starting a fund...best structure?

[dac8555]

This is a little premature, but it doesnt hurt to plan early.

I have finally turned profitable...YEAH! and found my niche and methodology that works pretty damn well for me. Up about 30% YTD, and think i could maintain a decent track record based on the low risk of my strategy.

In three years...with a good track record, i would like to start a fund.

Here is the question...I am market neutral...and i hedge...so i cant be a mutual fund. Hedge funds are very restrictive in the way that they attract clientelle.....and i am overseas, so my ability to attract clients would be limited to marketing effforts (which are limited by hedge fund charters and rules). hedge funds charters say you cant market directly...if i understand correctly

does anyone know how i can set up an offshore fund where i am permitted to do marketing (only looking to attract about 10mm) in order to finds a client base?

each country is differet...should i stay away from te USA maybe? maybe look at people in Candada, Austrailia, europe?

 

[bolter]

dac8555,
$10mil is probably not sufficient AUM to make a fund worthwhile.

It takes about 6 months and $US100K - $250K to establish a offshore fund in somewhere like the Caymans. On top of this you'll need to consider the following:

1. Marketing in the US will likely require a Delaware feeder fund - another $US50K - $100K.
2. You will need to appoint administrators, auditors, lawyers, a custodian and find a prime broker.
3. If you want to market in Europe (France, Italy, Germany) you need to have the fund listed on somewhere like Dublin, Luxemburg.
4. This means in turn you need to appoint two independent directors and your minimum investment goes to $US100K.

All these service providers charge like wounded bulls. Additionally, size is everything in this game. With $US10mil capacity the top tier administrators will refuse your business. And forget about finding a TPM.

Addtionally you need sufficient working capital to last say your first 2 years without a performance fee. You do the numbers but you will probably need something like $500k - $1mil to get started. And that is without employing any staff or establishing an office.

Starting a hedge fund sounds incredibly sexy but the attrition rate is extremely high.

Do your homework and good luck.

 

[Load_the_boat]

Quote from bolter:

dac8555,
$10mil is probably not sufficient AUM to make a fund worthwhile.

It takes about 6 months and $US100K - $250K to establish a offshore fund in somewhere like the Caymans. On top of this you'll need to consider the following:

1. Marketing in the US will likely require a Delaware feeder fund - another $US50K - $100K.
2. You will need to appoint administrators, auditors, lawyers, a custodian and find a prime broker.
3. If you want to market in Europe (France, Italy, Germany) you need to have the fund listed on somewhere like Dublin, Luxemburg.
4. This means in turn you need to appoint two independent directors and your minimum investment goes to $US100K.

All these service providers charge like wounded bulls. Additionally, size is everything in this game. With $US10mil capacity the top tier administrators will refuse your business. And forget about finding a TPM.

Addtionally you need sufficient working capital to last say your first 2 years without a performance fee. You do the numbers but you will probably need something like $500k - $1mil to get started. And that is without employing any staff or establishing an office.

Starting a hedge fund sounds incredibly sexy but the attrition rate is extremely high.

Do your homework and good luck.

Given all you said is it best to get a track record and then go work for an established hedge fund? Seems like the overhead and headaches are not worth the trouble.

 

[bolter]

load_the_boat,

For an individual trader looking to capitalise on their trading skills starting a hedge fund is probably the worst option. Running a hedge fund more about managing a business than it is about trading.

If you have a profitable trading method and a decent track record your best option is to sell yourself to a prop desk. They provide all the infrastructure, back office, and capital and you retain a share of the profits. Some hedge funds offer this sort of arrangement also, for the really good guys.

 

[segv]

Quote from Load_the_boat:

Given all you said is it best to get a track record and then go work for an established hedge fund? Seems like the overhead and headaches are not worth the trouble.

You sound discouraged. What is preventing you from starting a fund in your home jurisdiction? It seems to me that the complexity and cost of doing so would be greatly reduced if you did. You are attempting to establish an auditable track record in the hope of soliciting future funds - so do that in the least expensive and least complex way possible. And do that as soon as possible. If you wait three years to establish your fund, you will be waiting another one, two, or three years to establish a track record. Your track record outside of the fund matters not (unless you are famous)! Here in the US, the overhead for a startup fund (a fund that does not charge for its management services) is very low.

-segv

 

[Load_the_boat]

Quote from bolter:

load_the_boat,

For an individual trader looking to capitalise on their trading skills starting a hedge fund is probably the worst option. Running a hedge fund more about managing a business than it is about trading.

If you have a profitable trading method and a decent track record your best option is to sell yourself to a prop desk. They provide all the infrastructure, back office, and capital and you retain a share of the profits. Some hedge funds offer this sort of arrangement also, for the really good guys.

You sell yourself to a prop desk is the best option. I assume they don't care that I'm a longer term trader holding for days, weeks and even months at a time if I catch a major move?

 

[Load_the_boat]

Quote from segv:

You sound discouraged. What is preventing you from starting a fund in your home jurisdiction? It seems to me that the complexity and cost of doing so would be greatly reduced if you did. You are attempting to establish an auditable track record in the hope of soliciting future funds - so do that in the least expensive and least complex way possible. And do that as soon as possible. If you wait three years to establish your fund, you will be waiting another one, two, or three years to establish a track record. Your track record outside of the fund matters not (unless you are famous)! Here in the US, the overhead for a startup fund (a fund that does not charge for its management services) is very low.

-segv

Well thanks for the info. I need to do some research obviously. I know greencompany.com has some info on their site about starting an incubator fund to keep costs way down until your performance record attracts enough investors. I guess that is some of what you are saying here. Until recently I was thinking of starting a forex fund but realize my trading methodology works on futures and stocks as well and not including them would leave me more vulnerable to a volatile equity curve.

 

[segv]

Quote from Load_the_boat:

You sell yourself to a prop desk is the best option. I assume they don't care that I'm a longer term trader holding for days, weeks and even months at a time if I catch a major move?

They definately care. Prop firms make their money from commissions, fees, and haircuts. Many will not tolerate overnight risk. The first words from the mouth of a prop manager will be "What kind of volume?". IMO, the value of a prop firm to a well capitalized trader is limited, unless it will have a major impact on your costs.

-segv

 

[Nana Trader]

Quote from segv:

They definately care. Prop firms make their money from commissions, fees, and haircuts. Many will not tolerate overnight risk. The first words from the mouth of a prop manager will be "What kind of volume?". IMO, the value of a prop firm to a well capitalized trader is limited, unless it will have a major impact on your costs.

-segv

You misunderstand meaning for prop. Firms like bright, echo, assent, carlin........are not prop, they are pro firms. Prop means their risk capital, not yours.

 

[segv]

Quote from Load_the_boat:

Well thanks for the info. I need to do some research obviously. I know greencompany.com has some info on their site about starting an incubator fund to keep costs way down until your performance record attracts enough investors. I guess that is some of what you are saying here. Until recently I was thinking of starting a forex fund but realize my trading methodology works on futures and stocks as well and not including them would leave me more vulnerable to a volatile equity curve.

My advice to you is to keep it very simple. Trade futures, equities, or forex, but not all three. You will have to satisfy very different regulatory requirements for each class of assets. This translates to direct cost in the operation of your fund. As a start-up you need to concentrate on costs and performance. With low costs and high returns, you can worry about other asset classes later. As the other poster said, managing a fund is more about business than trading. You cannot conquer the world all at once.

-segv