What's a cost efficient way to PROVE your track record to eventually start hedge fund

Quote from xbrxx:

Why do u want to start a hedge fund for? If you think you got the skills, why not continue what u are doing? 300k in 16 months... why consider anything else? I mean, how much did u expect to get paid as a hedge fund manager?
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I want to start one for several reasons. I engage in 3 types of trading.

1. I trade the emini Nasdaq with 4 times leverage factor early in the morning, if the opportunity presents itself for a trade. I only trade one time, if I trade at all. The position is never held beyond about 30 minutes.

2. I also trade the emini Nasdaq on a long term basis, where I am holding a position all day long and overnight also. But this trade involves no leverage factor. I don't want to take too much risk overnight, that's why I don't use leverage.

3. I also trade the S&P emini, I hold a position at ALL times, 24 hours a day including holding overnight EVERY night. I trade it once a day maximum, if I trade at all. A position is held anywhere from 1 day to 3 weeks, I once held a long position for 21 straight days this spring during the great bull market run we had. I do not use leverage for this trade either, once again, I don't want to assume too much overnight risk.

Here is the potential "problem" I face. My main profit center is my Nasdaq trading, but I have much more confidence in my S&P trading over the long term. The Nasdaq market is changing dramatically, we are going from a bubble market period over the last 5 years, to a Nasdaq market with much less volatility. This could reduce or even eliminate my ability to make money trading Nasdaq futures. The Nasdaq is too unpredictable.

To protect against this, I want to start a hedge fund that trades ONLY S&P futures. This fund would use a leverage factor of 2 times. In my opinion, such a fund (with the leverage) would deliver about 60% per year on a "theoretical" basis before factoring in trading costs and slippage. After trading costs and slippage, it could probably deliver about 30% per year, maybe a bit more, on a continuous basis, with no end in sight. And it could also be traded in MASSIVE dollar terms, hundreds of millions could be traded because it is not short term daytrading. The liquidity is there in S&P futures to trade my strategy for a very large fund.

And before you tell me I can't do 30% average a year over the long term, just remember, I did 202% return my first 12 months trading with no previous industry experience. Everyone told me that couldn't be done either, but I did it, and have the paperwork to prove it.

So that's my reason. I want to protect against the possibility I can no longer trade Nasdaq futures profitability in the future, by a changing evolving market. I want to transform my success into a hedge fund where I am trading only S&P futures, which I am confident I can continue to trade profitably year after year, for the next 20+ years.
 
Quote from peg_leg_joe:

to trade with a hedge fund incubator firm.

I won't bore the readers of this thread with the details, as I doubt many people are interested in such a thing. However, PM if you want and I'll give you more info.
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Thanks plj for your input.

It would be very nice if you share openly your information here so that others might be able to provide additional information.

Thanks!
:)
 
hmm...200% per annum is a huge return...but the figure only has
a meaning given the risk you have taken.What would be your max-drawdown or a sharpe ratio during that period?
based on the margin in my account, I have made 1100% this year
and my drawdown is probably in the 80-90% range, so it's all relative.


Only inexperience investor look at the return, if you are looking for instituional funds, that's probably a lot more than just return, the market you play also comes into play. a stragety trading just s&p doesn't offer a lot of diversification for pension funds.

If you are only DAYTRADING in the 500k range, I don't see anypoint in managing other people's money. as someone said above, you might as trade that to a couple of million quickly and no instituion to going to take on the volatility associated with your 200% return.(unless you manage to do it with a 25% drawdown, I will give you my money if that's true) you are taking away your edge as a daytrader by doing size. I think that once you get to 10mil and above, it; pretty tough to daytrade..
 
Quote from canadian_dude:



And before you tell me I can't do 30% average a year over the long term, just remember, I did 202% return my first 12 months trading with no previous industry experience. Everyone told me that couldn't be done either, but I did it, and have the paperwork to prove it.

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If you think you can get 30% average a year.... for 20+ years... prepare to be on the cover of every financial periodical alive. Investors will be throwing money at you. Probably even me included! I will be the first person to tell you... you WILL NOT average 30% a year for 20 years +. Lets say I invest 1 million into your hedge fund, this is how much I will make after each year.

year
1. 1300000
2. 1690000
3. 2197000
4. 2856100
5. 3712930
6. 4826809
7. 6274851
8. 8157307
9. 10604499
10. 13785849
11. 17921603
12. 23298085
13. 30287510
14. 39373763
15. 51185893
16. 66541660
17. 86504159
18. 112455406
19. 146192029
20. 190049637

Wow, I better invest into your hedge fund, because I highly doubt, i'll ever have that type of money. 190x. That is quite amazing. You must have found the holy grail of trading.

