators. yes many of the top administrators require minimum of 50K p.a. to bring you on board. I even heard that some now require 100K and if you were a prior client paying less than $100 p.a., they politely tell you to take your biz, elsewhere. And some of these so called brand name firms, use recent college grads with minimal experience to do the work..the result lots of errors. Again, unless you are trading exotic OTC instruments, administration work can be frankly done in-house or even with software. After all, every Administrator uses Advent or some variant of same to do your reporting. But again, there are many good firms that charge less and now even some software/ASP providers that cost you a minimal amount.
Prime Brokers: Many of the top ones require 20-50M to even talk to you and even then may require you do all your biz with them. But again, there are a few good PBs that aren't so AUM selective. There are many very good introducing PBs. GSEC (formerly SLK) will talk to you with even $2M, maybe even $1M. If you are in futures MAN will take you on with AUM in the 6 figures. Calyon & Fimat require you to have at least $1M. So it can be done. Frankly for a pure futures trader, Calyon, Fimat and Man are better shops than Morgan, Bear Stearns or Goldman Sachs. For a pure long short equity guy, GSEC or Merlin or Grace Financial or MS Howells are great places. You can still have the cachet of the GS name via GSEC (the old SLK). If I had enough AUM to choose any broker would I switch form my current PB, NO. They treat my small account as if itâs a $1B account and I get all the service I need. Now a Barclays Capital, UBS or Credit Suisse can provide me greater electronic access, access to exotic OTC instruments and probably better in house reporting, but this is a bonus NOT a necessity. So when my AUM does increase, Iâll open accounts with Barcap, CS and/or UBS, just to have options but I wonât leave my current PB, due to loyalty and the great service I get from them. You have to respect and be loyal to a house that treats you well, when others wonât even return your phone call.
Audit: Again, many good shops provide an audit for less than the steep fees the big four charge. Again do you research and NEGOTIATE. These prices arenât the 10 commandments.
Summary, if you have a viable strategy, STRONGLY believe you can generate performance and have a clear business plan and have enough assets to run your strategy AND are prepared to live frugally, WORK 24/7 then go for it. Don't let all these imaginary hurdles of $20M minimum AUM prevent you from pursuing your dream.
In essence, the key is do you have enough assets to demonstrate your strategy, a valid strategy and the desire to work hard to excel NOT having a certain AUM threshold.
As proof, Iâm doing it...it's tough, very tough, I have frustrating moments, but I know outstanding success will be mine!
I wish you all success!
P.S. Raising assets will depend on your performance AND your marketing skills. Therefore it is key to develop a track record in a fund structure, no matter how small that fund is. Don't trade your assets in a personal account with the intent to start a fund when you turn your grubstake into $20M. The reason for this is that if the track record is not for the fund, it will be HEAVILY discounted by potential investors.
P.P.S. As for the cachet of big name firms, itâs another myth. Investors want honorable fund mangers with good viable strategies. Period. Having GS or Morgan Stanley as your PB is not going to generate you returns, nor necessarily prevent fraud. A fraudulent manager will find a way to commit fraud no matter who are the service providers. Wise investors know this. Dumb investors donât. and you donât want dumb investors, the kind of investors s who are herd followers. If you have no-name service providers, will that prevent you from landing that 20M investor, noâ¦as long as you can explain why you hired those no-name service providers initially. And when the large investors do come in, if you want to change service providers, you can always do so. The key is having a valid story and the confidence to convey this to potential and existing investors.
P.P.P.S. A key nugget here expressed succinctly: Aim to build a skyscraper but start building it floor by floor from the foundation up. Donât attempt to build the skyscraper on day one, because all your neighbors have skyscrapers. If you do so, with no foundation, your skyscraper will just collapse!
