Real business in asset management; looking for partner(s)

Quote from wmu_uwm:

Hi..

Attached is an investment strategy and business presentation. If you are interested and serious investor, send me PM.

Thanks

WMU_UWM
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Your not going to meet someone on ET most likely that can be of much help to you. What you are going to have to do is find someone you know who has money and connections to people with money.

I got started with two clients, both of them had been subsribers to chatrooms/newsletters I had for about 3 1/2 years. One of them (Mike) is one of the top five real estate developers in Naples. He's worth about $200million right now, was probably worth close to $500 a few years ago before the real estate bust. He's still in pretty good shape though.
My other starting client Jonathon owns a bunch of TV and radio stations on Long Island, in Connecticut and Massachusetts. He is worth about $350million.
Both of them have great contacts to wealthy people, Mike lives in a country club in Naples where the CEO of Bank of America has a house, Steve Balmer has one and several other very wealthy people (77 of them), costs $500,000 to join and all of the houses are over $10million. Jonathon has an apartment off Central Park, and a very nice place in the Hamptons and another in Stonington, Conn.
In any event, when they wanted to invest with me I had to get everything setup myself, which cost about $80,000. At that point they invested and I setup a partnership with them that had each of them owning 7.5% of the managment company and the agreement that after 1 year they would help get new investors from their circle of friends if the perfromance was suitable. For this they would get 22.5% of whatever was made off that new partner in the fund. I also charged them 0/12.5% as a fee instead of the normal 0/20 that I charged other investors. (1.25/20 now)
I doubt I ever could have grown to the levels I did without them. I'm getting started again now that my health is getting a bit better and I have Anthony on board. He is a Columbia Grad in Indeustrial Engineering who has interned with both Merril and Goldman, so he brings in his own list of very good contacts.
 
That's a high quality post Brandonf.

It occured to me that creating a subsidiary of an existing established fund whereby the new sub manager invested, say 40-50% of the AUM and offering say 25% ownership of the sub-managemt company to said established fund might be attractive.

If one were hungry enough the sub-manager could arrange for his/her capital to take a first loss i.e. use his capital to guarantee against loss of capital of the established investor up to say 15-20% of their investment during the first year. Losses greater than that would trigger a liquidation of the fund (failure).

That would cover year 1. An agreement to invest $X more would occur starting year 2 upon reaching some performance hurdles during year 1. Likewise for year 3. I'm really throwing wild numbers up just to brainstorm a bit.

Ideas?

Thanks for you insight.
 
Quote from Diamond Geezer:

That's a high quality post Brandonf.

It occured to me that creating a subsidiary of an existing established fund whereby the new sub manager invested, say 40-50% of the AUM and offering say 25% ownership of the sub-managemt company to said established fund might be attractive.

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These are refered to as multi-boutique managers. Lots of firms offer such deals to keep good portfolio managers.
 
cosine wrote:

"on a strategy that pretty much everyone is doing already (it doesn't seem much different from what most quant managers do)"

Could you please show me a list of everyone who are making > 30% annual return on a consistent basis for a long period of time?


"So what exactly do you contribute in this? Why would you get a share of the pie"
Investors contribute money and I contribute an IDEA. We all get fair share of the pie.


"why is the live track record in saudi arabia? Why not in the US?"
I am from Saudi Arabia and I live there. However, I lived in the U.S. for quite some time and I did my graduate studies there at WMU and UWM.


"you will probably get lots of questions as to how the US backtest was performed, and how the strategy was built. People will discount backtests a lot, or
even ignore them totally"
Believe me, I subjected this strategy to very strict constraints:

1. I used higher than average commissions

2. I used higher than average interest rate charged on short cash balances. IB charges Fed funds rate + 0.25% for tier 3 accounts. I assumed a charge of fed funds rate + 1%

3. I correct for bid/ask effect by skipping one day return and by ignoring stocks with low to medium daily volume. Above all, it is a long term strategy and, therefor, the effect of transaction costs is minimum.

