Advice on Staring a Hedge Fund

Discussion in 'Professional Trading' started by lasner, Sep 26, 2010.

  1. lasner


    If anyone out there could give some advice on starting a hedge fund that would be great. I know there are some really helpful links on this site in regards to formations of hedge funds. If anyone could recommend some good ones that would be great as well.

    I'm 34 and have 100k in my trading account. I've been trading for 10 years. I currently have a 1 year track record on 15k (which I generated a 70% return on). I traded micro and mini forex, mini futures as well as full futures and forex.

    Within my track record I guarantee to not lose more than 7% of the initial capital. If at any point the fund dips below a 7% loss I return everyone's capital and walk away.

    How I did it was in the beginning I would risk .5% of total capital on each trade ($75). In order to be down 7% I would have to have 13 consecutive losing trades.

    I started out very conservatively as my profits came in I opened my positions with slightly more risk. Going from micro forex to mini forex to mini futures and eventually into full futures and forex.

    I feel I could have actually made a guarantee of 3.5% rather than 7%. That would be 6.5 consecutive losing trades.

    I'm fairly entrepreneurial. I own an energy consulting firm that is generating 400k in net revenues. We are still new 1 year old and this upcoming year are expected to quadruple our net revenues with the addition of 3 more sales reps. I keep my profits from my company in reserves and would actually like to reinvest the reserves into my fund. Since my fund will be ultra conservative and having very little risk of initial capital.

    I'm also pretty well educated having a decent degree from a major university and currently working on an MBA from Temple which is ranked top 50 in the nation.

    I want to start a hedge fund but obviously don't want to spend 150k on the formation of it. I was wondering if anyone could give advice on how to spend the least amount of money to get it started.

    I don't know if I want to do a full hedge fund because I could only deal with accredited investors having to have a net worth of $1 million. I think my best bet may be to form a CTA or CPO and have the option to deal with any size investor.

    If anyone has any good advice is would appreciated....Thanks
  2. businessstaxes

    businessstaxes Guest

    $100,000 is peanuts.

    in this businesss, it's all about trust and personal relationships. business 'referrrals' which is why you never or rarely see hedge funds advertising for clients. there few people with net worth of $1 million. less than 5% of the population. and if they have that much money they have financial advisors already,. your target market is very very small.

    if client don't trust you , they won't wire you any money no matter what you trading record is. cause your trading record or track record could be a fraud, or you might just take the money and run.

  3. lasner


    Yes I know 100k in this business is peanuts. What I want to do is get the ball slowly rolling (it's my dream to start a hedge fund) Like I said I have a sample track record which I'm going to get audited. I figure if I register as a CTA or CPO that is probably my best bet.
    My Net worth right now is not 1 million so I couldn't even be my first client with my fund....that's if I chose to go the hedge fund route.

    If anyone had any advice or could refer me onto a good lawyer for formations of CTA or a CPO
  4. Put it all in junior gold miners, whatch them go up 1000% and you have 1 million USD.
  5. lasner


    If it were only that easy
  6. If you only have a 100k account then you probably don't have the skills or experience to manage other people's money. Trade your 100k for 3 years and if by 2013 you have made 20%+ compound return without having a drawdown in excess of 20% then you might have something to go on. Mention now to potential investors what you are doing, and ask if you show good returns for 3 years will they invest at the end of it. Send monthly or quarterly reports to them explaining what you are trading and investing in and why. If you get the returns, and you explained your method well, then after 2-3 years that has a good chance at convincing investors you have the ability to manage money.
  7. heech


    I don't see any problem with investing in your business by getting your results "audited". Depending on how low-rent you go, you can easily get going as a registered CTA for less than $20k. Submit your results to various databases, and then just wait.

    If you live up to your word (and no offense intended when I say the vast, vast majority of new funds fail to meet their founders' expectations) of 70% returns with < 7% draw-down... you will get noticed within a year or two, and start to see investors coming in.

    I stand by my belief that this is a "if you build it, they will come" kind of business. For what its worth, my fund is now 12 months old this month (including 4 months of prop trading)... my AUM is 3x what it was when I first started, and I very legitimately believe it can be 3x again by this time next year.
  8. lasner


    I don't think I will have a problem in getting capital. I have some good relationships with high net worth individuals. I also have some people that may be interested in being selling agents for me where I will give them 50% of what they bring. Is your fund a hedge fund or CTA?
  9. heech


    I'm a CPO, a hedge fund. I am considering CTA only because numerous investors have been expressing strong interest, but not sure I'll pull the trigger.

    If you don't have a problem getting capital, then what's your question exactly...? Just do it. Raise capital already, and live large. However... paying 50% of what they bring seems excessive. I assume you mean 50% of your fees rather than % of assets... in any case, that's an obscene, insanely high amount to pay to a finder.

    I did want to comment on one thing from earlier...
    Any private investment partnership/pool (including CPO) is SEC-regulated. Assuming you're looking for the Reg D exemption from SEC-registration, interests in your pool can only be sold to accredited investors, period. If you're looking to do business with unaccredited investors, you will have to go with the CTA route.
  10. heech


    Oh, is *this* your question? $150k is also an obscene number, no way it should cost you anywhere close to that number.

    If you need an attorney reference you can PM me. Assuming you don't want to do the bulk of the work yourself, it's a $25-30k investment to get a fund structure registered and up/going. Tax/audit will cost you anywhere from $7k-$30k a year, depending on whether you go low-rent or high-class. I use a third party admin firm, and that only costs me $1k a month.

    A lot of people are able to cut all of those costs out by doing just about everything in house... say, $2k-$5k for everything. You don't even necessarily need to engage a lawyer, since the NFA will ultimately tell you if your disclosure is acceptable or not.
    #10     Sep 26, 2010