Starting a Hedge Fund

"It was saying that a large number (200 or so) of hedge funds go bust every year, not due to trading, but due to poor back-office / business processes! That really surprised me to be honest, so just be careful there."

lots of hedge funds just close their doors after a couple of years of poor performance because they know its easier to just shut down and start over than try to meet their watermark once they are in the hole.
 
If any of you are starting to go through the process, I would highly recommend getting someone in the industry to help you if at all possible. Without someone truly on your side who represents you or is there to look out for your needs, you may get screwed through the whole process.

The accountants, lawyers, brokers and regulatory officials have a primary (and nearly exclusive) interest in covering their own asses and little else. If they are all left unchecked, you will wind up with massive docs, months and months of delays, terms you never thought you would have to agree to and the cost will be at least twice what anyone promised you. Those costs will get even higher and the delays will be worse if you don't agree to follow their lead.

In short, going it alone can be very lonely.
 
ktm, thanks for the reply. Yeah there is no way I'd try this by myself, the regulations are too complex.

I spoke briefly with the principal of turnkeyhedgefunds.com a month ago and he was very helpful. He is on one of the main Hedge Fund trade association board of directors so he is pretty well connected and knowledgeable. And their rates at least for startup look quite reasonable. So that is most likely the provider I would use. There are some others on the web like Green Trader Tax that I haven't researched that well yet, but at initial glance these other ones look like they provide a little bit more services but cost much more.

Right now I'm at an exciting point; I've developed a robust system in testing and get to begin live trading in about a week or two.

So let's see how well my system does live as opposed to just in my historical tests. Within 2 months I should know whether it is working within parameters, and then at that point I'll see how much live trading history is needed. I'm guessing investors will want a 1-year audited live trading history in my case since I'm not famous or particularly experienced.

I'm also giving thought to going the seed capital route. The downside is this is even harder since I'd probably be looking for at least $5 million to make it worth giving up big equity. Whereas if I fundraise on my own, I'd only need to raise $500,000 or so which is much easier. I've run numbers in Excel and in my case going the "Hedge Fund" route is much more profitable than just using my own money alone. So it's only a question of do I go for seed capital and give up equity in the company or do I start small and slow with just some of my own money and a couple of small investors.

-Taric
 
Or, you can always put up $50K or so of your own money, and use 1 or 2 million of our money to trade with...and keep all of your profits....

Just keeping alternatives known...

Don
 
ptunic,

If you have the ability to keep from giving up any of the company, I would try that first. A lot depends on your performance, which can't really be known until you are further along.

There are some decent seed companies but the bar is high early on for the little guy. There are a lot out there who just want to take your $$$ and your potential - some even post on this forum!
 
Quote from dvegadvol:

HTrader, et. al.

I've traded fx for some time (15+ yrs now, yikes!) and maybe I can give you a bit of perspective about what goes on in this market.

Profit Centers:

Spread Capture - certainly the engine that drives any large trading operation. One moneycenter bank controls about 12% of the entire market's volume daily. Some institutions are pure capture desks, thereby 'limiting' risk to the bank. Some operate as an agency desk where clients accept an add-on 'fee' for execution of an order, others make a price and cover the resulting position in the interbank market. How and when the position is covered is determined by management - some will allow a senior trader to hold large positions for their entire trading day, while others insist on rapid closing out. A large desk will probably earn >75% of gross income from this activity (across spot, fwd and derivative trading).

Proprietary Trading - This center has the greatest variance in p/l and activity across banks. Some don't allow it, others actively encourage prop trading. No bank approaches the size and scope of the large global macro funds, however. (For that matter, the large global macro funds pretty much don't take those sorts of positions anymore either and most have ceased to be.) There are global desks taking macro positions, but the majority of them use derivatives rather than spot and fwds.

Cheers
More...

Interesting ... and more hedging info at the free chapter on the CME :
http://www.cme.com/prd/ir/eurodollarhandbook4749.html

The Eurodollar Futures and Options Handbook:
Chapter 14, "Hedging Extension and Compression Risk in Callable Agency Notes (PDF)"
 
Does anyone have offering documents they are willing to sell or give?

I plan on starting a hedge fund in the next few months and am trying to save money on lawyer fees by writing up my own offering memo, LLC agreements, and subscription documents.

Thanks!
 
Quote from bkk:

Does anyone have offering documents they are willing to sell or give?

I plan on starting a hedge fund in the next few months and am trying to save money on lawyer fees by writing up my own offering memo, LLC agreements, and subscription documents.

Thanks!
More...

You are joking right?
 
I think you don't need to be a CTA, only if you have under $600,000 in management and less then 15 customers above that it gets complected
make sure you have a C.Y.A document (Cover Your Ass) and beside how you want to charge your fees 25% performance base or 2% Asset management fee
 
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