What's a hedge fund structure worth to you?

[Databento]

If someone was to build the structure for you from scratch under your ownership, including the LLC's and LP's, PPM documents, marketing materials, Tax ID's, website, compliance filling, regulators and brokerages accounts. Along with that exploring and fulfilling all the legal obligations and getting all the service providers like the administrator, auditor, accountant and other service providers needed to operate the fund.

How much value would you place on it if someone was providing a turnkey solution? As opposed to you going out there and getting all these service from different service providers.

Thanks for your input. Appreciate it.

From our CTO:

I've gone through this and handled tax and regulatory audits, plus Form ADV, blue sky filings etc.

Most law firms will take on the formation docs, subscriber agreements, pitch deck review, and PPM for anywhere around $50k to $120k, depending on the complexity — lower end if you just need a domestic fund. Overall, for this part, I am slightly skeptical of a turnkey solution, because I think continuity is more important than cost, because the follow-up time is more wasteful than the upfront cost. This means someone who remembers the details on your subscriber agreements, catches you up on relevant regulatory changes, can help respond to regulatory audits without being caught up to speed, reminds you on blue sky filings without billing you 1/6 of an hour for an email, and has colleagues who can provide ancillary support on things like employee litigation etc.

The boilerplate administrative work (tax IDs, incorporation certificates etc.) is much cheaper. Anyone can do it themselves in under 2 hours with context switching included, but otherwise market rate is probably under $4k.

The compliance work (regulatory filings etc.) can be tasked to paralegals at a law firm, but is cheaper and generally better if you use a fund administrator that provides this service, or an outsourced compliance firm, or outsourced compliance officer, for which the market rate is usually under $15-30k per year.

Setting up the brokerage accounts, picking an administrator, auditor, tax preparer etc. are probably not things you want "turnkey"... there's a lot of "alpha" to be gained by picking good providers and avoiding terrible providers here. Not to mention, it's almost free: There's not much paperwork with picking an auditor or tax preparer. There's some legal review to understand how your fees escalate with AUM for an administrator. There's a lot of paperwork for a prime brokerage account, but either ways even if you handed it to an introducing broker who is generous with their time, you'll still need to furnish a lot of information yourself.

So in total, my market's $40k-155k.

 

[MarkBrown]

there are a zillion of failing funds ripe for a take over - i explored this route a few years ago, but decided i would stay a lonely private trader. lol

 

[delta20]

From our CTO:

I've gone through this and handled tax and regulatory audits, plus Form ADV, blue sky filings etc.

Most law firms will take on the formation docs, subscriber agreements, pitch deck review, and PPM for anywhere around $50k to $120k, depending on the complexity — lower end if you just need a domestic fund. Overall, for this part, I am slightly skeptical of a turnkey solution, because I think continuity is more important than cost, because the follow-up time is more wasteful than the upfront cost. This means someone who remembers the details on your subscriber agreements, catches you up on relevant regulatory changes, can help respond to regulatory audits without being caught up to speed, reminds you on blue sky filings without billing you 1/6 of an hour for an email, and has colleagues who can provide ancillary support on things like employee litigation etc.

The boilerplate administrative work (tax IDs, incorporation certificates etc.) is much cheaper. Anyone can do it themselves in under 2 hours with context switching included, but otherwise market rate is probably under $4k.

The compliance work (regulatory filings etc.) can be tasked to paralegals at a law firm, but is cheaper and generally better if you use a fund administrator that provides this service, or an outsourced compliance firm, or outsourced compliance officer, for which the market rate is usually under $15-30k per year.

Setting up the brokerage accounts, picking an administrator, auditor, tax preparer etc. are probably not things you want "turnkey"... there's a lot of "alpha" to be gained by picking good providers and avoiding terrible providers here. Not to mention, it's almost free: There's not much paperwork with picking an auditor or tax preparer. There's some legal review to understand how your fees escalate with AUM for an administrator. There's a lot of paperwork for a prime brokerage account, but either ways even if you handed it to an introducing broker who is generous with their time, you'll still need to furnish a lot of information yourself.

So in total, my market's $40k-155k.

Have you heard of a company called repool.com ? any thoughts on them

 

[Databento]

there are a zillion of failing funds ripe for a take over - i explored this route a few years ago, but decided i would stay a lonely private trader. lol

?

It makes sense to acquire a BD or FCM, but taking over an investment fund and its manager to jumpstart the regulatory and setup process seems like a bad idea. The due diligence costs and time alone will exceed that of starting from a clean slate, plus it will automatically trigger LP review and probable redemptions whether it's codified in the LP agreements or not.

