auditing your returns

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

  1. Aaron


    You can have up to 35 non-accredited investors in a hedge fund. Not all of our investors are accredited, but they should all be able to afford to lose their entire investment and the Schindler Fund should be just a small portion of their portfolio.

    We've got just under $2 million under management, with about $150k in the Schindler Fund. The funds not in the Schindler Fund include my assets and a separate account for an institutional investor.

    The Schindler Fund was started with a single $20k investment last September and has been growing since. I don't have much of my own money in the fund so as to stay under the $200k limit as long as possible (See JayS's knowledgeable post for the advantages of staying under $200k.) I trade my own funds just like the Schindler Fund, though, with my personal account always getting executed last.

    The only accounting expense is a copy of Turbotax for business to do the partnership's tax return and send out the K-1's. I've done all my own legal work and the fund is not audited. Once the fund grows to over $200k I will need to have an annual audit. I even learned Frontpage and Paintshop and did the entire website myself.

    My investors are great and, rather than venting during the lousy months, are actually comforting <i>me</i>. I feel really bad about losing their money, but I guess I did such a good job of educating them at the beginning that there will be big drawdowns that they have a long term outlook and are taking them in stride.

    I'm not sure where the line is on advertising. I don't broadcast advertise the Schindler Fund. I've got a website for Schindler Trading, the management company, up. I've got a link to it in my signature here. On that website I invite people to consider investing in the Schindler Fund. I think it is okay because I see lots of other hedge funds with websites. I've read the NFA guidelines several times and believe I am complying. I think as long as I'm not pushing the envelope I shouldn't be red flagged.

    Good questions, Praetorian2!
    #21     Jun 30, 2002
  2. Once again, thanx, What's the deal with the 200k minimum. I was planning on putting at least 200k of my own funds into a hedge fund. Can you only have 200k max in it? What do you do once you breach that level?
    #22     Jun 30, 2002
  3. Aaron


    Correct on all questions. Even though I don't need to, I am registered with the CFTC and have taken the Series 3. When I cross the $200k line all I'll need to do is start paying the $1000 annual NFA membership fee (on top of the $100 annual CFTC registration fee) and get an annual audit. I'll also have to have my disclosure doc approved.

    The Schindler Fund investors meet all the requirements of a hedgefund. They don't necessarily have to be accredited, but they have to be well off enough to be able to lose $20k and sophisticated enough to understand the risk of futures speculation.

    When someone joins the Schindler Fund they are purchasing equity units in a limited partnership. The partnership, Schindler Fund, L.P., has a bank account and a brokerage account. The investor's deposit first goes into the bank and then it is wired to Interactive Brokers. It goes into the Schindler Fund account at Interactive Brokers, so no new accounts have to be opened.

    I like the commodity pool route so much better than the CTA route -- I don't have to worry about having to allocate trades to each investor's separate account. Just at the end of the month, Investor A gets x% of the profits or losses, Investor B gets y%, etc. (These percentages change every time someone adds or withdraws from the fund. To make my accounting easier additions and withdrawal are limited to month ends.)

    When someone makes a withdrawal from the fund, the money is wired from Interactive Brokers to the bank and then sent by check (or wire) to the investor.
    #23     Jun 30, 2002
  4. Aaron


    $200k is the maximum capital contribution for an exempt commodity pool. It is an NFA/CFTC number. If you will be trading equities and not futures you won't be subject to NFA/CFTC regulation and the number won't apply.
    #24     Jun 30, 2002
  5. Will all the information that I need be in that book, won't I still need lawyers to set up the bank thing? I'd be trading equities only, will I not need the people to be acredited, I thought that was essential.
    #25     Jun 30, 2002
  6. Babak


    #26     Jul 1, 2002
  7. Aaron


    That guy's Fortune article is pretty interesting. 10,000% return and $18 million in his pocket.

    Notice that he copied the entire Fortune article web page onto his own website -- the Time Inc. copyright notice and all! I'm sceptical he had permission.
    #27     Jul 1, 2002
  8. Aaron, can you give some more information on how to set up the partnership you described, or a link/book on the subject.
    #28     Jul 1, 2002
  9. Aaron


    Hedge funds in the US are typically structured as either a limited partnership or a limited liability company. It is easy to form these business entities. Any business lawyer can do it for you. Or there are firms on the internet or in entrepreneur magazines that could do it for you. Or you can do like I did and research it at the library. Look up "partnerships" in the card catalog.

    Looking at my bookshelves here, I don't have many books on partnerships because I got everything from the library. The one book I did buy and I can recommend is <u>Understanding Partnership Accounting: A Guide to Investment Partnership Accounting</u> put out by Advent Software. It has a section on structuring a hedge fund and good explanations on allocating gains and losses and the partnership's taxes.
    #29     Jul 1, 2002
  10. JayS


    #30     Jul 1, 2002