Starting a fund / raising capital

sle · Aug 25, 2012

Quote from gmst:

So, you are saying open a prop. trading futures firm for Sharpe >3. Sharpe < 2 and below, go the OPM route, because the high Sharpe will allow much faster compounding on your own money and OPM won't be needed. Thanks!! Another poster I respect hugely on ET wrote basically the same thing few months ago.

Well, to confuse things further, there is no hard threshold on the Sharpe ratio either. It's more of a judgment call - how leveraged are you willing to be with your own cash on this set of strategies? Also, try to think of the infrastructure costs - do you need to be managing 100m to offset the cost of data/hardware/office/IT/blond-secretary or can you do it all on a smaller scale?

gmst · Aug 25, 2012

Quote from sle:

Well, to confuse things further, there is no hard threshold on the Sharpe ratio either. It's more of a judgment call - how leveraged are you willing to be with your own cash on this set of strategies? Also, try to think of the infrastructure costs - do you need to be managing 100m to offset the cost of data/hardware/office/IT/blond-secretary or can you do it all on a smaller scale?

Yes, I am getting you. Thanks! I will post my stats in few days or maybe PM you. It should lead to a more concrete discussion then. Cheers!

Busta21 · Aug 25, 2012

Quote from doublet83:

As I mentioned earlier, if your are managing friends and family money and charging fees, IB is capping you to 5 accounts max for non -RIA's. There could also be more restrictive policies depending on which state you are operating from.

I have no idea how cumbersome the process is to become a RIA, besides the tests I know you need to take (if someone can chime in here, it'd be great).

5 accounts is not much to grow from if you're only managing a couple of 10k to 100k accounts each, really this doesn't seem like a great option to me unless I become an RIA.

As to raising institutional money, some other earlier posters suggested this would be likely impossible even with a great track record unless you have some organizational infrastructure with compliance, audit, etc. I imagine this is a generally accurate statement with some exceptions.

I'm starting to build a respectable track record, as I mentioned in my original post. +87% (+330k) in 2011 and +98.2% YTD (+520k). Max DD of around 8 to 10% and max DD on monthly returns of 5.8%. Now managing 1 mil of my own money. I also have 4 years of relevant work experience at a two hedge funds (no where pristigious) before I started doing this full time. Do I have some other options to raise capital besides going family and friends? Maybe I should try talking to some asset raisers? Anyone know of any decent ones?

I would think raising cap. on those returns would be fairly simple, no? Those are some solid numbers, regardless of sharpe and the rest of that nonsense. I think institutional would care more about sharpe.

gmst · Aug 25, 2012

Quote from Busta21:

I would think raising cap. on those returns would be fairly simple, no? Those are some solid numbers, regardless of sharpe and the rest of that nonsense. I think institutional would care more about sharpe.

Yes, solid numbers indeed. And you are already at 1mm. Just start a CTA and list on Autumngold etc. CTA formation costs are less than 15k with first rate lawyer etc. You can get it done for less than 5k if you are a bit thrifty though.

I am sure within a year of listing on IASG, Barhedge etc. with these numbers, your AUM would grow 5 fold and you can take it from there.

doublet83 · Aug 27, 2012

Quote from gmst:

Yes, solid numbers indeed. And you are already at 1mm. Just start a CTA and list on Autumngold etc. CTA formation costs are less than 15k with first rate lawyer etc. You can get it done for less than 5k if you are a bit thrifty though.

I am sure within a year of listing on IASG, Barhedge etc. with these numbers, your AUM would grow 5 fold and you can take it from there.

I only do stocks so CTA is not for me, correct? Also those sites..they also seem to be for CTAs. While there are sites for equity investors, I'm not sure these services are for me. I don't know, I just feel like there's so much garbage on these sites that I don't really want to be affiliated with them..

doublet83 · Aug 27, 2012

Quote from Busta21:

I would think raising cap. on those returns would be fairly simple, no? Those are some solid numbers, regardless of sharpe and the rest of that nonsense. I think institutional would care more about sharpe.

Dunno. I haven't really tried to raise money but I don't think raising institutional money is likely until you have some sort of organizational infrastructure.

doublet83 · Aug 27, 2012

Of course, it sounds like you've had some experience trying to raise capital, so if you can share your situation and the channels you went through, that would be helpful.

Busta21 · Aug 27, 2012

Quote from doublet83:

Of course, it sounds like you've had some experience trying to raise capital, so if you can share your situation and the channels you went through, that would be helpful.

My situation is somewhat similar. I do not have that amt. of capital you are using but almost the same returns (all options trading). The issue I am running into is the dollar amount I can allocate now which is significantly less than you. From what I've experienced the accredited guys want you to put up a large amount as well so you have skin in. One thing I did do was manage a few of their accounts (and still am) small amounts, but gaining trust, and once all the legal and personal capital is ready they are in. That was a big thing. They want to know they can trust you.

How I was able to reach them? Tough. Fortunately I was in LA in 11' and was able to network quite a bit through friends and really just going off word of mouth. This seems to be the way it works unless you already know people with bankrolls willing to become a partner. As far as institutional. No idea. Didn't even think to take it there yet ( still young and have no significant record).

Feel free to DM me

Busta21 · Aug 27, 2012

Quote from Busta21:

My situation is somewhat similar. I do not have that amt. of capital you are using but almost the same returns (all options trading). The issue I am running into is the dollar amount I can allocate now which is significantly less than you. From what I've experienced the accredited guys want you to put up a large amount as well so you have skin in. One thing I did do was manage a few of their accounts (and still am) small amounts, but gaining trust, and once all the legal and personal capital is ready they are in. That was a big thing. They want to know they can trust you.

Setting up the fund structure is actually really simple, people just attempt to make it complicated. For about $7K you can find an attorney to put it all together. Then, you can get the back office stuff done for a really small fee. As far as going on these sites to advertise the fund, personally, that seems like such a long shot until you really have some AUM and track record backing you.

How I was able to reach investors? Tough. Fortunately I was in LA in 11' and was able to network quite a bit through friends and really just going off word of mouth. This seems to be the way it works unless you already know people with bankrolls willing to become a partner. As far as institutional. No idea. Didn't even think to take it there yet ( still young and have no significant record). To this day I am still just networking and talking with people I know, pestering really, but it's the only way to show them you really want a shot. (IMO)

Feel free to DM me

gmst · Aug 27, 2012

Quote from doublet83:

I only do stocks so CTA is not for me, correct? Also those sites..they also seem to be for CTAs. While there are sites for equity investors, I'm not sure these services are for me. I don't know, I just feel like there's so much garbage on these sites that I don't really want to be affiliated with them..

yes if you are stocks only CTA is not for you. Sorry for the confusion.

But if you do stocks only, why not go the usual route of a prop stock trading firm. No investor hassles, at least 1:15 leverage on your capital. You will start making at least 5x what you are making now from day 1. Sounds a like a no-brainer deal to me. Where is the confusion here? Why even worry about raising money for next year or two, if you can just go this way and instead of making say 400k for the year make 2m for the year?