 

[Databento]

Have you heard of a company called repool.com ? any thoughts on them

CTO:

Cool, didn't hear about this before. I didn't demo this, but on a glance, I feel the main potential value-add here is not the all-in-one aspect but the fact that the reporting process is integrated and automated/simplified on the web platform.

We've seen most of the top 5 fund administrators — their web portals and reporting options are so barebones and outdated that you practically need an experienced full-time person on your team doing this, which is at least as much as the ~$155k formation cost I mentioned.

I personally think it's nice if a provider focused on this particular pain point rather than stretched themselves too thin on the all-in-one aspect, which ends up requiring a lot of high touch service staff and resembling a traditional business dressed up as a tech startup. (It reminds me of the Atrium LTS and Pilot Bookkeeping stories.)

 

[spy]

decided i would stay a lonely private trader

We're here to keep you company

 

[TheDawn]

If someone was to build the structure for you from scratch under your ownership, including the LLC's and LP's, PPM documents, marketing materials, Tax ID's, website, compliance filling, regulators and brokerages accounts. Along with that exploring and fulfilling all the legal obligations and getting all the service providers like the administrator, auditor, accountant and other service providers needed to operate the fund.

How much value would you place on it if someone was providing a turnkey solution? As opposed to you going out there and getting all these service from different service providers.

Thanks for your input. Appreciate it.

It would depend on the complexity of the structure, the competence of the person providing it as well as your degree of eagerness of having another person draw up the structure for you. Not interested in trading other people's money ever but if I were to, these would be the factors that I would take into consideration to decide whether to draw up the structure myself or hire someone else doing it.

 

[blueraincap]

I am looking to buy from these, what do you think?

• Nola table
• Nola table with damaged top
• Nola coffee
• Nola coffee
• Nola coffee
• Desk
• Valli table with coffee

 

[mervyn]

If I am not mistaken you are probably quoting the $750k to $1MM amount as the starting AUM, right? and not the startup cost.

No startup budget. I got quotes years ago from state street etf turnkey, 15-20bps AUM. HF is more complex, if you have to answer to public market, and different regulatory agencies.

 

[Clayart]

From our CTO:

I've gone through this and handled tax and regulatory audits, plus Form ADV, blue sky filings etc.

Most law firms will take on the formation docs, subscriber agreements, pitch deck review, and PPM for anywhere around $50k to $120k, depending on the complexity — lower end if you just need a domestic fund. Overall, for this part, I am slightly skeptical of a turnkey solution, because I think continuity is more important than cost, because the follow-up time is more wasteful than the upfront cost. This means someone who remembers the details on your subscriber agreements, catches you up on relevant regulatory changes, can help respond to regulatory audits without being caught up to speed, reminds you on blue sky filings without billing you 1/6 of an hour for an email, and has colleagues who can provide ancillary support on things like employee litigation etc.

The boilerplate administrative work (tax IDs, incorporation certificates etc.) is much cheaper. Anyone can do it themselves in under 2 hours with context switching included, but otherwise market rate is probably under $4k.

The compliance work (regulatory filings etc.) can be tasked to paralegals at a law firm, but is cheaper and generally better if you use a fund administrator that provides this service, or an outsourced compliance firm, or outsourced compliance officer, for which the market rate is usually under $15-30k per year.

Setting up the brokerage accounts, picking an administrator, auditor, tax preparer etc. are probably not things you want "turnkey"... there's a lot of "alpha" to be gained by picking good providers and avoiding terrible providers here. Not to mention, it's almost free: There's not much paperwork with picking an auditor or tax preparer. There's some legal review to understand how your fees escalate with AUM for an administrator. There's a lot of paperwork for a prime brokerage account, but either ways even if you handed it to an introducing broker who is generous with their time, you'll still need to furnish a lot of information yourself.

So in total, my market's $40k-155k.

I totally agree to the point that continuity is way more important that saving some money on the one time upfront cost.
What I am suggesting here is having an aggregator service where in a firm mixes and matches different service providers according to your specification, Not being the service provider to the fund.
This kind of service could be useful for a new fund or an emerging manager who wouldn't necessarily would want a full time employee dealing with these things, at least not initially, As they grow they can start dealing with the service providers differently when they choose to do so.

And yes there is a lot of alpha to be had in picking the right service providers, as the saying goes a handyman is as good as his tools are. So here in what I'm suggesting is essentially acting as the aggregator of services for a fund, while having the fund directly get into contract with the service providers, while charging the firm a fix one time consultation fee and having the follow up fees directly go to the service providers.