Starting a hedge fund

[AC3]

Tatnic,

First, let me wish the best of luck with your endeavor. I started a Hedge Fund back in August of 2000 and have been running it since.

I read a thread that was going through yesterday about a guy who was contemplating becoming a CTA. I think you should take a read through it as there is some decent advice in there. One that made sense to me (probably b/c it was what I did) was to forgo the idea of trying to raise money with just a backtested record .... frankly that is nothing and you'll find it nearly impossible to drum up anything with it ....

Get your trading philosophy written in stone so that it is not up for interpretation when the market doesnt go your way...

2. Make sure your approach is scalable or you'll find that even if your successful having a fund that trades Mobutu War Bonds isnt gonna get you the $50 million that your gonna need to make a living.

3 Get your trading down and Forward Test your strategy and be militant about it down to the last detail.. Then get your wallet out along with a couple of suckers, I mean friends, who dont mind putting a 10 or 20K wager down on you and run your strategy for a year minimum. Get a job bartending or if you can run your fund and still do your day job great. At the end of the year if your at all close to what you set out then at least you can go around to a few folks who may take a more serious punt on you. As has been pointed out its a long MF'ing process with a low success rate but if you think you have something that will consistently make money believe me after you put your dollars down and you have a steady return you will attract investment ... it will take longer then you think but give it a shot...

 

[Tatnic]

Quote from dhpar:

Hi Tatnic,

first I wish you good luck. You are right that your performance is not stellar. It seems to be highly correlated to equity markets :eek: suggesting that you are not adding much alpha (but maybe only leveraged beta).

Question is why you want to start HF in the first place. Is trading OPM tempting when you are confident about your strategy and can take 100% of profits instead of 20%? Why don't you just trade your million up and have a nice life without all the reporting crap and very likely low or no taxes (if you get set up properly).

Set up offshore vehicle and make 25%+ for few years. Then if you really want to manage OPM you will have no problems to get them - people will come one by one ....IMHO


P.S. and do not tell any sucker your strategy - returns should speak for themselves!

Interesting idea, ie the off-shore account. If you have any suggestions on how to get started along that path I'd appreciate them...or if anyone else has any ideas/comments, please share. I knew that this would be the best site to get ideas and opinions and sincerely appreciate everyone's input.

 

[dhpar]

Quote from Tatnic:

Interesting idea, ie the off-shore account. If you have any suggestions on how to get started along that path I'd appreciate them...or if anyone else has any ideas/comments, please share. I knew that this would be the best site to get ideas and opinions and sincerely appreciate everyone's input.

I went through it but I am not a prisoner of USA - so everything was much easier for me.
There are better experts than me on this board. Try this recent thread for instance: http://www.elitetrader.com/vb/showthread.php?s=&threadid=89950&highlight=panama

 

[Tatnic]

Quote from AC3:

Tatnic,

First, let me wish the best of luck with your endeavor. I started a Hedge Fund back in August of 2000 and have been running it since.

I read a thread that was going through yesterday about a guy who was contemplating becoming a CTA. I think you should take a read through it as there is some decent advice in there. One that made sense to me (probably b/c it was what I did) was to forgo the idea of trying to raise money with just a backtested record .... frankly that is nothing and you'll find it nearly impossible to drum up anything with it ....

Get your trading philosophy written in stone so that it is not up for interpretation when the market doesnt go your way...

2. Make sure your approach is scalable or you'll find that even if your successful having a fund that trades Mobutu War Bonds isnt gonna get you the $50 million that your gonna need to make a living.

3 Get your trading down and Forward Test your strategy and be militant about it down to the last detail.. Then get your wallet out along with a couple of suckers, I mean friends, who dont mind putting a 10 or 20K wager down on you and run your strategy for a year minimum. Get a job bartending or if you can run your fund and still do your day job great. At the end of the year if your at all close to what you set out then at least you can go around to a few folks who may take a more serious punt on you. As has been pointed out its a long MF'ing process with a low success rate but if you think you have something that will consistently make money believe me after you put your dollars down and you have a steady return you will attract investment ... it will take longer then you think but give it a shot...

