Starting a small Hedge Fund??

I have a successful options trading system I have posted on Collective2 for the last 14 months (I traded it for another 10 months in a cash account prior to that). During the time on Collective2 it has produced a 25.2% return with a 13.7% max draw down.

My intention in posting it there was to develop a third party, non-biased report of my system's performance and to use that as a basis for a hedge fund. I am happy to report that I am now getting some serious interest in funding the hedge fund, although no firm commitments yet.

I was curious if anyone else out there started their hedge fund this way or perhaps developed a system, posted it on Collective2 and sold the system? Are sites like Collective2 even taken seriously as far as validity in reporting performance?

Thanks to all and I wish you continued success in your trading.

Sincerely,
Daryl
 
Quote from Worldcrusher:

I am happy to report that I am now getting some serious interest in funding the hedge fund, although no firm commitments yet.

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Good to hear that !
Serious interest because you have a C2 track record ?
 
Quote from fluttrader:

Good to hear that !
Serious interest because you have a C2 track record ?
More...

Yes. Mainly because my system is 100% long and yet has thrived in a down market (it is non-directional in its entries). I think this is the biggest selling point.

I direct interested investors to the system posted on Collective2. This enables them to check out the stats (very detailed) as well as to read the forums in which I detail the methodology and explain what I am doing. It also breaks down the risk trade by trade and since most serious investors I have talked to seem to be most interested in how the system handles risk, this has been a strong selling point.

The ironic thing is that I have been unable to gain any subscribers through Collective2. However, options trading systems are not very popular there.

Also, for what it is worth, I have no affiliation with Collective2, other than posting my systems there.

Thanks,
Daryl
 
Quote from fluttrader:

I will have a close look at your system (I might be the first subscriber)

Where do you find interested investors ?
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These are people I have reached out to almost 2 years ago when I first (unsuccessfully) tried to start the fund. At the time, they did not feel that the system had enough time under its belt despite 10 months of brokerage statements verifying a 38% return with a 13% max draw down. They also felt that it has been a trending market and everyone makes money in a trading market. Their points were well taken.

So I gave it a year and a half and went back to them and said ok, the system now has almost 2.5 years of data with strong returns, low drawdowns, and it has consistently proven itself in both trending and highly volatile, consolidating markets using real time trades. Would you be interested now? They were.

In addition, I have created a second system using the same methodology as the first but that trades the Gold index to hedge the first system against catastrophic moves in the market (six sigma events). This seemed to be the last remaining concern of investors.

Sincerely,
Daryl
 
surely if you have a great, legit, track record that has to be THE starting point?

Get this first then the rest should fall into place easily?
 
Quote from chipmunk:

surely if you have a great, legit, track record that has to be THE starting point?

Get this first then the rest should fall into place easily?
More...

I think a lot of people go into this thinking that way. Unfortunately, performance is probably one of the least important factors. It seems that pedigrees and connections are much more important. To compound the issue, performance without a large amount of assets already under management, means very little to those with the power to invest. But how do you get the capital if no one will invest it? Classis chicken and the egg situation. I personally, find this very frustrating, but that is currently the system. That is also what makes PTF's accomplishment so impressive.

Sincerely,
Daryl
 
If your looking for institutional level investors then you must have a product that an institution will want. In essence you need to market it like Nike markets Jordans. Find your target and design around their needs. Most institutions have portfolio allocations so they will invest in you if your strategy fits into their overall portfolio. The other very important consideration is liquidity of your strategy, most institutions require you to be able to accomodate large sums of money, options alone is a tough sell. Value/FI is a great HF strat due to their capital limits. Absolute return discretionary funds much more difficult to convince a big firm. Remember your target likely doesn't know much about actually trading and has a different mandate then you would expect....

There are plenty of examples of one off's, i.e. rich individuals, trading groups etc, but that will require serious networking. Much easier to convince someone like that over a beer in a bar then over the internet or a conference room.
 
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