Raising Money for a Hedge Fund
- Thread starter dafugginman
- Start date
Thanks, one other thing that I thought of that I thought I'd pass along is that it is worth keeping in mind that EVERYONE is looking for good money managers and the next great CTA, and so I found that it was actually very easy for me to get in to see decision makers that had money to allocate. (I lived in Chicago at the time, which did help logistically, but I've done it by phone too.)
None of them gave me anything at all the first time through, and most never did, but I learned a LOT about what they were looking for, and I got priceless good advice. As time went on and I stayed in contact, a couple of them mentioned me to an IB or two who were looking for somebody who did what I did and would take small accounts, then as those IB's got to know me a little, and got a bit more confidence, they sent a few more accounts my way, until one day I got a call asking if I could take about 50 new accounts at once that an IB was moving from a CTA who was "blowing up". I then learned in a fast and somewhat scary way what is meant by "scalability".
I had been a (rather mediocre) floor trader, and had never worked for another CTA or CPO, so I have no idea how it has worked for most others, but I have talked to at least a few with similar experiences. I honestly do believe that if you are persistent, ethical, and a good trader, the rest will get accomplished if you really want it.
Good trading!
Jessie
None of them gave me anything at all the first time through, and most never did, but I learned a LOT about what they were looking for, and I got priceless good advice. As time went on and I stayed in contact, a couple of them mentioned me to an IB or two who were looking for somebody who did what I did and would take small accounts, then as those IB's got to know me a little, and got a bit more confidence, they sent a few more accounts my way, until one day I got a call asking if I could take about 50 new accounts at once that an IB was moving from a CTA who was "blowing up". I then learned in a fast and somewhat scary way what is meant by "scalability".
I had been a (rather mediocre) floor trader, and had never worked for another CTA or CPO, so I have no idea how it has worked for most others, but I have talked to at least a few with similar experiences. I honestly do believe that if you are persistent, ethical, and a good trader, the rest will get accomplished if you really want it.
Good trading!
Jessie
some good discussion and contributions on this thread. yeah, it's probably just persistance and salesmanship. i think with a consistent, high sharpe 20-25% annualized with a 8-10% max drawdown drawdown, and scaleable, it would be good enough to draw in some money. many hedge fund managers are analytical by nature, and like to trade, not sell. so maybe that's why many struggle in raising money.
that's great that you can work with FAs. that would be perfect really, since as i said, the clients would be well screened for suitability. i'm willing to do some selling, but not sure that it's my forte or something i'd enjoy. i do know however, a cold calling superstar, who actually managed cold callers. he's in grad school and i plan on hiring him as soon as he's done.
i find it interesting marketsurfer is a supposed hedge fund manager, but hasn't chimed in with anything helpful yet. i would hope that he would
that's great that you can work with FAs. that would be perfect really, since as i said, the clients would be well screened for suitability. i'm willing to do some selling, but not sure that it's my forte or something i'd enjoy. i do know however, a cold calling superstar, who actually managed cold callers. he's in grad school and i plan on hiring him as soon as he's done.
i find it interesting marketsurfer is a supposed hedge fund manager, but hasn't chimed in with anything helpful yet. i would hope that he would
I have a friend who works for a FOF, and I've talked to him about how they construct their portfolios. Jessie explained it pretty well before, they are most concerned about putting together uncorrelated strategies to smooth their equity curve. Just to expand on what Jessie said, they do employ some quantitative methods to achieve this. Basically, you are looking to minimize the portfolio standard deviation. The less the hedge fund you are looking to invest in correlates with your portfolio, the greater reduction in portfolio volatility can be achieved. The problem you face is that correlations are not stable, and when the market has an "abnormal" move, correlations tend to converge (ie. everything moves the same way), as the guys at LTCM experienced.
A quick way to determine to add a fund:
Sharpe ratio of Portfolio * Correlation (portfolio, potential fund); compare this to Sharpe ratio of potential fund. Add to portfolio if Sharpe of the potential fund is higher.
Just wanted to throw a quick and easy example of a way to quantify if you should add a hedge fund to a portfolio. In practice, this equation is flawed (and so is the Sharpe ratio for that matter) because it assumes a normal distribution of returns.
A quick way to determine to add a fund:
Sharpe ratio of Portfolio * Correlation (portfolio, potential fund); compare this to Sharpe ratio of potential fund. Add to portfolio if Sharpe of the potential fund is higher.
Just wanted to throw a quick and easy example of a way to quantify if you should add a hedge fund to a portfolio. In practice, this equation is flawed (and so is the Sharpe ratio for that matter) because it assumes a normal distribution of returns.
my combination system has annulized sharpe of just over 1.1 and max ddown over the last 3yrs ive traded it of just 12%.
HF material?
Position trading system no problems with scalability.
HF material?
Position trading system no problems with scalability.
i find the discussion of pensions funds and other institutions investing in ones fledging hedge fund rather amusing.
these institutions require that you have a substantial infrastructure in place, a staff, contingency plans and resources, top lawfirms, top auditors with stellar reputations, etc. prior to even considering your strategy, etal. these items cost 100's of thousands of dollars a month to do it right---
outside of institutional money---which you are not going to get without the above---true HNW hedge fund investors look far beyond track record when making decisions--- the strategy is way more important than last years record-( the past never made any current investor money) and true hedge fund investors understand this all too well.
regards,
surf
these institutions require that you have a substantial infrastructure in place, a staff, contingency plans and resources, top lawfirms, top auditors with stellar reputations, etc. prior to even considering your strategy, etal. these items cost 100's of thousands of dollars a month to do it right---
outside of institutional money---which you are not going to get without the above---true HNW hedge fund investors look far beyond track record when making decisions--- the strategy is way more important than last years record-( the past never made any current investor money) and true hedge fund investors understand this all too well.
regards,
surf
no, i do not manage a hedge fund. i did but discovered that i lacked the resources and knowledge to do it succesfully with any size at this time--nothing to do with trading skill.
i presently work with a great team on a NYC based multi-strategy fund with both off-shore and on-shore structure.
i am physically based east coast, USA.
regards,
surf
I've spent time on both buy and sellside in the HF world, including co-creating a 3PM business that pushed a new fund to over US$150mm in aum within a year during a bear market.
Jessie and marketsurfer's words accurately reflect the reality of the business of moneyraising in this era.
Also, read what I wrote here on manager selection:
http://www.elitetrader.com/vb/showthread.php?s=&postid=574512#post574512
As a registered IA, I am on the receiving end of numerous pitches from both new managers and distributors. Mostly one acts as a publisher does receiving unsolicited manuscripts. Unless I know directly or indirectly the management team or the referror, the risk is too great to contemplate jeopardising clients accounts.
Jessie and marketsurfer's words accurately reflect the reality of the business of moneyraising in this era.
Also, read what I wrote here on manager selection:
http://www.elitetrader.com/vb/showthread.php?s=&postid=574512#post574512
As a registered IA, I am on the receiving end of numerous pitches from both new managers and distributors. Mostly one acts as a publisher does receiving unsolicited manuscripts. Unless I know directly or indirectly the management team or the referror, the risk is too great to contemplate jeopardising clients accounts.