I can give you my opinions since you don't know the name of my management company. A couple of my partners don't like me spreading info about our strats. Personally I don't think it matters.
If you aren't managing money for others it doesn't really matter what you're doing. Trade to fit your personal needs. You know how often you'll need to make withdrawls.
OPM is a different story. I personally think that the trader should have a monthly/weekly target return, depending on the strat. I'm not talking about RoR, RoI, RoM, etc. I'm talking about a return for the entire portfolio. If he has $1MM AUM and specifies a 2% return this month. That is $20K regardless of the risk taken or margin used. That is the only return that really matters to investors in the end.
This has many benefits:
-It is easy to scale up as the target return is based on AUM.
-It prevents revenge trading after a drawdown, because the month following a drawdown has a target return based on the AUM after the loss.
-It takes advantage of the powers of compounding.
-Allows you to charge fees via profit allocation each month very easily, while constantly re-establishing the high watermark.
Once the target return has been established, a max risk should be set. This determines asset allocation. This is very dependant on the strat as some positions carry 100% loss risk, while others carry less than 20%. Let's say that I'm willing to risk 10% of the account to make that 2% target. Then I'm going to need a 20% return on my positions to hit my target, and my probability of profit had better be pretty darn high.
Anyway, I don't want to ramble on forever so it comes down to the following. If you consistently get >20% annually, you'll easily be in the top quartile. That only requires 1.5% monthly.
To me it is important not to have >5% drawdown in a given month. Most people here know that I'm not a huge fan of selling cheap gamma, so I don't need to tie up too much capital to achieve a 1.5% return each month. We are more aggressive however, and target a 10% monthly return with about a 3:2 risk/reward. We count on diversification to prevent >5% drawdown.
We ensure that under the worst possible circumstances, we won't be able to lose more than 15% of AUM. Then we target a 5% annual return on the remaining capital.
If my max drawdown for the year was 3-4% then I'm happy with 40% return. If the max drawdown was >10% then I'm extremely disappointed if the annual return was less than 90%.
