auditing your returns

Discussion in 'Professional Trading' started by praetorian2, Jun 29, 2002.

  1. Aaron


    That's the Catch 22... You can't justify the formation of a fund without some committed investors, but you can't get committed investors for a hypothetical fund.

    I started the Schindler Fund on a shoestring. I'm not a lawyer, but I used to write reinsurance contracts as a reinsurance underwriter, so I was able to form the limited partnership and prepare the subscription documents myself. So your first step is to try to keep your expenses down as much as possible.

    If you are long on time and short on money, research how to do some of the steps in formation yourself. I would recommend <u>How to Start Your Own Private Investment Partnership</u> by Geoffrey Fiszel and Randall Peteros, 1997 McGraw-Hill. (In the spirit of keeping my expenses down, I borrowed it from the library via inter-library loan!)

    As far as raising capital, you are in another difficult position -- you can't use broadcast marketing. The rule of thumb is that you can only market to people you have a prior relationship with. So if you meet someone and they ask you what you do for a living... well you just started a relationship with them -- now tell them about your fund! My first investors were neighbors, relatives, and former co-workers.

    You'll have to get out there and network: local chamber of commerce, school reunions, hedge fund conferences, block parties, anywhere someone might ask you what you do for a living and you can give your 30 second introduction about your hedge fund -- you've got a potential investor. Of course it works best if you move in circles where people have the risk capital available to invest with you. The pilots union meeting has more potential than the baggage handlers meeting!

    Good luck and please keep us updated on your progress.
    #11     Jun 30, 2002
  2. Don't your investors need to be "accredited". 2m under the belt and 200k a year in earnings, or something like that. It more or less disqualifies 99% of the population.
    #12     Jun 30, 2002
  3. Aaron


    Having less capital to invest because you had to pay a lot in taxes won't affect your <b>percentage</b> returns. Percentage returns are what is interesting, not absolute dollar returns.

    If you made $30k on $100k prior to April 15th, you've got a 30% return so far. Then you withdraw $55k and have $75k remaining going forward. If you then make $25k from then through the end of the year, you will have made a 33% return on the $75k. Your full year return will be (1+30%) x (1+33%) - 1 = 73%.

    It sounds like performance calculation is something you should research or get professional help with. I'd refer you to an accountant or the Association for Investment Management and Research. They have their definitive guidelines for performance presentation on their website at
    #13     Jun 30, 2002
  4. Aaron


    13% of US households have a net worth of $1 million or more.
    #14     Jun 30, 2002
  5. Aaron


    No, your equity chart won't drop because of the performance fees. You equity curve would drop if you were plotting results without taking into account performance fees and then all of a sudden applied the performance fees. But that's not what you should do. Your equity chart should include the performance fee at every data point.

    Here's an example... If you make a 10% gross return some quarter and get 20% of that profit as a performance fee, your net return is 8%. When you are plotting your NAV (or "VAMI" is the hedge fund equivalent), you will show $1000 at the beginning of the quarter and $1080 at the end of the quarter. No going up to $1100 and jumping down to $1080. Just plot your net results with the performance fee already applied.

    Does this help?
    #15     Jun 30, 2002
  6. thanks for your answer.....

    My problem is that I plot the performance each week on the website open for clients to provide transparency ???? should I calculate the performance fee on a weekly basis?

    I only charge performance fee if the equity curve is in this quater on a new alltime high......

    how do you handle it personally... I saw on your website that you provide monthy plots on you fund.....

    thanks and god bless you and your family.
    #16     Jun 30, 2002
  7. I had never thought of it that way. I had always used just
    (dec 31 value - (jan1 value + any withdrawals for expenses)) / jan 1 value.

    This is very interesting for me. It seem that my performance REALLY goes up when you use your method. Off hand it seems that my first year goes from 140%- about 180% and last year goes from 218% to over 300%. This year would be near 100% already as well. Sure make my performance numbers look more impressive. I had never even thought of this, but it seems that it really does help. Not that anyone would give me money no matter how much I seem to be able to return... lol.
    #17     Jun 30, 2002
  8. Aaron, i'm looking over your fund. Very interesting. Very impressive, both your returns and the website. If you dont mind asking, I have a few more questions. It appears that the minimum investment is 20k. Are all your investors accredited, or have you gotten around that in some way? How much do you currently have under management? How much did you start with? Was it almost all yours? What are you legal/auditing/other expenses. I see that you had 2 rather bad months, did you see lots of people either panic, or contact you for withdrawals/ or venting purposes? Are you allowed to advertise like that, or because you're a partnership of some sort and not a hedge fund did you get around that in some way? I know this is a lot to ask. I'm just very curious, and i really do appreciate your responses so far
    A few general questions, besides that one book that Aaron recommended, are there any other books besides the one that's 180 from amazon that other people recommend on how to set up a hedge fund and information, and finally, back to my original question, does anyone know how to contact a firm to get my results audited?
    #18     Jun 30, 2002
  9. JayS



    Your considered a CPO but since you have 15 or less participants & the total gross capital contributions to the pool is less than $200,000 you don't have to register with the NFA, CTFC, or take the exams, correct?

    The only thing you have to do is file a written statement with the CFTC and NFA explaining why the pool is exempt. Along with providing the written statement to the pool participants. Is this right?

    Basically the participants just need to have the ability to have a account approved by a FCM, IB, etc (unlike the stardards of a hedgefund). Whats the process of adding and dropping someone from the pool? Does IB in your case need to be notified or any acct work sent to them?


    #19     Jun 30, 2002
  10. Aaron


    I would suggest you label your weekly returns as "preliminary" and apply the performance fee to them. You will still only actually deduct the performance fee at the end of the quarter, though.

    So if you start out very profitable at the beginning of a quarter you will show preliminary returns that could ultimately be adjusted higher if you go on to have losses later in the quarter that will negate the performance fee you deducted from the preliminary returns. You can explain this with your preliminary performance and say how the final returns can only be higher, not lower.

    At Schindler Trading we apply the performance fee monthly and only report results monthly, so we don't have this situation.
    #20     Jun 30, 2002