Prop vs. Hedge Fund

Quote from craigatelite:

One other question:

What is the LEGAL interpretation of soliciting outside money from "investors / traders / etc"...pooling it together in some sort of LLP or LLC and then that organization joining a Prop Firm?

Does that fall under Regulatory oversight? Registered Investment Company? Unregulated Hedge Fund? SEC or Blue Law Approvals?
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(I can relate what I understand ours to be...things change, and my Compliance Officer is the only one who can accurately define our structure). Ours is somewhat different than most. Most are "Introducing Broker" types. We are an exchange member (SRO) LLC, subject to all regulatory agency approvals.

My Compliance Officer would need more information about exactly what you're asking. Raising money from others to trade with? Using shareholder money (if any) to start a firm?

I'll ask if you give me more info.

Don
 
Quote from Lights:

I've seen prop firms offer upwards to 10MM overnight buying power with $1MM up. 10:1 at >90% takehome on profits.

Why then do money managers take the route of opening a prime brokerage account and raise investor capital to keep a much lower profit split? (ie 1%+20%)

If i wanted to run a fund of say $20MM, wouldn't it better just to deposit $2MM at a prop and take home most or all the profits?
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Because most fund managers have no confidence that they will have any profit!
 
Quote from Don Bright:

(I can relate what I understand ours to be...things change, and my Compliance Officer is the only one who can accurately define our structure). Ours is somewhat different than most. Most are "Introducing Broker" types. We are an exchange member (SRO) LLC, subject to all regulatory agency approvals.

My Compliance Officer would need more information about exactly what you're asking. Raising money from others to trade with? Using shareholder money (if any) to start a firm?

I'll ask if you give me more info.

Don
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We have an investment club with only 1 active member (the one responsible for trading). Basically we have a pool of money already but We like to join a prop to increase our leverage. We are thinking of setting up a LP or LLC with pass-thru, so all profit will be taxed in the individual level. Can we distribute the profit not proportional to their investments? We like to have the active member giving a higher profit ratio. Can we change the distribution ratio every year.
I have a license so myself joining prop is not a problem.
Appreciate your input.
 
Quote from yip1997:

We have an investment club with only 1 active member (the one responsible for trading). Basically we have a pool of money already but We like to join a prop to increase our leverage. We are thinking of setting up a LP or LLC with pass-thru, so all profit will be taxed in the individual level. Can we distribute the profit not proportional to their investments? We like to have the active member giving a higher profit ratio. Can we change the distribution ratio every year.
I have a license so myself joining prop is not a problem.
Appreciate your input.
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You don't want to join as an LLC, and to be honest, cannot. If you were to, you must personally sign a guarantee for any losses in excess of funds put up, and you will be responsible for Self-Employment taxes (15%+), our traders are exempt.

Since it's only you who will be trading, simply join as an individual, and distribute money as you see fit.

Don
 
Quote from Lights:

I've seen prop firms offer upwards to 10MM overnight buying power with $1MM up. 10:1 at >90% takehome on profits.

Why then do money managers take the route of opening a prime brokerage account and raise investor capital to keep a much lower profit split? (ie 1%+20%)

If i wanted to run a fund of say $20MM, wouldn't it better just to deposit $2MM at a prop and take home most or all the profits?
More...

Some money managers actually like the 1 to 3% fees they charge on multi million dollar accounts. It's a different world, complete with big 3 audits, marketing, back scratching. Maybe it looks more professional than just being a very good prop trader. Some people like the limelight too...who knows.
 
Quote from Lights:

I've seen prop firms offer upwards to 10MM overnight buying power with $1MM up. 10:1 at >90% takehome on profits.

Why then do money managers take the route of opening a prime brokerage account and raise investor capital to keep a much lower profit split? (ie 1%+20%)

If i wanted to run a fund of say $20MM, wouldn't it better just to deposit $2MM at a prop and take home most or all the profits?
More...

1. HF charge 2, 20 on other peoples money. a small fund
(say 20mm) charges 2% per year if progitable or not...400k in your pocket. 1-2 people can run a 20mm fund.

2. less risk, better rep. 10 to 1 leverage you can get wiped out FAST. if a hedge fund goes to pot...you have "hedge fund" on your resume. if you are a prop trader that goes belly up...you have "cowboy" on your resume.
 
Quote from Don Bright:

You don't want to join as an LLC, and to be honest, cannot. If you were to, you must personally sign a guarantee for any losses in excess of funds put up, and you will be responsible for Self-Employment taxes (15%+), our traders are exempt.

Since it's only you who will be trading, simply join as an individual, and distribute money as you see fit.

Don
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If I join as an individual, I have to pay all the tax that is supposed to be distributed.
 
Quote from yip1997:

If I join as an individual, I have to pay all the tax that is supposed to be distributed.
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Your payments to others are deducted of course.

Seriously, don't over-complicate the whole thing. I'll be glad to walk you through it....feel free to give me a call. 702.739.1393 (mid trading day is usually a good time ...the slower time).

Don
 
DB,

thanks for setting so many questions straight,

its a pleasure to see someone from a firm owner's perspective weigh in on these boards,

that makes coming to ET.com worth the time spent, as well as continues to make it a reasonable place to get facts straight about trading, the markets and the business entity formation process...

just can't figure out why so many complain all the time,
 
Quote from limitdown:

DB,

thanks for setting so many questions straight,

its a pleasure to see someone from a firm owner's perspective weigh in on these boards,

that makes coming to ET.com worth the time spent, as well as continues to make it a reasonable place to get facts straight about trading, the markets and the business entity formation process...

just can't figure out why so many complain all the time,
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Why thank you....always nice to hear .....

Don :)
 
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