raising funds
- Thread starter traderwann
- Start date
Right now I just do managed accounts. Launching a CPO would've been more difficult and expensive. I have a couple prospective APs who would like to raise capital for me. I told them that I would probably prefer the CPO structure in that case though.
I can send you my docs, but I've been operating under the section 4.14 exemption so far and I'm currently in the process of getting my DD approved by the NFA. So, I'd have to wait until I get the approval.
Yeah, but it sort of depends on the numbers. If we are talking about 50-75% then it's still within the realms of reality for most people. But, in my experience, the higher it gets, people start dropping off. There is a huge universe of investors out there who are looking for 20% annual. It is an easy demographic to raise money in. Not that many who are hoping to find something at 100% or higher.
You're right though, even if the numbers were 200% annual, if there is a 10 year history, then you transition from conman to superstar. My documents are still less than 24 months, so I can only speak on what I've experienced.
Yeah, not an easy thing. When I developed my strategy, one requirement was that the worst case drawdown had to be less than 2X the average monthly return. And the historic recovery period after a loss would need to be less than 45 days. I only charge fees every quarter, and it would be difficult to run a business that went for 6 months without income.
I spoke to a lot of startup funds earlier this year (anywhere from 5-15MM AUM) this was their biggest problem. They couldn't make their working capital and eventually all but one busted. The only one that didn't had their working capital funded by their seed investor. The rest got tired ot dipping into their own pockets.
Yeah, that was a big reason for me choosing the CTA route instead of CPO. The CTA managed account structure is much easier to form and operate with minimal expense. Pooled funds are more heavily regulated and difficult to run/grow without hiring out the fund administration aspects. Audits also can be expensive and are not required with managed accounts.
Also, it typically costs more to form a pooled fund than a simple CTA.
BTW, that is supposed to be the reason for the administrative fees. They are meant to keep the organization running, while the performance fees are meant only to reward good performance. That said, I don't have an administrative fee, so my performance must be good.
Unfortunately management fees levied and overhead costs incurred dont scale on the same variables and at the same rate.
He can't because his strategy only makes 6% - 15% per month (hypothetically via one month of testing) and that explains why he's looking for a High Net Worth Individual (HNWI).
Also, I did a quick review of this thread and he didn't explain anything about his personal life unless I missed the post. Thus, its possible he's in a situation that prevents him from working multiple jobs to save up a large amount of money in a few years and he may not qualify for a large personal loan from his bank.
I suggest the following solution only because it has worked well for two others I personally know. Get a job that has different hours in comparison to the hours he needs to trade. For example, a buddy of mine trades during the day and works a full-time night job...that equals two full-time jobs because trading is a job if you treat it as such. In addition, he lives cheaply and his trade method is currently returning about 12% per month on average for the past 2 1/2 years.
His initial starting account 2 1/2 ago was very small via a personal loan from his bank...that loan has now been paid in full.
He plans on quitting his full-time job in another 2 years because with the amount of money he's been saving each month from his job and trading profits along with selling his house...he won't need a HNWI.
Everybody likes a hard worker like that especially potential investors down the road. Simply, I'm sure he would have LESS trouble finding a HNWI if he decides to go that route in comparison to the thread starter traderwann. Thus, traderwann should just trade his own account even if it's a small one to get started with real money trade results along with making adjustments in his personal life (change jobs if necessary) to allow him to continue trading his own account.
P.S. +20 years ago I myself worked 3 jobs for a few years to save up my trading capital.
Hi Epic and Heech,
I have gotten many inquiries from friends and families for managing their money. I currently set up an unregistered FA account with IB. I have a few very practical questions that I hope you can help me and share your experience with me:
1. Can you charge a performance fees under section 4.14 exemption (IB rep told me as long as I have less than 15 accounts and 25 million total AUM it is OK)?
2. I am not planning to charge management fee (I trade my own money anyway so the incremental cost is low). Is the performance fee tax-deductible for clients?
3. I proposed a tiered performance fee (from 10% to 50% of MARGINAL account performance gains as annual return goes from 0% to above 40%, flat at 50% after that). The client likes the structure since they only pay high fees when I hit high hurdle levels of return. If performance fee is not tax deductible however, then my proposed marginal 50% performance fee is too high for HNW clients, especially those in places with high state and local/city income taxes.
Happy new year!
njrookie
I have gotten many inquiries from friends and families for managing their money. I currently set up an unregistered FA account with IB. I have a few very practical questions that I hope you can help me and share your experience with me:
1. Can you charge a performance fees under section 4.14 exemption (IB rep told me as long as I have less than 15 accounts and 25 million total AUM it is OK)?
2. I am not planning to charge management fee (I trade my own money anyway so the incremental cost is low). Is the performance fee tax-deductible for clients?
3. I proposed a tiered performance fee (from 10% to 50% of MARGINAL account performance gains as annual return goes from 0% to above 40%, flat at 50% after that). The client likes the structure since they only pay high fees when I hit high hurdle levels of return. If performance fee is not tax deductible however, then my proposed marginal 50% performance fee is too high for HNW clients, especially those in places with high state and local/city income taxes.
Happy new year!
njrookie