It is a hedge fund if you have an LP and an management company and accepting investors into the LP. This is an example. Let's say you have $1.5mm of you money to trade with an allaoction from investors or friends and family of only $1mm. With your $2.5mm, you start to build your track record and market yourself to investors ready to accept funds. The added expense you incurred was the formation docs, admin and auditor, that you would not have needed for SMA. SMA might require an RIA. Maybe we are taking $25K - $50K a year or 2% of your AUM. However, it starts you on a path. If you never get started, you can't get to $50mm or $100mm. My number would be $5mm to start, I would never join a prop firm and co-mingle material assets. Not from me. An allaoction from a hedge fund or true prop firm is different, but running your own business is what someprefer. I did that for 25 years and decided I'd rather make less money and risk my capital than work for others.
Only want to add it's not impossible to ramp up to billions if successful. Local guy, Brian Taylor, started Pine River Capital Management with $5.3M(https://en.wikipedia.org/wiki/Pine_River_Capital_Management) and eventually got up to $14B AUM. A few years ago, his 2 funds had, the highest returns, with 80-90% returns or something doing mortgage arbitrage. SAC was started with $25M.
I think the B with AUM is out of reach of most of us. I say the goal for most of my hedge fund clients is $100mm.
It was a slightly different time. These days, I'd say you have almost zero probability of success if you are not starting with 50+ AUM. I am not sure your math works out. As a fund owner, you are taking home from 10 (low) to 25 (high) percent of the performance plus the AUM scrape of say 1-2%. If you are making 5 bucks, you would be taking home at least 500 (which is "much more" than 250). PS. If can make 5 million with a reasonable IR and ROC (say IR of 5 and ROC of 20%), you can find plenty of shops that would give you 25-35% of your revenue as a payout.
Here are the results of the backtests as net asset value of my Interactive Brokers account ($10k) over a period of about 2 years. It's the first time (in 12 f***ing years) that I'm getting systematic profits while being in full awareness of why I'm getting them and why I do what I do. So about 25% per year after I checked off my list the first two phases: 1) Theoretical proof of principle (knowing why I do what I do) 2) Confrontation with / adaptation to actual market through backtests. And now I'll start phase three, the easiest one, like it will take me a couple of weeks (compare that with the 12 f**ing years). 3) Implement auto-trading system and do live trading through Interactive Brokers. 3.a) After implementation is complete, deploy in staging environment (connect it to the paper trading account) and have it running for a couple weeks, to iron out nasty software bugs. Not as much failing to trigger as entering some trigger frenzy (improbable but I've seen things) or say inverting the quantity with the price, which was an actual situation that happened once in Japan and those guys lost some $2B (and that order happily passed some 10 systems, with safety limits and all). 3.b) Deploy in production environment (connect it to my live account) and run it for the foreseeable future. After several months of (profitable) results I'll have to think how I proceed next. Definitely I'll need more capital that I currently have by myself if I'm going to exploit the system I've worked so much on. What I'm not sure (zero experience) is weather I'll try setting up an investor advisor account, a hedge fund and try get people to invest directly (I got friends and acquaintances who are willing to do that, question is weather it's enough to scale by word of mouth). Or approach some prop shop (got someone I know who expressed interest in what I have, I'll drop him a mail and see what terms he offers).
slow down there tiger,if you got the goodies money will find you,it will only take longer No i don't want to meet,invest,i just have one question.Where in Eastern Europe are you? I am myself from and living in same part of the World. Note to your friends. If they have an opportunity to read this,otherwise you read it to them: If you show them 15 year backtest then maybe they be wise to invest half the amount to what they agree now.If the backtest is promising that is.Otherwise it would be prudent to just walk away from it.
There are providers that will do it for you in the UK for $30k set-up and then $50k a year for accounting/platform etc. Google AK Jensen or Bastion Wealth (Malta). This is not an endorsement.
@Van_der_Voort_4 I did say "After several months of (profitable) results I'll have to think how I proceed next". It's not like I'm going to take money from friends before running by myself for a while. Plus there's always the option of plain borrowing from a bank, at 10% - 50% (depending on risk) per year I'm definitely making much more than the interest.
As European located asset manager you can get CTA/CPO licensed (NFA + CFTC). Beside that you need a local registered LLC with the requirements like accountant, lawyer, etc. Here in my country one may buy a new empty company off-the-shelf that is already setup and got everything needed, all papers, accounting, bankning, funded company account with minimum legal balance ($6000).