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njrookie1
Registered: Nov 2011
Posts: 241 |
01-04-12 04:55 PM
Heech,
You sound just like my wife 
"Too much stress, potentially ruined friendship and family relationships."
I was curious how I will trade with OPM. Also managing OPM sounds like a job, while trading to lots of people is like a hobby.
I am still accumulating capital. Once it reaches 7 figures (hopefully in the next year or two) I probably will return all clients money. This is going to be the first year. It frankly does not matter whether I charge them or not. It is not going to make a difference right now. I just want to build a record in case I start to manage more money down the road.
For managed account, are you worried that they might copy/steal your strategy? For my case, IB allows client to see your positions in real time and they can probably free-ride if they want to.
njrookie
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heech
Registered: Dec 2008
Posts: 1876 |
01-04-12 05:09 PM
If your long term plans don't involve OPM... I would say, skip the stress!
For me, the greatest pressure doesn't come from losing OPM money... because I haven't really yet. Most of my investors are more patient than I am, as it happens. The aspect I dislike the most is the feeling of constantly being evaluated by the "public", potential investors, competitors, friends, family... Imagine performing your current job, except with your week to week performance up for open examination and public review. ("I think you flipped your burgers too slowly! More mayo!")
Fwiw, I still haven't had great success raising funds, and I'm more than a little seriously thinking about pulling the fund raising and just running my own money. I started off with about $2 mil of my own money, and am up a gross 130% or so over the last 2 years... So I'm personally doing well. I've raised about $1 mm OPM, but the overhead (and stress!) from managing it just doesn't make sense. If I don't make huge head way in the next 6-12 months, definitely going to reconsider.
As far as my strategy being copied... I run a largely automated (95%+) strategy, so that was a huge concern early on. I'm less worried now. The 5% that's non-automated in my case (risk + operational management+ evolution) makes it very difficult for someone to copy my strategy in full, especially when they could just pay me 0/30 to manage it for them.
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Epic
Registered: Apr 2011
Posts: 932 |
01-04-12 05:11 PM
Quote from heech:
I think you're right. Epic and I both are in the commodity/futures/CFTC world, and things are much simpler from a taxation/fees point of view. Looking at njrookie1's post, he's asking about a FA... so dealing with equities + securities. I still haven't passed my series whatever you need for the securities business, and puzzles like this are exactly why.
I hate to be so unhelpful (or maybe I *am* being helpful)... but my advice is: ask an attorney + accountant. The complexities are mind-boggling.
Ah yes... I didn't notice that. I tend to think about everything in managed accounts in terms of futures only, because that is the world I live in.
I've passed the series 65 and series 3. I find managed futures to be much easier to run a profitable business, and includes many benefits for clients. JMHO
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njrookie1
Registered: Nov 2011
Posts: 241 |
01-04-12 05:23 PM
Yes I trade both futures and securities (mainly ETFs). I like some ETF versions of futures since the bid-ask is tight and execution is cheaper and faster.
Let me clarify. If I trade both, then performance fees are no longer deductible? What about management fees? Since I am not registered (exempt), I do not really know the procedures/regulations.
If I accumulate a mid-seven figures account and keep on achieving high double-digit returns with low DD, it is going to be hard to justify using OPM.
I feel OPM only makes sense if you can manage 100s of millions. Lots of hedge fund I know manage a couple of billions with a dozen or so people. Many of them however is happy with high-single digit or low teens returns.
I probably can raise 10-20 mill over time. However it is probably too much hassle to deal with. Even those clients right now with low 100Ks accounts are very very nervous with their money.
njrookie
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Epic
Registered: Apr 2011
Posts: 932 |
01-04-12 05:27 PM
Quote from njrookie1:
Heech,
You sound just like my wife
"Too much stress, potentially ruined friendship and family relationships."
I was curious how I will trade with OPM. Also managing OPM sounds like a job, while trading to lots of people is like a hobby.
I am still accumulating capital. Once it reaches 7 figures (hopefully in the next year or two) I probably will return all clients money. This is going to be the first year. It frankly does not matter whether I charge them or not. It is not going to make a difference right now. I just want to build a record in case I start to manage more money down the road.
For managed account, are you worried that they might copy/steal your strategy? For my case, IB allows client to see your positions in real time and they can probably free-ride if they want to.
njrookie
Sounds like you're finally starting to see the light. If you get good returns, many times it isn't worth it to try to manage OPM. The only reason that I do is for the ability to make more than $1MM annual in fees. If it was less than that, then i would just trade my own capital.
IMO, it isn't worth doing it if you are at all under-capitalized. I would put the thresholds somewhere around this;
Annual returns <20% == $20MM startup capital
Returns 21-50% == $$10MM
51-75% == $5MM
Like Heech, I also have a 0/30 fee schedule. I raised $3MM fairly easily within a couple months of launch, but I already had 18 month documented history of real trading for the program. Also, the program returns are more than 2X what you are talking about with the same sharpe.
BTW, you don't need to take on clients to establish a track record and forming a fund or adviser is easier than most people make it out to be. But is it really worth the headache?
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Epic
Registered: Apr 2011
Posts: 932 |
01-04-12 05:37 PM
Quote from njrookie1:
Yes I trade both futures and securities (mainly ETFs). I like some ETF versions of futures since the bid-ask is tight and execution is cheaper and faster.
Let me clarify. If I trade both, then performance fees are no longer deductible? What about management fees? Since I am not registered (exempt), I do not really know the procedures/regulations.
If I accumulate a mid-seven figures account and keep on achieving high double-digit returns with low DD, it is going to be hard to justify using OPM.
I feel OPM only makes sense if you can manage 100s of millions. Lots of hedge fund I know manage a couple of billions with a dozen or so people. Many of them however is happy with high-single digit or low teens returns.
I probably can raise 10-20 mill over time. However it is probably too much hassle to deal with. Even those clients right now with low 100Ks accounts are very very nervous with their money.
njrookie
This is just my opinion. So take it with a grain of salt.
If it is at all possible to execute your same strategy in futures only, then that is what I would do. The tax advantages are large, and running the business is much easier.
If you can form a CTA and run managed accounts, then that is also what I would do in your case. It is much easier to setup and get running. Also, much cheaper to operate each year because NFA compliance is easier.
I also wouldn't worry too much about your strategy getting ripped off. I was worried about that for a long time, but then I started to realize how difficult it would be for someone to do it. And like Heech says, why put in all that effort and risk when they could just hire me and know what they are getting? Keep in mind too, that the only way the clients would have real-time access to their accounts is if you let them. With IB, there are two ways to setup client accounts, with or without trading access. If they do not have trading access, then they only have daily access to trading activity statements. If you enable access, then they can login to TWS and follow along in real-time. I only allow one client to do that and will be removing that privilege soon. There isn't any good reason why a client would need to follow along in real-time.
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