That's because most don't want to do it unless they have commitments for decent size starting capital (Absolute minimum of $10,000,000, but more like $25,000,000). Anything less than that, and they're probably better off staying Prop and keeping 100% of their profits (as opposed to a 2 and 20 split).
Starting a Hedge Fund with no Credibility
- Thread starter webent
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That's because most don't want to do it unless they have commitments for decent size starting capital (Absolute minimum of $10,000,000, but more like $25,000,000). Anything less than that, and they're probably better off staying Prop and keeping 100% of their profits (as opposed to a 2 and 20 split).
Question that is somewhat on topic:
Regarding incubator hedge funds: This sound like a great idea for me, since I have my own and a few friends/family accounts that I am trading. However, I understand you cannot accept compensation for these. Is there any way around that? That doesn't make any sense to me.
Regarding incubator hedge funds: This sound like a great idea for me, since I have my own and a few friends/family accounts that I am trading. However, I understand you cannot accept compensation for these. Is there any way around that? That doesn't make any sense to me.
you are surely not talking about a hedge fund, are you? Your clients don't mind you switching PB's after the offering documents state you are using XYZ PB? How in the world do you unwind positions, build another relationship and switch PB's in 3 days??
surf
I think the issue some might have is that you say after several months of trading, you now have the confidence to move forward. A few months is not long enough to gain confidence.
You have to ask yourself how much chance / randomness played a role in your results, while being honest with yourself. For example, since the major market indices have been going up at a 45 degree angle since the summer, anyone who has made money utilizing any kind of long or high delta strategy should not feel like a genius. What appears to be a great trading system may work for a while, and then suddenly take you down like the plague. Correlations and relationships are not static.
You have to ask yourself how much chance / randomness played a role in your results, while being honest with yourself. For example, since the major market indices have been going up at a 45 degree angle since the summer, anyone who has made money utilizing any kind of long or high delta strategy should not feel like a genius. What appears to be a great trading system may work for a while, and then suddenly take you down like the plague. Correlations and relationships are not static.
agreed. i run a few small funds. I traded for 3 years (8 years total market experience) before having the numbers to introduce to a broker dealer who picked me up. the funds are not mine..they belong to the firm. I get a salary and bonus for that work and the right to trade personal and private money on the side.
Computer models are great...but you need more than one many times. the market is very fluid.
Also, a huge aspect of the market is psycological versus merely quantitative...a long track record either winin and institution or a fund is vital to showing the discipline required to stay on top of things.
You may consider taking you data and selling yourselves to a hedge fund to start. they pay you a salary to test your models and run them with a preexisting infrastructure (SOROS did this with the quantum fund when he farmed out part of the fund to victor neiderhoffer and his S&P futures model)
I think the LAST thing you should be thinking of right now is starting your own fund.
Good luck.
Yes, I realize this, and those are serious issues... just not the issues I want to deal with in this thread. I'm well aware this might not work out as I'd like, but the downside of spending $10k on an incubator fund and jumping through some hoops, vs. the potential upside... well, I'd be able to make that assessment more easily if I knew what the realistic upside was. Right now I'm trying to determine if there is any potential upside to taking the incubator path, and if so, how to do it. I will be using this investment technique anyway, and it's not like I am dependent on it working in order to eat.
This is very very sound advice..FORGET about starting your own fund.You will never get the seed capital,potential investors will want you to have significant skin in the game,and the start up costs are very high.Its the wrong move...
Get yourself in front of as many hedge funds,commodity pool advisors,funds of funds as possible.Do NOT understimate the value of your presentation.Dress the part,and if you cant speak the part,get someone who can.Dont believe that image doesnt matter..It does,especially from where you are coming..I am not trying to be negative,but you should be exceedingly well prepared....
not sure i understand that... when i started back then, i had 10K at play, to "see", x100-200 leverage, and for those early days that was plenty of room... then built it up to 100K+ after taking a few nasty bullets, but clients had already started jumping in - managed accts cause it was simple, no cost, 1-click block trade and automated allocations to sub-accts... the dream setup, until... - anyhow, the rationale for me is i was only mentally prepared to blow $xxK of my own money away on a given day / trade, without it affecting my "trading" if you like... and even though the amount was increasing over time, i'd learned not to play too close to that limit...
therefore taking clients in on a 20-25% high-watermark profit share basis, money you can lose type deal, meant one and only one thing: increasing my R/R manifold, at no extra cost / no particular effort to me... only problem is scalability of "edges"... well, big deal... if u reach the "limits" u just return client's monies gradually as your PA is getting bigger... and until you find another "edge" or a way to increase scalability...
when i had to switch brokers in mid 2005, with my meager c.$1mio AUM total, if a turnkey Fund type solution had been economically attractive, no setup nor running-related headaches, and available, thats what i would have gone for... moved f***ing earth & sky to find one at the time... there wasn't any...
but perhaps i misunderstand the prop concept...
thats the simplest way to grow and learn more... i'd say, protect your edge - no matter what they say, brokers monitor yr perf, its just a mouseclick... - and just go for it!Quote from bootize:
Thanks 2cents
I have a personal successful track record, and now have people inquiring about "giving me money to play with." This has started me thinking about managing a fund, or something of that nature. I know how to trade itself, but need guidance on the "running a fund" aspect. It almost sounds better to run several managed accounts first, then several years down the line, go for the full fund itself.
Does that sound plausable? or is there a smarter way? Thanks!
a smarter way? dunno, if i had to do it again... perhaps if you have room for additional headaches, find yrself a decent incubator to convert your PA and your PA only into a "fund" from Day 1, so as to build a "valid" track record early, for when you want to attract institutional investors' attention (more headaches...)
best advice though: stay away from institutional investors, go for HNW people, they've got the big boats, they know how to enjoy life... if only that...
)))