Thanks man, I appreciate your advise and opinion. Just curious, why did you start your fund and has that reason been met?

 

[Tatnic]

Quote from formikatrading:

Fund performance is important, but volatility, correlation with benchmarks and maximum drawdown are all important considerations as to whether you can attract money. Also, is the methodology scalable -- in other words, how big can you get before you lose your edge?

Not sure what bench marks most funds use for comparison sake, but the S&P seems to be quoted quite often and is really no comparison or valuable benchmark. The QQQQ's have had a negative return over most of this decade.

 

[hajimow]

Titanic:

Can't you start with your sibilings, parents, friends, neighbors,....
Then if you give them good return, they will bring more clients.
One question: hedge funds have more freedom compared to mutual funds. I expect them to have better returns than mutual funds but..... Look at JAOSX, WWNPX,... They are good mutual funds with good return. I expect hedge funds should have at least 40% more return than them but....
I was reading pit ball book and I was surprised how his poor customers were ripped off with like 8% commission for 17% return.
Another note: A hedge fund has a minimum investment much higher than a mutual fund that increases the risk.

A good business would be to find 20 mutual funds and actively spread the customer's money in them and just charge them 1% commission. This way, the clients would feel more secure and you can raise more moeny and then trade with your own money for fun.

 

[Tatnic]

Quote from AC3:

Tatnic,

I read a thread that was going through yesterday about a guy who was contemplating becoming a CTA. I think you should take a read through it as there is some decent advice in there. One that made sense to me (probably b/c it was what I did) was to forgo the idea of trying to raise money with just a backtested record .... frankly that is nothing and you'll find it nearly impossible to drum up anything with it ....

You don't have a link to that thread by chance, do you?

tia

 

[Tatnic]

Quote from Tatnic:

You don't have a link to that thread by chance, do you?

tia

I found it. And after reading that entire thread I've got to say that doesn't sound like much fun. I'm not sure what I was thinking...I guess I thought it would be fun to make money for others but it sounds too much like work, ie tedium. I appreciate all the responses from yesterday.

 

[AC3]

Quote from Tatnic:

Thanks man, I appreciate your advise and opinion. Just curious, why did you start your fund and has that reason been met?

At the time I had been working on a couple of ideas on the side and programmed them into strategies. I was working as a broker for and had an established business going but just couldn't see myself doing it forever.... my biggest client at the time was beginning to go onto the machines full time and I saw that as a sign on things to come .... at least for me ... so I took an opportunity that had been presented to me by another client to run a bit of wedge for them and here I am....... "has the reason been met"... I'm still doing it and I'm making a living .... I guess I can't complain..

 

[Tatnic]

Quote from formikatrading:

Fund performance is important, but volatility, correlation with benchmarks and maximum drawdown are all important considerations as to whether you can attract money. Also, is the methodology scalable -- in other words, how big can you get before you lose your edge?

I have some comparison's with the S&P 500 over the past 7 years which proves my point that my mix is a conservative, non-correlated plan (and I understand that backtesting is no guarantee of future success, but if you knew how simple my plan is you might think otherwise):

2006: -0.65% worse than the SP500
2005: 11.83% better
2004: 3.22% better
2003: 5.59% better
2002: 23.09% better
2001: 16.51% better
2000: 24.27% better

Coming out of a terrible market environment, my plan does much better in comparison (because of the bond exposure). Again, I don't think the SP is such a great bench mark and its basically flat (on an annual return basis) from the bubble bursting in August of 2000 whereas my mix would have returned over 11% better annually over that period.

My final word on this model...it could be dubbed the Idiot plan because any idiot could use it and safely make money over the long run. I'm sure there are plenty of idiots out there that would be happy with such a plan.