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Starting a fund / raising capital
- Thread starter doublet83
- Start date
I think reaching the 3 yr mark for my fund was a nice milestone. I also received some nice press, write-ups in a couple (smaller) trade magazines. And once you reach $10 mm AUM, you show up on more charts.Quote from OddTrader:
Thanks for the input. Great progress indeed! What's the main contributor, may I ask?
But even the press coverage is a function of maintaining my performance for 3 years. I have a couple more opportunities for write-ups coming up in the next 3-6 months.
I raised $0 new dollars for almost 12 months... and then 6 months later, I raised almost $6 million in two months. Explain that to me.
First get your numbers right. Even bernie madoff knew how to add.
Quote from doublet83:
Like many a young analyst or trader, it has long been a dream of mine to run a successful hedge fund. I would like to get some advice on the process. There seems to be some posters here who are credible, and best of all, advice here is free. Thanks in advance for any insights you have to offer.
I have been trading and investing my own funds for about 2.5 years now. The first 1.2 years were done under a family account and won't be useful for raising capital. As of 1/2011, by returns are as follows:
2011: 87.2% return. Max drawdown (based on monthly returns) of 5.0%. Profits of 330k
2012 YTD: 36% return. Max draw down of 4.1%. Profits of 200k.
These returns have been achieved with generally market neutral strategies, although currently I intend to maintain a long bias. Monthly returns show a R squared of 0.04 against monthly returns of the S&P500. Despite low draw downs, high returns are somewhat concentrated around a few great months, which is I know is incrementally negative. StDev of monthly returns is 10.8%.
I have about 5 years of experience working on Wallstreet doing primarily fundamental research of US equities as an associate level generalist. I've worked at two small hedge funds that are not well known, but legit. My age of 28 is on the young side and may work against me.
Investment approach -
Primary doing l/s based on fundamental research. I have been opportunistic and employed some short term "trading" strategies, but these have also been based on fundamental analysis. These short term strategies account for a good chunk of returns, although I am focusing more on the long term portfoilo more nowadays.
Raising Capital?
I hope to start raising capital in 1 to 4 years. I do not intend to raise capital now, partly because I don't think my trackrecord is long enough, but also because I'm very busy right now with research. I am becomming increasingly comfortable with my investment process, and I believe I can continue to achieve 50% + returns with low draw downs. Initially I will be satisfied raising at least 1mm. Although the fees from 1mm will be fairly small, it seems a worthwile start given my belief that I will continue to produce positive risk adjusted returns and attract greater investor interest over time. This is assuming the 1mm is from one client- I'm not interested in the hassle of raising 1mm from various small investors (friends and family). I obviously hope to raise more, but I don't know what is realistic at all. If i can't raise 1mm, I will continue to manage my personal capital.
I'd love to hear what I can realistically hope to raise in one or two years assuming I can maintain these results, and also considering my relevant, but not impressive, professional background. If the answer is zero, what kind of track record will it take to raise a few mil?
Also, some have recommended going the way of a managed account. Ideally I'd like to set up a fund, but I can understand that investors are reluctant to send a few mil to a stranger, despite how trustworthly I look in person. I suppose a separate managed account in addition to your own account will be just as good for building a track record when audited? Some potential conflicts of interests with respect to how to execute trades do immediately come to mind. Some of my shorter term trades will need to be executed quickly, and I'm not sure how it will be possible to have these trades executed at the same time if I'm managing multiple accounts.
Nice numbers. Where did you end the year? How much was your max monthly DD?
Quote from doublet83:
Great year so far. Made 860k representing 150% return.
I am quite concerned with taxes next year. Federal tax rates going up. Medicare taxes will now be on unearned income as well when previously they were just on earned income and the rate is going up too. New Obamacare tax on investment income. So for a trader based in NYC, it seems like your marginal tax rate will be about 59%. I'm all for taxing the rich, but 59%..Christ.
Federal 39.6%
NY 6.9%
NYC 3.6%
SS 10.4% up to 100k 1.4%
Medicare 3.8%
Obamacare tax 3.8%
59.1%
Am I misunderstanding something here? It seems like my marginal tax rate will be going up 14% because previously I was not subject to SS tax, Medicare tax, and Obamacare, along with the lower federal tax rate.
Pretty sick! Keep that up and no reason to ever take outside money.Quote from doublet83:
Max drawdown on a monthly basis was about 5.8%. I believe max drawdown would be in the 7 or 8% range.
Screen shot attached represents my main account, not including a secondary account and IRA accounts.
That said, no harm in forming some kind of structure and tracking numbers that way more professionally. I'd get the licenses out of the way, get registered, and get normal annual audits. Don't worry about raising money, just be able to answer the question "can I see yor audited financial statements - can I write you a check".
Thank you Heech. Last year was very good and I'm proud of my results.
I still intend to raise capital at some point in the future. The core of my strategy is fundamental research. While there are many advantages to being nimble, I cannot really do the type of research I want to without a more meaningful AUM. For instance, I do not have any access to management teams, sell-side or buyside networks, where a lot of essential information is disseminated. Furthermore, I cannot do the depth of research I want to for most names, as I single handedly cover about 200 companies, which forces me to develop a more reactionary approach than I oftentimes would prefer.
I am working on passing my CFA level 3 this year, and then becoming an RIA. Right now I'm very busy with just research, and trying to raise institutional capital is not a priority. Some of the comments on this thread have further persuaded me that raising money would be very difficult for me right now, so I have decided that its not worth my focus at this time.
I still intend to raise capital at some point in the future. The core of my strategy is fundamental research. While there are many advantages to being nimble, I cannot really do the type of research I want to without a more meaningful AUM. For instance, I do not have any access to management teams, sell-side or buyside networks, where a lot of essential information is disseminated. Furthermore, I cannot do the depth of research I want to for most names, as I single handedly cover about 200 companies, which forces me to develop a more reactionary approach than I oftentimes would prefer.
I am working on passing my CFA level 3 this year, and then becoming an RIA. Right now I'm very busy with just research, and trying to raise institutional capital is not a priority. Some of the comments on this thread have further persuaded me that raising money would be very difficult for me right now, so I have decided that its not worth my focus at this time.
Quote from Soon2Bgreat:
Very nice job.
Curious to hear what your average holding period is for a position given the fundamental nature of your approach? No worries if you don't feel like sharing.
I have three distinct time horizons. On the long term side, I typically attempt to hold for over one year, as long as risk reward remains fundamentally supportive. On the short term side, I have an intraday strategy. While few would associate intraday trading with fundamental research, there are some ways to do this. Finally I have a medium term strategy typically ranging from 2 weeks to several months.