Starting a fund / raising capital
- Thread starter doublet83
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You might consider opening an account at Covestor. Although it probably can't be considered audited performance, you will get a semi-official track record out there and it might be useful for generating leads.
Assuming you can keep up the performance, you could get a decent number of people subscribing to your model. I don't think the payout is that good, but you're mainly doing it to establish a track record anyway.
Assuming you can keep up the performance, you could get a decent number of people subscribing to your model. I don't think the payout is that good, but you're mainly doing it to establish a track record anyway.
I've taken a look of this site before. I came away with the opinion that most of the managers on this site were trash and the ones that did have good results often achieved them thru gimmicky means, or by luck. Furthermore, if you are a moneymaker you can charge 2/20 and a very large percent of your client's returns accrue to you. This is not the case for a Covestor model that relies on subscription fees.
What I will probably do is start managing some friends' money for no fees, and try to build a reputation. Managing OPM was never a rush for me anyway.
realistically, this is probably your only avenue..well other than graduating at the top of your class of a top business school
your returns do not impress me since it's only 2 years..2 years can definitely be a fluke considering the stock market has been in a strong bull market during that time....but in this atmosphere of hot today and gone tomorrow hedge funds, a 2 year track record would not even raise eyebrows of high net worth individuals. It's all about your salesmanship, resume and who's vouching for you..other than that...work with friends/family money and make them a "shitload of money" and then maybe...just maybe...you will build a reputation
I'm sure you are gullible enough to invest money on the basis of a 2 year track record....that is, if you had any money to start with..... I'm so sorry but the gov't welfare checks that you're collecting won't quite be enough.
I agree that a two year track record is not a long time. I have acknowledged myself that I often wonder what level of returns are sustainable. To be fair, my monthly returns have 0.012 r2 with the S&P500, so its clear my returns aren't the result of a correct macro call. I think there are much more legitimate concerns about my strategy, but I'd rather not go into them here - the point of this thread is primarily around the logistics of starting a fund, rather than an audit of my performance. Notice how I only revived this thread with another post because I felt I had information that pertained to managing capital under IB's F&F model which I felt would be relevant to readers of this topic.
Neither the SEC nor state regulators will allow you (or any advisor using you as a sub) to promise or hint that investors should expect anything other than possible loss of principal. Nevertheless, investors have very few tools to assess the abilities of discretionary (non-mechanical) traders. They will run an ordinary-least-squares regression of your returns over market returns. If you trade a narrow basket of specific securities, they will regress your returns over the returns of those exchange-traded products. A longer track-record will better reveal the actual contribution of your market-insight to your returns, and reduce the possibility that your excess returns are a result of good fortune.
But, there is a market for start-up managers. You have a competitive advantage when you enter the marketplace over established managers - your flexibility with fees. And investors willing to allocate a small fraction of their risk assets to start-up managers will potentially benefit from superior fee-adjusted returns. An advisor able to allocate a portion of their clients assets to a diverse stable of start-up managers will benefit, on an expected value basis, from greater performance-fee income. It isn't as if there are that many good money managers out there to choose from, who haven't yet begin to demand exorbitant fixed-fees.
It is totally ridiculous to say that a 2yr record will yield you bupkiss.
How many client relationships can you handle? If you could raise $1M each from 100 people, do you have the cardiovascular health to handle servicing 100 clients? Consider the possibility that you can start with 5 $1M, and go supernova on them such that you drop your smallest client when a bigger client comes along.
Fill out a form. Take a test. Write a disclosure document. Keep books and records. Buy a Policies & Procedures manual designed for a one-man-shop. I'm in compliance, and my brain is wired for this; I think this is all really easy.
Look at the form http://www.sec.gov/about/forms/formadv-part1a.pdf and instructions http://www.sec.gov/about/forms/formadv-instructions.pdf then practice filling it out. Specifically, take a look at the civil/criminal/disciplinary disclosures to see if you will have to disclose something embarrassing. (eg getting busted with a blunt back in college, and now you're a very different 29yr old)
Take a look at the Series 65 syllabus http://www.nasaa.org/wp-content/uploads/2011/08/Series-65-Exam-Specification.pdf and see if the topic you are unfamiliar with would be overwhelming to learn. There are some things they need you to know so you can perform financial planning, even though you only want to perform investment management work.
I can't imagine why you wouldn't want to keep the books and records of the advisory business, as you will need them to be complete and organized for a variety of personal and business reasons. See the Rule 204-2 section of http://www.sec.gov/divisions/investment/advoverview.htm
From what I have read here you are exploring trading OPM in order to make money (for yourself) off the money you make for your clients. You don't have any intention to make money off your clients, i.e. at their expense. You will have no problems disclosing your conflicts of interests (or lack thereof) or adhering to a code of ethics.
If you only manage private funds, you will not need to register. However, you may someday manage in excess of $150M, in which case you will sign up as an Exempt Reporting Advisor. An ERA is not a registrant, and is not subject to some of the rules governing RIA's. Nevertheless an ERA needs have books and records subject to inspection. In effect, an ERA will need to structure their business substantially along the same lines as an RIA will. If you begin an advisory business without implementing the policies and procedures applicable to RIAs, it is much harder to remedy your ways in the future. You will want to consider dressing up like an RIA even if you don't need and want to register.
As the manager of a private fund, you may have 35 non-accredited investors if you keep your investor limit to 100. Alternatively, you can have a fund with up to 499 investors if they are all qualified purchasers. For the purposes of this exemption, they will aggregate funds with similar strategies; since you run one strategy these will be your aggregate limits. If you elect not to register as an investment advisor, you will not be subject to the rule limiting performance-fees to qualified clients.
(JOBS act lifts the 3c7 limit to 999 but I don't think regulations have been promulgated to implement the new law)
Before you disavow investment advisor registration, I urge you to consider whether - in practice - the additional flexibility that comes with not-being-registered has meaningful benefits to you. If you don't follow the custody rule as required of RIA's, premiums for your e&o/d&o insurance + fidelity/crime bond will skyrocket. If you take performance fees from unsophisticated low net worth investors, fewer carriers will underwrite your risk. And if you live in a place like California, state law will bar you from taking performance fees from non-qualified-clients anyway. If you don't have conflicts of interests, criminal/civil/disciplinary/ history to disclose, then you don't have any practical benefit from not having to disclose them. Finally, by not being registered, some institutional investors will shun you, and all private-wealth advisors will shun you. If you are not registered you can't advertise, and you're going to be in a rough spot marketing your fund directly to investors. That is a job unto itself and a very tough job indeed (sales).
This is an oldie but goodie http://www.akingump.com/files/Publi.../caf459bc-edc5-45c3-9e82-ae35634ba36c/912.pdf keep in mind that the $ limits have been raised since Dodd-Frank