Managing other people's money

R

Rastler

Hello,

I have a couple of questions about the legal side of managing other people's money. I'd really appreciate if somebody can give me advice on those.

1. I'm not going to manage billions of dollars and thousands of investors, that's why i'm trying to avoid the real fund structure. I'll have 1 investor to start with, and possibly another 3-4 later on. Total initial AUM won't exceed $60mil. I'll only be charging a management fee on total AUM, without taking a percentage of profits. What's the easiest and cheapest way to do this? What's the most advantageous way from the tax standpoint for both me and my investor? I'm located in the US, so the structure should be based on the US laws.

2. Is it possible to do it as an independent consultant, managing other person's brokerage account and then billing him for my services?

3. What kind of attorney can advice me on that type of stuff and help pick the best solution?

Thank you in advance! Your input will be much appreciated.
 
Rastler said:
Hello,

I have a couple of questions about the legal side of managing other people's money. I'd really appreciate if somebody can give me advice on those.

1. I'm not going to manage billions of dollars and thousands of investors, that's why i'm trying to avoid the real fund structure. I'll have 1 investor to start with, and possibly another 3-4 later on. Total initial AUM won't exceed $60mil. I'll only be charging a management fee on total AUM, without taking a percentage of profits. What's the easiest and cheapest way to do this? What's the most advantageous way from the tax standpoint for both me and my investor? I'm located in the US, so the structure should be based on the US laws.

2. Is it possible to do it as an independent consultant, managing other person's brokerage account and then billing him for my services?

3. What kind of attorney can advice me on that type of stuff and help pick the best solution?

Thank you in advance! Your input will be much appreciated.
More...

Check out Friends and Family account features at IB.
 
-Create a management company with an LLC
-Register as an RIA with either the SEC or your state.
-Allocators and large investors have their own custody requirements and are not going to move funds around. You can have a preferred broker, but it won't matter at that level of fund allocation. In fact, if the allocators don't mind a fund structure, that will be easier for you.
-I can't tell how accurate or serious this posting is. If it's for real, I can recommend some attorneys that can help you set up your RIA and your contracts for your business. Good ones are not cheap. I'd have to talk to you 1st. I'm not going to post them publically.
 
It's far from trivially easy to take the thread seriously.

Anyway, especially if you're in the US, it's absolutely essential to take proper, professional advice on this subject from someone registered and licensed to give it (and in reality, that means a specialist lawyer) rather than any "forum advice", however well-intentioned its being offered is.

It's incredibly easy to fall foul of all kind of securities regulations, which are ever-changing, and countless people (including members of this forum) have done so.

The post immediately above this one might be very helpful to you.
 
newwurldmn said:
21yo offered 60mm AUM to start as an independent fund?
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Agreed. 60 MM AUM at 21 is dubious at best. More dubious still is the management fee only without performance incentive. Once we get the legalities out of the way I'll teach the OP how to sit in cash and collect 1.2 MM this year in management fees for doing essentially nothing.

If you're really doing your friends and family investors a favor you should only be taking a percentage of the profits. Note that this doesn't suggest that you should be buying high beta stocks and selling vega all the way to the bank until it all comes crashing down either.
 
cjbuckley4 said:
More dubious still is the management fee only without performance
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Actually, this is very common in the asset management world. Very common when it comes to large allocation for fixed income and equity portfolios that don't need to be activity managed or traded often. I know a firm that charges 35 basis points. They manage an index replicated portfolios without the "sin" stocks and do the required balancing. Last I asked, they had 24 Billion under management in a minority owned firm with only 12 employees.
 
1245 said:
Actually, this is very common in the asset management world. Very common when it comes to large allocation for fixed income and equity portfolios that don't need to be activity managed or traded often. I know a firm that charges 35 basis points. They manage an index replicated portfolios without the "sin" stocks and do the required balancing. Last I asked, they had 24 Billion under management in a minority owned firm with only 12 employees.
More...
Interesting. Sounds extremely lucrative and in the above case agonizingly easy given that all they must do ostensibly is skim the relevant literature for "sin" and rebalance (and those 24 billion worth of orders I'm surely aren't worked by them--some execution desk) for a 35 bp payout across 12 mouths. It doesn't really surprise me that structures like this exist; more so I'm surprised that this market inefficiently hasn't been completely whipped out by ETFs and other products taking away the asset management industry's market share.

Although index replication products like this are a pervasive and noteworthy exception, it's still my belief that in a 'friends and family' situation in which you're picking winners and losers for your immediate people (vs replicating an index) that there is some serious moral hazard in only taking mgmt fees.
 
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