Starting a hedge fund - a good idea?

K

kevpries

So I have asked this question here and in one forum...but a few clarifications:

I was planning to create a hedge fund (which is much easier than you might think...), offshore jurisditions have relatively low fees (some of them..BVI), SEC regulation is pain in the *** I guess...but I am English...so they won't jail me right away like madoff (i hope so...).
So anyway...my planned business model was to make the hedge fund more accessible to 'main street' and offer extremely low minimum...like just $1000 minimum to invest while most funds will ask for one milion. I know US federal/state law perhaps doesn't allow conventional ways for a hdge fund to be advertised...but I was thinking to advertise the hedge fund to be more like an online brokerae where people can open accounts and invest online.
See my MAJOR concerns are not if this is "legal"(as people here will jail me for even hinting about hedge funds...) but whether people will want to invest at all? I mean lets face it - most people don't have sufficient funds - even if the funds returns 20% per annum...so what...most people have not even heard of the compound interest effect...let alone that with $10k invested they will see this opportunity as if they will pocket a few K per year and the fund won't offer level of security as any bank. The only interested people will be banks and institutions...but they will want a track record of 5 years + and in the best case will need a Phd from harvard (the LTCM case...) - which I don't have. All I have is about $100k in cash and several strategies related to options arbitrage that WORK.
But...you see my case...

anyway, thanks in advance!
 
IMO with $100k you can forget it. Also, if you market to US investors, AFAIK you need to be US regulated or registered. A good general principle for global fund management is if you want to get clients from country X, you need to comply with all the regulatory and legal requirements of country X.

My advice is go work for a fund. Hedge funds always want trading talent, they will handle all the legal, regulatory, and administrative BS, you will get a salary, and if your strategies work, you will get paid (as long as you are at a decent firm and have a good contract) and get a reputation.

Going it alone only makes sense if you can generate enough after taxes, drawdowns, and expenses to pay your living costs AND still have enough left over to grow your account. For $100k, only some serious luck, or a very high % return strategy, would do that IMO.
 
@keypries

You may be better off going the CTA route. I did a search for CTA's and found some that allow as little as $1,000 to invest with them (assuming the computer was right). I was very surprised to find this. I am sure that most small investors are not aware of this. You would likely face the same sort of problem. But, yes I was very surprised.. I assumed you'd need at least 20k-25k to invest with a CTA. I still wonder if the computer was right. Most managed futures require at least 10k or so because that's what they require per contract.
 
In theory a hedge fund is to be "hedged". Long and short positions and a net posture.

In terms of 2 & 20, to might get the 2% out of Joe Sixpack, but I have my doubts about the 20. Of course you have to have capital gains to consider the 20 anyway.

I'm finding it hard to believe compliance is so easy, particularly when marketed in the US.
 
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