Starting/Working for a Hedge Fund

ProfitTakgFool · Jun 7, 2008

Depends on your trading ability. If you have a good track record and you feel confident you can generate profits then it's not a bad idea. I know a guy who does exactly what you are suggesting. He deposits T-Bills with his broker as collateral and trades off the margin he gets in return. He's a top shelf trader so it's a good arrangement for him.

If it's just margin your after you'd probably be better off going prop and take on less risk.

Quote from katz55:

I have a friend that has about $4mm in a bond portfolio and is willing to transfer them to the LP and let me trade on the margin. He doesn't want me to sell the bonds. And He wants the income but understands there could be losses.. He currently has the bonds in a brokerage account. However, I have some other smaller capital commitments from others. Is this wise or even practical?? He actually approached me, and I was unsure of how to answer. Any thoughts??

bigmoose · Jun 7, 2008

Good thread, thanks for your time explaining starting HFs!

Can you give us a little insight into typical client investment distribution for a ~$5M AUM HF. i.e. What is the typical small, large, and median non-family investment?

hilojack · Jun 7, 2008

Quote from katz55:

I have a friend that has about $4mm in a bond portfolio and is willing to transfer them to the LP and let me trade on the margin. He doesn't want me to sell the bonds. And He wants the income but understands there could be losses.. He currently has the bonds in a brokerage account. However, I have some other smaller capital commitments from others. Is this wise or even practical?? He actually approached me, and I was unsure of how to answer. Any thoughts??

The only thing you need to worry about is margin calls. If you sustain losses and don't have the cash available, you could be forced to liquidate a portion of those bonds. Essentially the same as cash.

scriabinop23 · Jun 7, 2008

Quote from Cutten:

PhD/quant = short gamma and/or easily replicable edge (by anyone else with quant skills) = eventual blowup or degredation of returns. The perpetual edges are all non-quantifiable, by definition.

Good to know low IQ schlocks will always have a place in the business. PhD/quants would better serve society anyway solving problems of scientific merit, don't you think?

wenzi · Jun 7, 2008

Just for sake of being complete, you should know who your regulator is for your trading. ProfitTakgFool trades futures which is regulated by the CFTC. Your milage may vary, depending on what you trade. I personally like the CFTC more than the other regulators. I don't know why, but they seem to more accommodating to traders.

Most states offer State Registered Investment Advisors (RIA) an exemption from registering in the state if TWO conditions are met: The RIA has fewer than SIX (6) clients in the state AND The RIA does not have a physical place of business in the state.
http://www.remickcapital.com/files/deminimis.pdf

IANAL , please check with yours first.

Great thread ProfitTakgFool, lots of useful information

Quote from

ProfitTakgFool:

The CFTC's De Minimis exclusion is 400k and up to 15 people, not including family members. Most states follow these guidelines. California is a little tricky. Before I became registered I did not accept any investors from California because they live in their own world out there. Once you're registered it's not a problem.

ProfitTakgFool · Jun 8, 2008

When I first started I took accounts as small as 10k. Now I have a min of 25k but may be increasing it. Typically, non-family members tend to fall in the area between 25k and 50k but it depends on the wealth of the person. You will find some individuals who have 500k to invest. Institutional investors will typically take you for a test drive with about 100k. If you make them money they will increase that amount to 500k or 1M. It really comes down to making money. If you do that you will win the trust of your clients. People simply don't want to lose money, even when they fully appreciate the risk.

Quote from bigmoose:

Good thread, thanks for your time explaining starting HFs!

Can you give us a little insight into typical client investment distribution for a ~$5M AUM HF. i.e. What is the typical small, large, and median non-family investment?

ProfitTakgFool · Jun 8, 2008

Thanks for posting this wenzi. This is very useful for someone who is just starting up.

Quote from wenzi:

Just for sake of being complete, you should know who your regulator is for your trading. ProfitTakgFool trades futures which is regulated by the CFTC. Your milage may vary, depending on what you trade. I personally like the CFTC more than the other regulators. I don't know why, but they seem to more accommodating to traders.

Most states offer State Registered Investment Advisors (RIA) an exemption from registering in the state if TWO conditions are met: The RIA has fewer than SIX (6) clients in the state AND The RIA does not have a physical place of business in the state.
http://www.remickcapital.com/files/deminimis.pdf

IANAL , please check with yours first.

Great thread ProfitTakgFool, lots of useful information

katz55 · Jun 10, 2008

Quote from wenzi:

Just for sake of being complete, you should know who your regulator is for your trading. ProfitTakgFool trades futures which is regulated by the CFTC. Your milage may vary, depending on what you trade. I personally like the CFTC more than the other regulators. I don't know why, but they seem to more accommodating to traders.

Most states offer State Registered Investment Advisors (RIA) an exemption from registering in the state if TWO conditions are met: The RIA has fewer than SIX (6) clients in the state AND The RIA does not have a physical place of business in the state.
http://www.remickcapital.com/files/deminimis.pdf

Can you trade multiple asset classes within one fund, i.e. futures, equities, forex, etc. as long as you are in compliance with respective regulators.

88888888 · Jun 10, 2008

Can you trade multiple asset classes within one fund, i.e. futures, equities, forex, etc. as long as you are in compliance with respective regulators.

If you do that, how do you calulate the performce which to be include in CPO/CTA disclosure document?

Also for "future managed account", can you rade multiple asset classes within one fund, i.e. futures, equities, forex, etc. as long as you are in compliance with respective regulators?

katz55 · Jun 10, 2008

Quote from ProfitTakgFool:

I did an LLC, which manages the LP. I think you can do an LLLP that covers both of these bases with one entity.

I do a 1% and a sliding scale % of profits, which starts at 20% and slides up to 50% based on performance.

ProfitTakgFool, I have followed the links you have posted and find them very helpful. Who did use when you first started out. Who do you use now to clear trades, and what trading platform do you use? Since the L.P. is the trading vehicle, is that how the trading account is titled?

You said you were trading on your own at first, then created the fund. Did you have to open new account for the L.P.? Also, let's say you you start off with $200k, then subsequently raise another $800k by selling units in the L.P over the next 6 months., is it simply a matter of adding the add'l funds as they come into to the account or is there other steps involved.