This is not a "I have this great strategy, how do I get money to back me" type of thread. The assumption is that you already have a verifiable track record which traded real money and shows the product(s) being traded to show the liquidity.
Let's suppose you have a three year track record, but no Wall St pedigree. Where should you go from here? I see 4 major routes, each with their own pitfalls and would love for some feedback and discussion:
1. Ask friends and family then referrals from them. This is slow and conflicts of interests abound. Whether you do it with managed accounts as a RIA or hedge fund, it does not see like the most efficient or optimal way to do things, at least as a career. However, it is the most "safe," especially if you pass the series 65 and become a RIA. You collect your 1-2% AUM fee and maybe 20% of gains, but you need a lot of capital before this becomes lucrative.
2. First loss capital providers as explained here. This seem a bit better, provided you have at least some capital to start with. Economically, this is somewhat like providing you higher leverage on your capital, but because you get first dibs on gains after a recovery, it's not exactly the same. This is higher risk/reward than the friends and family model. Typically, the trader keeps 50-70% of profits, although I'm unsure whether they are a profit allocation or 1099 income where you will have to pay self-employment taxes.
3. Prop trading with first loss. Very similar to #2, but prop trading has a terrible reputation in general. Highest risk/reward where payouts are in the 80% range. Holding the first loss in an actual third party escrow rather than just as a deposit on the prop firm's books is crucial.
4. Give up this pipe dream and work as a lowly analyst at a hedge fund/FO to build up connections with UHNW individuals/institutions and get backing after 5-10 years of building up relationships.
Are there another avenues for capital raising that I'm missing? There are places like Collective 2, Covestor (now Interactive Advisers), Fundseeder etc, but they don't seem to be very popular overall, at least for raising substantial amounts of money (or small amount of money, but you keeping the lion's share of profits).
Let's suppose you have a three year track record, but no Wall St pedigree. Where should you go from here? I see 4 major routes, each with their own pitfalls and would love for some feedback and discussion:
1. Ask friends and family then referrals from them. This is slow and conflicts of interests abound. Whether you do it with managed accounts as a RIA or hedge fund, it does not see like the most efficient or optimal way to do things, at least as a career. However, it is the most "safe," especially if you pass the series 65 and become a RIA. You collect your 1-2% AUM fee and maybe 20% of gains, but you need a lot of capital before this becomes lucrative.
2. First loss capital providers as explained here. This seem a bit better, provided you have at least some capital to start with. Economically, this is somewhat like providing you higher leverage on your capital, but because you get first dibs on gains after a recovery, it's not exactly the same. This is higher risk/reward than the friends and family model. Typically, the trader keeps 50-70% of profits, although I'm unsure whether they are a profit allocation or 1099 income where you will have to pay self-employment taxes.
3. Prop trading with first loss. Very similar to #2, but prop trading has a terrible reputation in general. Highest risk/reward where payouts are in the 80% range. Holding the first loss in an actual third party escrow rather than just as a deposit on the prop firm's books is crucial.
4. Give up this pipe dream and work as a lowly analyst at a hedge fund/FO to build up connections with UHNW individuals/institutions and get backing after 5-10 years of building up relationships.
Are there another avenues for capital raising that I'm missing? There are places like Collective 2, Covestor (now Interactive Advisers), Fundseeder etc, but they don't seem to be very popular overall, at least for raising substantial amounts of money (or small amount of money, but you keeping the lion's share of profits).
