Starting a LLC (Hedge Fund Alternative)

>>.....(ignoring management fees here which are typically 1-2% of assets).....<<

I sincerely hope this doesn't spontaneously combust, but why would anyone "ignore" those fees? Fidelity, Vanguard, Putnam, et al, have grown absolutely huge from them. For that matter, many HF managers have grown pretty fat from management fees alone. Funny thing is the vast majority of them (both HF and MF managers) don't even beat the relevant benchmark yet still rake in the fees. I don't think any analysis of different approaches could be even-handed without taking management fees into consideration.
 
Originally posted by marc lehman
Why would you not want Hedge funds to clear through you?

Isn't that business simple to handle? Im sure your Prop traders are experiencing a tough enviroment which equals less revenue, No?I would think that HF biz is easy business!

Rumor has it that you are SLk's biggest customer, is that true? If you clear a Hedge fund throught Bright do you clear SLK? And if a fund wanted to do business with you could they Prime with SLK? Are your rates cheaper than going to SLK directly? Do you soft dollar? Provide Goldman research? Short interest rebates? Bullets offered? Provide free space to a fund? Is Redi your only execution system?
If this thread isn't the palce email me.
thanks
Marc
More...

Regulations provide, as I understand them (Diane, if you're out there, correct me if I'm wrong - Diane is our Compliance Officer), that each and every member of a fund would have to become licensed members of our Firm. This is fine, and we have people who "back" traders, who are themselves, licensed with us. We are not allowed to have a zillion "partners" or any "investor" in these funds from the outside.

This is a highly regulated industry, and we go out of our way to keep everything above board, and follow all the rules.

It seems that everyone is trying to "over-complicate" the situation. All these entities are generally of no benefit.

Gene, is this how you read the regulations about LLC's within and LLC?

Regarding the other questions, all of our services apply to all of our traders.
 
Don,

I believe you are correct. The professional trading LLC's cannot have members that are "customers". We may take a LLC (one or two members ) in for tax purposes , if our compliance officer checks them out and they meet the necessary criteria for membership in our firm. Mulitiple member(customer) LLC's may not be able to join a leveraged trading firm(LLC)because of licensing(Series 7) , suitability requirements , state regulations or SEC regulations.


Gene Weissman
Lieber & Weissman Sec., L.L.C.
gweissman@stocktrade.net
 
Ok, thank you for the answer. I totally forgot about that!

So you guys mean to tell me that you don't own a customer side of the business seperatly aside from your LLC? Like a b/d member NASD? You're giving away so much business by not having that.

Nothing for nothing, the prop business is dead right now , with almost all traders getting KO'd daily. I cannot believe that your firms respectfully are doing well.
 
marc lehman,

Their are only about 10(or less) LLC trading firms in the country that cater to professional full time traders. Don has estimated that there are approx. 10,000 full time stock traders in
the US. In a "bull" market the number of traders may increase.

The LLC structure has advantages over customer
accounts for true professional traders including margin ,
rules & regulations and trading environment. The NASD firms are subject to customer rules & regulations . The traders who are LLC
members of professional firms feel that this structure is a major benefit to their trading. The trading environment is hard, however
there are always traders who seek the advantages offered by professional firms. Once full time traders who have traded at customer oriented firms(NASD) come over to a professional firm(LLC) they almost never go back to an NASD firm.

Clearing services for hedge funds(prime brokerage) is a very
different business and the LLC's usually do not cater to hedge
funds .


Gene Weissman
Lieber & Weissman Sec., L.L.C.
gweissman@stocktrade.net
 
Again, the term "prop" has taken on the meaning of "zero capital" for the traders. Our firm is 100% "proprietary" but does ask that the traders share in a small portion of the risk. And...you are right, as we have seen all over the board, that there is just no need for Prop traders.

We have always treated the trader as a seperate business entity (which they are), and we provide the additional capital and the "economies of scale" needed to to well in this business. Different business model, differeing results. And, yes, we are proud to say that we are doing well.

Don
 

Another thing to keep in mind is that as a "non-individual", you will be paying professional fees at IB - $200+ per month - and if your numbers are strong enough, you will be eligible for private placements.


Do you mean as professional, you pay $200+ per month just for data? I pay $10 per month now for data with IB.

For private placement, does that mean IB will help you to raise money?
 
you can have a awesome track record on brokerage statements, but if noone knows about it. Further cap draws will be hard.

if you are really good at trading, there is no reason to seek funding from outside. Unless your looking to jump start to upper echelons and handle the headaches that come with it.

a good trader can easily run up 100K to 10 mil in 10 years. But 10 mil wont be enough to buy that private island. If your able to run up 100K to 10 mil in 10 years, you can settle for a decent life. But if you want a fund management challenge. Then your record needs to be audited and publicized.

The brokerage track record needs to be audited and the track record needs to be auditable. Plus you can;t advertise in the truest sense.

The common means of advertisement is from your name or management companies name spreading throughout moneyflow channels. And money will come find you. The track record needs to be monitored or followed for a couple years at a minimum, all this entails a timeline of 10 years or so.

If you can beat 15% per year average money will find you, when your track record is being monitored.

A LLC can be setup as a mangement company. And that management company can be a general partner and with investors as limited partners. And you can be the limited partner. You can't compensate yourself or take on other peoples money, if you do you fall under regulation of the SEC/NFA/CFTC, and if your trading nonregulated derivatives such as spot forex, there are minimal rules to that also.

Once your capitalization goes above 15 or 25 mil, then you fall under regulatory secrutiny and have to register.

So if you can beat the average 15% per year, money will flow. In 30 years you should be able to hit 50 mil or more with just trading your own funds. Taking on OPM is just a means of jump starting your non risk yearly income.

chris
 
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