For me it's not about saving the money. I have consistantly gotten bad advice and incorrect information from supposed professionals. These are people who were expensive and had good reputations. I have done this kind of stuff my whole life and finally decided to just pay someone else to do it, my time was too valuable. I found out, the hard way, that even if you pay someone else you have to know this stuff yourself, because ultimately you're responsible. And, I found it was MUCH faster to do this stuff myself than screw around with phone tag and secretarys etc etc. A Nevada LLC can be setup online for about $200 in less than 10 min's. I can't spend that little time on the phone with a law office'secretary.
Thanks all. There is also the regulatory aspect. I understand in the US, one can manage money for up to 15 friends and family without a licence. In countries without this 'loophole' (e.g. BVI (yes, even BVI), Australia, UK), would you expect the govt would jail or screw you for managing money for some frds and family without a licence?
NZ - I wouldn't assume anything. At first, everyone will love the idea and throw you some $. At the first drawdown, you'll really find out who understands what they got into and those that were looking for a quick buck and now need to point the finger at someone. I don't care if it's close friends and family. As a matter of fact, I don't even know that I would go there with a 'casual' agreement or structure. If you are going to do it, do it right in my opinion. Set it up properly and go into expecting to become a serious money manager, not a friend that trades.
I appreciate that reply Browns. What about a friend of a friend who may give me about 5% of her 2 mill USD wealth - if she goes into a 40% d/d on that 5% (sounds small mathematically) think she'll freak? She wants to help me.
NZ - I am only speaking from personal experience and you cannot assume that a person will not care about their funds if you lose them. I'm sorry, but noone just wants to 'help' you in your trading, even if that means they lose $. The world does not work like that. Again, right now as you start to discuss it, a lot of people may be interested. At your first drawdown (and there will be many), this person who only gave you 5% of her wealth (or $100,000) may have 'buyers remorse' and want to be made whole again by someone. MONEY DOES STRANGE THINGS TO PEOPLE NZ. TREAD VERY CAUTIOUSLY HERE.
NZ - a few questions I have that may help the advice from everyone: 1) How long have you been trading? 2) How long have you been trading profitably? 3) What instrument(s) will you be trading in this arrangement? 4) What is your performance fee? 5) Do you plan to try to attract other funds - other than friends or family? 6) At what point will you admit you made a mistake and stop, if it happens? Let's start there.
Here is my own biased and probably half witted advise. If you have a good system trade it until you are wealthy or until you have the contacts to raise 20M to 30M at a bare minimum. I run a hedge fund company with a single fund. Of course there is also an offshore version of this fund for foreign investors because when you are raising 20 to 30M at a pop from each client you go to New York, but when you are starting out and you are raising 2-10M from each client you go to Geneva or Boca and meet with mostly foreign investors. So for this fund it was necessary for my law firm to form six companies (80K from a brand name legal firm) of course the two funds need an annual audit from a brand name CPA (50K min) oh and then you have to pay them to do your K-1's and you will have to hire a brand name Administrator/custodian for your funds or you won't raise a dime from institutions (70K-120K per year min). These are the folks that send out your subscription documents, accept the clients money and do all the necessary AML and compliance checks. They also take a trade sheet from you each evening and calculate your P&L using your sheets and their datafeed. Then they compare this to your prime brokers report and report any discrepancies back to you. They also prepare the monthly statements for investors and do the audit prep work. You will of course need a registered office service and most likely independent directors for your offshore fund (10K yr). We have not even begun to speak of the time, efforts, and monies spent marketing your firm. Now, if you want to spend more than 5 minutes a day trading and researching you will have to hire a couple of other people at minimum to manage all of the above. Even if you get a couple of aggressive kids right out of college you will pony up 50K each and they will know nothing. To hire a COO type that knows what he is doing and has a few contacts will take a strong 6 figure income and also a sweet enough operation pumping bags of money out your ass and ferraris in your garage to make your company appear attractive enough for that COO type to actually want to quit his job at a bulge bracket firm and come work for you. Hey I knew I was forgetting another expense. How about 20K per bloomberg and another 10K or so of high speed lines and maybe even an OMS (100K). And since you will now have an office full of people you have to get office space. (40K yr but varies widely dont forget to include all of the utilities when estimating that price) All of this you can buy, but there are still many things you cannot. You cannot buy the relationships you need to raise the kind of money it takes to support this. You also cannot buy your way into a prime brokerage firm with less than 50M so you will have to compete to get the account open and the folks you sell yourself to will have to be convinced that you are brilliant and connected enough to raise capital (see the bags of money statement above) or they won't even return your calls much less open an account for your funds. In the end it sound simple, because opening an etrade account is, well, simple, but I think that after doing this I cannot imagine a more difficult business operationally speaking, not to even begin to mention that none of this matters if your returns are not consistent, stable, and high!
Joe, You sure are painting a pretty bleak picture for folks looking to open up a boutique shop. I see these cap intro expo's all over the place. I am thinking of going to new yawk in a few weeks to one of these. It seems to walk you through the entire process from pre-launch to up and running. Have any of you been to one of these things? Does it provide value for up and comers? I can't beat the price (free), not to mention the exposure to investors and the whole process. I guess it couldn't hurt me any Here is the link. http://www.business-meetings.co.uk/default.asp?page=2000&eventrelation=public&event=917
'A Nevada LLC can be setup online for about $200 in less than 10 min's. I can't spend that little time on the phone with a law office'secretary.' Can you provide some more details or links on this, sounds like a good info to have. Cheers!
Joetrader is spot on. I did a lot of research on opening a fund, and as he stated, unless you have $20mill minimum, I wouldn't even bother. It's too costly and you're putting to much pressure on yourself just to pay the bills, never mind yourself. As far as the friends and family, it depends on each state. But I would rec. getting a lawyer involved. I have called state regulators and have gotten conflicting info from the same state. They can say what they believe, but it's the IRS and SEC that has the ability to hammer you. IMHO Brian