CTA Startup

Here are the CTA, CPO, and hedge fund accounting software choices that I know about...

<ul>
<li><a href="www.futurefirst.com/pool.htm">Pool Accountant</a></li>
<li><a href="www.technicominc.com">Trade Depot</a></li>
<li><a href="www.advent.com">Advent Partner</a></li>
<li><a href="www.keystone-intl.com/archway_home.htm">ATPartnership</a></li>
<li><a href="www.captool.com">Captool Pro</a></li>
</ul>

 

Aaron,

you are so helpful as always, thx.

What do you think should be priorities in choosing such softs ?

 

Aaron,

I know little to nothing about the startup and management of CTAs, but I am curious and have a question. Do you take your performance incentive monthly based on that month's performance, or is it calculated annually based on annual performance?

Regards,

Thunderdog

 

The decision is cost versus features. Does the software have the features you want? One of the partnership accounting programs I mentioned will be great if you are setting up a hedge fund as a limited partnership, but won't be so good if you are a CTA managing separate accounts. Think about whether you could do the accounting you want in Excel, Quicken, or Quickbooks — these are a lot cheaper.

Let me know what you decide and why. I'll be interested to hear.

 

There's no standard way to calculate the performance fee. It could be monthly, quarterly, or annually. A highwater mark, sometimes with a hurdle rate, is pretty common. The percentage varies a lot — I think Steve Cohen and SAC get a 50% performance fee.

Schindler Trading charges a 20% performance fee on new profits at the end of every month. By "new profits" I mean we use a highwater mark and if we go into a drawdown we have to get back up to that highwater mark before earning new performance fees. In other words, there is no performance fee when making up lost ground.

Feel free to PM me your email address if you'd like to see a copy of Schindler Trading's disclosure document that spells out exactly how the fees are calculated.

 

Aaron, do you find that some investors balk at monthly performance fees. I have heard that institutional investors especially those who have you trade through a managed account will insist on quarterly or even annual performance fees.

What are your experiences in this regard? Thanks.

 

Aaron,

Thank you for your quick response. My curiosity was general in nature. I was just vaguely concerned that, if a client paid monthly performance fees, it would be possible that he would end up paying such fees (due to good months) even if the overall performance was negative at the end of the year. However, your reference to the "highwater mark" essentially addresses that concern. (As I said, I know nothing about the money management business.) I appreciate the clarification.

Regards,

Thunderdog

 

Frankly, I use Excel for many things but was not sure whether it could be acceptable. I personally prefer to use something I can change by myself, instead of getting into all this headache with softs, support and all related updates, which unfortunately are mostly useless.

 

No, monthly performance fees haven't been an issue. We report our results monthly and provide monthly liquidity (chance for additions and withdrawals). Anything other than monthly fees would be confusing and difficult.

Imagine charging quarterly performance fees. What if January and February are good months and March is a down month but the quarter is up overall. Do you allocate the performance fee to January and February? Or does December get the performance fee hit and end up looking worse than it really was? If you allocate to Jan and Feb, do you then restate your results for those months (because you won't know your fees until the end of the quarter) or do you hold off reporting your Jan and Feb results til the end of the quarter? Too confusing and difficult. Better to just charge January's fees at the end of January, etc.

 

Thanks for the response man! I too always felt that monthly reporting/performance fee payment was in sync with the KISS principle!