I agree that it represents the potential, but this much infrastructure - while some of it is required - does not need to be so costly or brand name. Your returns do need to be high and relatively consistent and you need to have a record beyond 6-12 months. Many of my potential investors never ask for audit docs. A few have asked for accounting and audit contacts and done some basic DD. For those, I think they just want to know that someone other than me (in another organization in another part of the country) agrees that I really made what I say I did. Aside from that, they pitch in a small amount and test the water. If things check out and the results match the reports, they tell friends and you grow. These are HNWs, not institutions. With lower costs and high returns, I think it's certainly feasible to start with near nothing and easily get to 200M in 10 years or so...probably much more. On the CTA/HF side, it is also important to have IBs and registered reps who are going to pitch your program. These guys need to be compensated in order to bring you funds. That can be increased commish or a piece of your 2/20. I would rather chip in some 2/20 funds and keep the returns higher. Just a few thoughts...
The only reason to manage other peoples money is to take it easy. Meaning it takes immense amount of discipline and hardwork to get a grubstake of 100K to 10M, and if your able to do that in 5 years or less, then there really is no reason to manage other people's money. The risks that one takes to get to that level of return are high. And the reason to manage other peoples money is to take diminishing risks, with capital and live off of absolute return and fees. If you can get 100K to 10M, then the strategies might need to be modified secondary to slippage and liquidity issues as your capital size gets larger. The strategies you used to make the initial jump might not be viable on larger sums. But it truely becomes a headache if you dont have barriers setup between you and the clients. So if your goal is to live off fees from marginal returns, then yes managing money may be a option. But if your goal is achieve a status of a 100 million or more in your networth, you should be able to do it from your own trading. Or on fees from marginal returns on huge capital size. If relative risk free return on treasurys is 5%, then there is really no justification for people to invest money in your fund unless the opportunity is there for them to hit 15%-20% returns per year. If the profit potential is 15%-20% then otherside of the coin becomes what are the chances they will be down 15%-20% and would the clients be able to tolerate that. Looking at funds in general most clients wouldn't event tolerate being down 10%. Unless they can brag at their cocktail parties they have their money invested in the legendary manager such and such. So most funds opt out to just obtain marginal returns, and collect fees on the size of the fund. And live a carefree life most of the year. There will eventually come a point, when no matter how many Ferraris you have at your disposal or girls you can bed per week, that it gets old. Eventually the money will destroy you and the relationships with your family. Then you will wander around like Howard Hughes pretending to be a vagabond searching for the meaning of life.
Thanks for that...I was wondering how this was all going to play out. I should start saving jars of urine now I guess. I think part of the desire to manage money for others is that it increases the scale and speed of the ascent. Some basic math will show the huge differences 2/20 has on an account with a few hundred K of your own funds and millions in funds from others. Assuming one does not end up with 2 inch fingernails, you could also parlay the success into a SAC type of endeavor. Hire additional stars and seed them as mini-funds in your own organization.
Iâve learnt in my life not to focus on why something CANNOT be done, but why it CAN! Thatâs my personal philosophy. I like the above statement. Good Job!
ib fa account = no paperwork hassles. If you have an adviser master account and client accounts with Interactivebrokers.com, do they send out K-1 for your client account? Or you as an adviser have to calculate and generate K-1 for each client account?
K-1's have to be created for the partners in partnerships (i.e. pools) and not for separately managed account owners. There is no tax preparation necessary by the CTA for separately managed accounts. Aaron Schindler Schindler Trading
I work in IS. What is a Bloomberg T-1 connection? Is that different from a regular T-1 connection? Also, if you can take $100k to $10M on your own in 10 years, why not just retire? Who needs more than $10M? Seriously. If I had $10M I'd put it in an account that pays 5% and live comfortably off of $500k per year. Is that not enough for you guys?