Starting a CTA - is this a good business at all?

P

PBS

I am looking at a CTA database and I see that some of them have been in business for 10+ years, yet still have only less than $10m in AUM, charging 2/20%.

This just adds to my pessimism when it comes to starting up my own CTA as I just do not believe this is a sustainable business model unless you have at least $100m in AUM.

Is this whole business just not worth the effort it takes to establish it and then raise assets? I cannot come over my pessimistic view of my chances to raise any assets and this database examples do not help. Especially that I am based outside the U.S.

Trading my own capital will not get me very far and raising assets is impossible. Has anyone else got this kind of frustrating feeling?
 
PBS said:
I am looking at a CTA database and I see that some of them have been in business for 10+ years, yet still have only less than $10m in AUM, charging 2/20%.

This just adds to my pessimism when it comes to starting up my own CTA as I just do not believe this is a sustainable business model unless you have at least $100m in AUM.

Is this whole business just not worth the effort it takes to establish it and then raise assets? I cannot come over my pessimistic view of my chances to raise any assets and this database examples do not help. Especially that I am based outside the U.S.

Trading my own capital will not get me very far and raising assets is impossible. Has anyone else got this kind of frustrating feeling?
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Seems to me the usual path is to join a fund, make a name for yourself, then raise funds.
 
PBS said:
I am looking at a CTA database and I see that some of them have been in business for 10+ years, yet still have only less than $10m in AUM, charging 2/20%.

This just adds to my pessimism when it comes to starting up my own CTA as I just do not believe this is a sustainable business model unless you have at least $100m in AUM.

Is this whole business just not worth the effort it takes to establish it and then raise assets? I cannot come over my pessimistic view of my chances to raise any assets and this database examples do not help. Especially that I am based outside the U.S.

Trading my own capital will not get me very far and raising assets is impossible. Has anyone else got this kind of frustrating feeling?
More...

If you are pessimistic on the industry you shouldn’t be in it.

the barrier to entry for a CTA is extremely low so you would expect to see 1000s of them failing.
 
MKTrader said:
What do you mean by joining a fund? Are you trading your own systems/ideas exclusively or just contributing to the trading?
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I doubt you're going to get 100 million handed to you without some serious name recognition, that's all I'm suggesting OP needs to do.
 
Some people just trade their own $10MM. They only list their names there for name recognition. May not be looking for outside $$.

But some people can just keep quiet to keep their own $10MM and no one knows.

Billy Hwang was out of the radar for years.
 
PBS said:
I am looking at a CTA database and I see that some of them have been in business for 10+ years, yet still have only less than $10m in AUM, charging 2/20%.

This just adds to my pessimism when it comes to starting up my own CTA as I just do not believe this is a sustainable business model unless you have at least $100m in AUM.

Is this whole business just not worth the effort it takes to establish it and then raise assets? I cannot come over my pessimistic view of my chances to raise any assets and this database examples do not help. Especially that I am based outside the U.S.

Trading my own capital will not get me very far and raising assets is impossible. Has anyone else got this kind of frustrating feeling?
More...

I've been invested in CTAs for ~20 years. The most important factor is TRACK RECORD. If you have even a 2 year record of decent returns with reasonable drawdowns, you'll be able to get funded. To get larger funds will take time >> longer track record. If trading equities, investors want to see how you handle volatile periods like Mar. 2020.
Do you have a 2 year track record?

With $1M at 2/20 with a 20% annual return, that's $20,000+$200,000=$220K annual income. You won't receive all of this but this is just $1M.
Why do you need $100M?

If you have a track record, can you compete with the program below with a 2 year record? As an investor, I have many choices.

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If we get $1MM capital and earn 20%, it is already $200k capital gain income. So it seems any fund manager only applies to the folks who do not get the capital.

This also applies for folks who get a good trading strategy or system, but want a much larger capital base. That is hard to raise $100MM+ with unknown names.
 
Unless you have more than $10M under management the regulatory burden is not worth it. That's mainly why I closed my CTA years ago.
 
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