All I am trying to show to you is that 30% a year for 20+ years is 100x more difficult that 200% in just one year. Markets change, you have agreed that the Nasdaq market is also changing, thus why you want to focus on S&P futures. But, the S&P futures market will change also. What makes you so sure that in 2...5..10. years your strategy will be making the same kind of money it is now?

Just my 2 cents.
 
Quote from xbrxx:

If you think you can get 30% average a year.... for 20+ years... prepare to be on the cover of every financial periodical alive. Investors will be throwing money at you. Probably even me included! I will be the first person to tell you... you WILL NOT average 30% a year for 20 years +. .
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Is John W Henry on the cover of every financial magazine?
Take a look at his fund performance: http://www.iasg.com/SnapshotPT.asp?ID=169

Avg 30% p.a. for 10.1984 - 07.2003 period. Net after fees. Before 2% mgmt and 20% incentive: +40% a year. Avg return would be much worse if we won't include these 4 years:

1987 +252%
1990 +83%
1991 +62%
1986 +61%

Also, fund is flat from Jan 1998 to Apr 2002, more than 4 years without a profit.

Another interesting fact. Avg p.a. return for years 1985 to 1991 is 61.5%. Avg p.a. return for years 1992 to 2002 is 13.2%

I wonder if new stars in this business like Schindler, Denali (over $100M AUM!), Quadriga will be able to continue their 50%+ returns over the next couple of years... Anyway, good luck canadian_dude.
 
Neiderhoffer did over 30% for 17 years.

Canadian-dude,

You can get set up for less than you might think. There are too many variables to put a set dollar figure on it, but the 100K+ figures I see often posted here are not common for very small hedge funds or CTAs from what I've seen. Even 50K is on the high end. Wes Cooper from GTT frequents these boards. I would suggest checking out his website, greencompany.com to see what they offer in terms of setup for all kinds of entities managing others money. There are certainly many fees and legal issues to consider, but if this is what you want to do, I say go for it.
 
Quote from marketsurfer:

operating a hedge fund makes no sense with less than 10 million. you would be way better off trading your own capital.
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That's the best advice yet.

Most people are MUCH better off trading for themselves, assuming you can money of course. Operating costs of running the fund are generally just to big of a nut to crack when one is forced to pay these costs out of the returns.

Certainly anything is possible but the vast majority of all business fail due to inadequate capitalization. This is business is no exception.

Trader beware.

Regards,
Dr. Zhivodka
 
Quote from Dr. Zhivodka:

Most people are MUCH better off trading for themselves, assuming you can money of course. Operating costs of running the fund are generally just to big of a nut to crack when one is forced to pay these costs out of the returns.
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To elaborate... Hedge fund operation amounts to accounting & tax, compliance, investor communications, research & trading, maybe some limited marketing (depending on regulations).

Accounting & tax could be a big operating cost unless you can do it yourself.

Compliance could be a big startup startup expense, but shouldn't be too big after that. There will, however, be ongoing updates to your subscription documents and regulatory membership and license requirements. You might also need to pay for an annual audit.

Investor communications is emails, phone calls, and stamps, a good printer and a fax machine.

You would be doing research & trading anyway if you are already a trader.

And marketing is mostly word of mouth as a private placement.

Maybe Dr. Zhivodka has some additional comments. I don't think operating costs or even startup costs are that bad. There is practically no barrier to entry for a hedge fund start up. I think the biggest obstacle is the entreprenurial intelligence it takes. As a small business operator you'll have to do all kinds of stuff like: negotiate with investors who want to squeeze you on your fees, fix your computer after a virus infection, figure out how to comply with the Patriot Act, figure out why your brokerage statement isn't agreeing with your calculations, deal with an outgoing wire transfer that hasn't shown up in the investors account and now he's irate, do I need directors and officers insurance?, do I have to pay social security tax on my fee income?, and then to top it all off... you have to trade and make money.
 
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