Starting a fund / raising capital

[i am nobody]

I hope the OP does not mind that I use his thread for a question about opening a fund.
I would like to open a fund in Luxemburg. I have all I need..... except a licence. Seems to be difficult, if not impossible to get this licence.

I would like to find someone who can help me with his licence to start up. The fund will only trade my own money so there is no risc about customers who can complain.

Who has a licence and can help me? Can be in other country as well, so not limited to Luxemburg. I live in Europe.

 

[Vix-Trader]

Why do I have the feeling I'm the only voice of reason here? Again, there is absolutely nothing sell-able to the public for a fund that claims to make 100% annual returns with low risk. Those guys are a dime a dozen, seriously.

If you can find somebody who especially likes going to Vegas, maybe he'll give you some cash to manage. Aside from that, 100% annual returns makes smart people roll their eyes and run for the hills.

I know you are a guy who thinks the higher returns the better and 100% sure sounds fantastic, but I'm sorry to say that simply isn't the case. Investors want 10%-20% a year with low risk.

So trade your own money, and good luck. But starting a fund? You don't have any meaningful results that will allow you to start a fund.

And if starting a fund is truly what you want, you'll need a secondary trading strategy that boasts lower and more stable returns with an expectation that they are sustainable through all market environments. Everybody is a genius in a bull market.

Nobody I know would be interested in a fund that claims 100% annualized...

 

[gkishot]

Quote from Vix-Trader:

Investors want 10%-20% a year with low risk.

I disagree. Investors want higher sharpe ratio. Risk adjusted returns, that's all they want.

 

[doublet83]

Quote from macintash:

You say, "I do like to take a big bet on a high conviction plays" which makes sense. My question would be, how big? and what kind of mechanism do you have to protect if it turns out that it was not such a good trade? (might not happen often, but might happen once in a while).

As, I've said, I've put on as big as a 30% position, although in my 10 years or so of managing my account there has only been about 8 or so situations where I've gone this big. If I'm putting on a position that big, I have clear short term catalysts identified, and if they do not materialize they way I anticipate, I quickly cut size.

 

[doublet83]

Quote from short&naked:

I think what you have explained above is at the core of the fund raising issue. It seems as you stated, the bulk of your returns come from longer term positions. The fact that you have a diversified portfolio of 60 names. (Btw, after diversifying to about 12 names, the additional benefit to risk that each new diversification brings is exponentially reduced, but you probably know this). In other words, the more names you add to your portfolio the more likely your returns will start to correlate with the larger indexes (which is exactly with a diversified portfolio is, duh).

Unless these are positions that are pushed into profit as a result of some kind of earnings release (post earnings/news gap and the following price drift is one strategy that comes to mind) and your analysis/research has a direct affect on the outcome of the trade (ie. related to the news, etc.), you are essentially creating beta and there is plenty of that out there already. This would essentially mean that a good portion of your returns are essentially a leveraged version of the SP500.

I am making some assumptions, guesses here since I do not know all the details of your strategies. So forgive me if I misspoke.

Fund managers love fundamental, value strategies during bull markets as these are super scalable. Interestingly, the most scalable 'strategies' are those with the loosest risk management, as hard stops come at a liquidity cost.

But in terms of marketing, if the above is correct, there is little to differentiate yourself from the rest of has become an overcrowded market of fund managers.

Alpha always come at the expense of liquidity, But it carries value in the money management world.

So the question is, how much alpha are you creating and can you prove it to prospective clients without divulging too much information?

I think its safe to say I'm generating a ton of alpha. There are a lot of ways to slice and dice the returns. The simplest is to consider that I have had net long exposure of about 50% over the past 3 years, and I've returned around 1200%, versus around 42% for the S&P500.

Of course the past three years have been a huge bull market. But it is a positive sign that my monthly returns have had next to no correlation with the monthly returns of the US market. Additionally, in total I have been profitable on my shorts over this period on an absolute basis.

Anyway, I'm not trying to pitch my returns here, and as I've said before, out performance of this magnitude is unsustainable.

 

[short&naked]

Quote from gkishot:

I disagree. Investors want higher sharpe ratio. Risk adjusted returns, that's all they want.

The sweet spot is around 20%. That is where you will find the most high net worth capital. The market average of 10% is (was during good times) too close to medium grade corp debt returns to attract any serious capital (this may have changed due to low interest rates).

 

[short&naked]

Quote from doublet83:

I think its safe to say I'm generating a ton of alpha. There are a lot of ways to slice and dice the returns. The simplest is to consider that I have had net long exposure of about 50% over the past 3 years, and I've returned around 1200%, versus around 42% for the S&P500.

Of course the past three years have been a huge bull market. But it is a positive sign that my monthly returns have had next to no correlation with the monthly returns of the US market. Additionally, in total I have been profitable on my shorts over this period on an absolute basis.

Anyway, I'm not trying to pitch my returns here, and as I've said before, out performance of this magnitude is unsustainable.

Well, it would be sustainable if your were trading illiquid markets/strategies, but then again you would not be able to scale this into a money management business.

 

[gkishot]

Quote from short&naked:

The sweet spot is around 20%. That is where you will find the most high net worth capital. The market average of 10% is (was during good times) too close to medium grade corp debt returns to attract any serious capital (this may have changed due to low interest rates).

What if the OP has proved return of let say 80%. What's wrong with that? What's the reason it won't attract capital?

 

[tradingjournals]

Quote from doublet83:

I think its safe to say I'm generating a ton of alpha. There are a lot of ways to slice and dice the returns. The simplest is to consider that I have had net long exposure of about 50% over the past 3 years, and I've returned around 1200%, versus around 42% for the S&P500.

Of course the past three years have been a huge bull market. But it is a positive sign that my monthly returns have had next to no correlation with the monthly returns of the US market. Additionally, in total I have been profitable on my shorts over this period on an absolute basis.

Anyway, I'm not trying to pitch my returns here, and as I've said before, out performance of this magnitude is unsustainable.

If you generate alpha, do not compare to SP. It is irrelevant. Measure such as sharpe ratio is what matters. They bet on the skill.

 

[tradingjournals]

Quote from gkishot:

What if the OP has proved return of let say 80%. What's wrong with that? What's the reason it won't attract capital?

Smart money can say they can do that in the bull market with a leverage of 2 on russell. No fees/ no other conditions.