I will attempt to explain my thoughts on why a CTA is better than a CPO. This is strictly my opinion and is based on my experience with my pool versus my managed accounts.
With a CTA your startup costs are much lower. All you have to do is pay for the S-3, pay your registration to the NFA and whatever it costs to set up and LLC or LP in your state and you are off. Your cost to start a CPO is around $1000-1500, if I remember correctly.
With a CPO you will have to pay the above costs, plus it is advisable to hire an attorney to set up your docs and you will be required to get an annual audit which costs as well. If you do not include the annual audit your start up existences will be around $7500.
When I got quotes for my audit after the first year they ranged from $3500-$50K. Now obviously the $50K was from a larger company that does a lot of work for sizeable money managers.
I opted for the cheaper audit and everything turned out fine. However, if you want to have a pool but still want institutional money chances are you are going to need a well known accounting firm to do your audits. This is because institutions want transparency and liquidity and if you can't offer them that they, at the very minimum, want to see an audit from a known firm.
At the time of my audit I did have some institutional money under management, but they were all in managed accounts so I opted for the cheapest audit I could find for the pool.
Which brings me to my next point. As institutions look at emerging managers it is highly unlikely that they are going to feel comfortable investing in a pool. They want total transparency and liquidity. They want the ability to pull their funds at a moments notice if something goes wrong or, in some cases, if the wind is blowing the wrong direction. Meaning they can be very fickle.
Bottom line is that if you are an emerging manager and want to attract as much money as possible it is best to stick with managed accounts only.
If you are an established manager or have a lot of money backing you to start off with and you want to avoid reverse engineering risk then go with a CPO.
For me I started off with only $250K and put it in the pool. That was the last $250K that went into the pool. Everyone who invested after the initial start up date wanted managed accounts. For me I found that all the demand was for managed not pooled.
Hope this was of some help. If there are any other managers out there that feel differently it would be great to hear.
With a CTA your startup costs are much lower. All you have to do is pay for the S-3, pay your registration to the NFA and whatever it costs to set up and LLC or LP in your state and you are off. Your cost to start a CPO is around $1000-1500, if I remember correctly.
With a CPO you will have to pay the above costs, plus it is advisable to hire an attorney to set up your docs and you will be required to get an annual audit which costs as well. If you do not include the annual audit your start up existences will be around $7500.
When I got quotes for my audit after the first year they ranged from $3500-$50K. Now obviously the $50K was from a larger company that does a lot of work for sizeable money managers.
I opted for the cheaper audit and everything turned out fine. However, if you want to have a pool but still want institutional money chances are you are going to need a well known accounting firm to do your audits. This is because institutions want transparency and liquidity and if you can't offer them that they, at the very minimum, want to see an audit from a known firm.
At the time of my audit I did have some institutional money under management, but they were all in managed accounts so I opted for the cheapest audit I could find for the pool.
Which brings me to my next point. As institutions look at emerging managers it is highly unlikely that they are going to feel comfortable investing in a pool. They want total transparency and liquidity. They want the ability to pull their funds at a moments notice if something goes wrong or, in some cases, if the wind is blowing the wrong direction. Meaning they can be very fickle.
Bottom line is that if you are an emerging manager and want to attract as much money as possible it is best to stick with managed accounts only.
If you are an established manager or have a lot of money backing you to start off with and you want to avoid reverse engineering risk then go with a CPO.
For me I started off with only $250K and put it in the pool. That was the last $250K that went into the pool. Everyone who invested after the initial start up date wanted managed accounts. For me I found that all the demand was for managed not pooled.
Hope this was of some help. If there are any other managers out there that feel differently it would be great to hear.