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Starting a fund / raising capital
- Thread starter doublet83
- Start date
Quote from Lights:
I'll save you alot of time and trouble and tell you.. Don't Bother.
Hundreds of succesful traders have gone this route and nearly everyone has failed, not because they did not perform, but because starting a fund with such small AUM will never amount to anything. Funds now charge 1% + 15-20% performance. Traders find that managing less than few million you're really making a plumber's salary. And when you're small, you'll stay small. No HNW will invest 7 figures in a fund where his assets are >50% of the fund's assets. You'll never grow by investors.. Your friends and family is the ceiling.
Funds should be created the right way which is to work for a reputable buyside firm, do that for 5 years at a minimum of $20 million under management in your book. Once you hit $50m, which is the line in the sand, people will find you.
For you, join a right prop firm. They will be your investor and increase your assets based on performance. After a year, they'll raise you millions in buying power at a much higher payout too. If you really do have what you claim in terms of returns past 2 years, many firms in Chicago and Ny will back you.
Good one.
Quote from Lights:
I'll save you alot of time and trouble and tell you.. Don't Bother.
Hundreds of succesful traders have gone this route and nearly everyone has failed, not because they did not perform, but because starting a fund with such small AUM will never amount to anything. Funds now charge 1% + 15-20% performance. Traders find that managing less than few million you're really making a plumber's salary. And when you're small, you'll stay small. No HNW will invest 7 figures in a fund where his assets are >50% of the fund's assets. You'll never grow by investors.. Your friends and family is the ceiling.
Funds should be created the right way which is to work for a reputable buyside firm, do that for 5 years at a minimum of $20 million under management in your book. Once you hit $50m, which is the line in the sand, people will find you.
For you, join a right prop firm. They will be your investor and increase your assets based on performance. After a year, they'll raise you millions in buying power at a much higher payout too. If you really do have what you claim in terms of returns past 2 years, many firms in Chicago and Ny will back you.
You are ignoring the growth in trader capital. If a trader can live off his own capital and performance, then a fund where the fees exceed the operating costs is only going to boost his earnings, assuming running the fund doesn't reduce his CAGR.
Quote from Ghost of Cutten:
You are ignoring the growth in trader capital. If a trader can live off his own capital and performance, then a fund where the fees exceed the operating costs is only going to boost his earnings, assuming running the fund doesn't reduce his CAGR.
Because when you take in other people's money your costs go up a lot: auditors, accountants, lawyers, marketing, operational enhancements, etc. If you can get investors while keeping these to a minimum you are right. But most strangers want to know you aren't a fly by night shop. They will want to know someone is watching the book if you break your leg on the subway one morning, etc.
Again, it depends on from whom you get capital. Friends and family will be a lot friendlier on these costs because their inherent trust in you will preclude needing these safeguards. But a stranger will demand more protection and assurances that you are legit. That all costs money. So, unless you can get to a critical mass, these costs will come out of the OP's pocket.
There are a lot of reasons to take the risks. Fortunately, most of these costs don't scale linearly. For the 10MM he may be cashflow negative in his management company. The next 10MM might get him to cashflow flat. Everything after that is gravy. But getting the first 10MM is hard.
Anyone who is an accredited investor is already being innundated with hedgefund pitch books. If you can't offer these safeguards, it's no different than a restaurant who doesn't offer clean silverware to continue Lights analogy.
Quote from doublet83:
Thanks for the comment. I have no intention of going through the process right now. I don't believe my track record is long enough, and I am still very busy with research and initiating coverage on various names this year.
I'm more curious to know whether or not I can expect to be able to raise 1 to several million in a 1 to 3 years, assuming I can maintain my historical leve of performance. Advice from people who have gone through the process would be greatly appreciated.
Perhaps you can try contact this guy and figure out how he did it: http://www.smartmoney.com/invest/strategies/the-400-man-1328818316857
Quote from doublet83:
I find you particularly annoying. Your posts display a high level of arrogance and ignorance at the same time. I will acknolwedge that such a combination can be entertaining to watch.
If you make it worth my time I can prove to you that these results are real. We can say, bet 5k on whether these returns are real or not, and transfer these funds to a reputable third party escrow service who will then verify my account statements, and transfer both deposits back to me.
You will most likely not agree to such a thing and continue to pollute my thread and others with your rambling.
Anyone can join ET forums which are free of charge. So I guess you've got to take the good with the bad.
Nice comeback though.
I am confused by this:
"But surely if I sustain these results for 5 or 7 years, then raising several mil should be no problem? "
Assume you have 1/2 million of capital now. Let us the lower the performance to "only" 50% a year. If you can sustain this level of return for 5-7 years, you should have
from
0.5*1.5^5 = 3.8 million
to
0.5*1.5^7 = 8.5 million
Then you would already have your "several million". If the concern is scalability, then you should never manage OPM anyway.
I do not mean to sound mean. I have gone through similar thought processes again and again. The number just does not work out.
njrookie
"But surely if I sustain these results for 5 or 7 years, then raising several mil should be no problem? "
Assume you have 1/2 million of capital now. Let us the lower the performance to "only" 50% a year. If you can sustain this level of return for 5-7 years, you should have
from
0.5*1.5^5 = 3.8 million
to
0.5*1.5^7 = 8.5 million
Then you would already have your "several million". If the concern is scalability, then you should never manage OPM anyway.
I do not mean to sound mean. I have gone through similar thought processes again and again. The number just does not work out.
njrookie
I don't manage a hedge fund any longer. I wanted my life back so I switched from a CPO to a CTA. Everything changes once you take possession of OPM. As a CTA I can link my clients accounts to mine and then invoice them each month, depending on whether it was a profitable month. No, I'm not a Citco client.
Quote from dazzwater:
@the1 care to share the name of your present hedge fund? Are you a Citco client?