4. The backtest I did is free of survivorship bias.

After all, this strategy is based on a scientific research that I have been doing for many years and I welcome any question regarding the backtesting of the strategy or some of the strategy details. Not everything will be revealed.
 
Brandonf.. Thank you man for your insightful post..

I am presenting this strategy to friends and people who have good connections. However, it harms nothing to show it to ET community. It is very likely that some of the members around here are really wealthy and are interested in this type of businesses. They just don't talk that much. Invisible members looking for opportunities..
 
cosine,

That's news to me.

May I pat myself on the back just a little bit since I came up with that by pacing around thinking and having never (honestly!) heard of such an arrangement before?

If an emerging trader has true confidence in their strategy then they:

a) should have skin in the game with their own money

b) be willing to give up some % ownership to an established player

c) be willing to cover their senior partner's (established player) capital against some losses for some period of time in return for a commitment to invest bigger $ after some successful period of performance.

I take this thinking from years of I-banking experience and common sense. I'm glad you concur that it applies here too.

Regards
 
cosine:

You would do well to rethink alot of the negativity in the posts that I have seen from you recently. I think you place too much emphasis on ET members thinking that they will be come the next DE Shaw or whatever. Most people are looking to be boutique managers like you suggested: maybe up to $30-50MM AUM with a bigger slice of the pie than most RIA's can take and not needing to babysit there investors -- no more. I am quite sure that a 1.8MM gross profit is not going up set alot of these guys.

WMU:
I would say that while you can find takers anywhere, I would encourage to take some of Brandonf's points -- as well as other's raised -- to refine you presentation so that you can open up your target audience to the widest array of potential investors. You would then use sites like hedgeco.net to help you find RIA's or CTA's who may be
 
Sorry buddy, but all you've done is show a backtest with a leveraged sharpe of 0.82, assuming you can borrow at fed+1%. 30% or 100% return doesn't matter. Anyone can obtain a sharpe of 0.82 in a backtest just by going long value stocks, which you seem to be doing given your massive drawdown in the tech bubble and in 2007. Optimize with any sloppy risk model, and you should obtain a sharpe higher than 1.2 since 1992.

The biggest question you will face will not be related to your trading cost assumptions. It will be related to how you built the strategy, and when you built it. Do you have in and out of sample periods? Or is it all in sample? Do you have any proof that you didn't build the whole strategy given the entire sample of data that you used for the backtest? As I said, ex-post, nothing is easier than coming up with a strategy that yields a sharpe of 0.82, 2, or 3 while you're at it...

And don't mention the scientific research part. At least out of respect for the people (physics, chemistry, etc.) who actually do waste the best years of their youth doing scientific research. There's nothing scientific in doing a bunch of backtests (for a few years) until you get something interesting.

Quote from wmu_uwm:

cosine wrote:

"on a strategy that pretty much everyone is doing already (it doesn't seem much different from what most quant managers do)"

Could you please show me a list of everyone who are making > 30% annual return on a consistent basis for a long period of time?


"So what exactly do you contribute in this? Why would you get a share of the pie"
Investors contribute money and I contribute an IDEA. We all get fair share of the pie.


"why is the live track record in saudi arabia? Why not in the US?"
I am from Saudi Arabia and I live there. However, I lived in the U.S. for quite some time and I did my graduate studies there at WMU and UWM.


"you will probably get lots of questions as to how the US backtest was performed, and how the strategy was built. People will discount backtests a lot, or
even ignore them totally"
Believe me, I subjected this strategy to very strict constraints:

1. I used higher than average commissions

2. I used higher than average interest rate charged on short cash balances. IB charges Fed funds rate + 0.25% for tier 3 accounts. I assumed a charge of fed funds rate + 1%

3. I correct for bid/ask effect by skipping one day return and by ignoring stocks with low to medium daily volume. Above all, it is a long term strategy and, therefor, the effect of transaction costs is minimum.

4. The backtest I did is free of survivorship bias.

After all, this strategy is based on a scientific research that I have been doing for many years and I welcome any question regarding the backtesting of the strategy or some of the strategy details. Not everything will be revealed.
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