Money Mangers Marketing

Can any one share some experiences?

 

for those of you starting new cta's or trading small ones, you probably will find raising assets to be quite frustrating.

the following assumes that you did not come from a major investment bank or the like.

Your first 5M will probably come from friends and family. you should report your returns to every database that you can find. there are large individual investors who look at such databases and make 1m+ allocations from them. they will take risks that most will not. you will need a 2-3 year track record to attract these investors. this money will push you to 10-20.

the asset raising only gets harder from here. you will be held to nearly impossible standards. expect your assets to be cut in half with every 10-15% drawdown. 3pm are usually associated with brokerage, so commissions paid (round turns per million) will be the most important stat to them. remember that they are only going to sell the product that pays them the most. they will want 20% of all fees plus the accounts clearing. execution through them is a plus.

institutional money is virtually useless to chase until you don't need it. think about it this way. i work for BIG FoF. i make 125 a year. if i give you an allocation and you go gangbusters, i make an extra 15K. if you bust, i might lose my job. i have to defend vs. investment board. i can give the money to winton and go on vacation. they are going to look for things under the heading of "infrastructure". impact on future returns does not matter. how good/bad i can look does. frankly, from a personal standpoint they are making the right move. they had to go raise all this money. i can give it to a large group, most of whom are outstanding managers, and minimize my risk. no upside giving it to someone new.

you need to partner (30-50% equity in your firm) with a salesperson. someone who can flat out network and sell a high $ retail product. hnw is the way to go. the more intermediaries between you and the end user, the more likely someone is going to suggest a large 500m+ group. basic large retail/b to b sales process works here. 24-36 months to court each investor, cut in half for every 5 years that you have known them. increases from current clients are a good.

expect the process to take 5-10 years depending on performance. the fancier your background (phd's etc.) the shorter this time frame might be.

ssb

 

ssb, it took me some time to understand CTA business market conditions and still have learned a lot from you here,

IMO your post brings a lot of valuable information for us, which is appreciated.

Please feel free to share more of your experience, if possible.

 

Hi, ssb11, thanks very much for sharing.

By the way, what does "3pm" mean?

 

3pm=third party marketers

 

Thanks, ssb11.

So 3pm=tpm

 

Hi, 2cents, what is the drawbacks for introducing brokers to introduce clients to a CTA?

I have a couple of introducing brokers who would like to introduce some clients to me. But I am not sure to accept them yet, since they want me to use a specific executing FCM. I prefer just to stay with one executing FCM.

 

Ssb’s comments were spot on!

Here’s a few other random thoughts to consider:

1. In addition to HNW individuals I would add Family Offices to your initial target audience.

2. How scalable in your strategy? The bigger allocators are looking for “capacity”. If you and/or your strategy can only manage $100mm very few will be interested.

3. If your published fees are 2 & 20 be wary of doing “side letters” of (say) 1 & 10 for early investors. Due diligence will uncover these arrangements.

4. Allocators look for legitimacy – office, staff, infrastructure. Two guys trading from their bedrooms will not cut it.

5. You must be prepared to reveal minute details about your strategy to potential investors and articulate why it will continue to deliver solid returns, even as market fundamentals change. You need to prepare an “elevator pitch” for your strategy. Two minutes or less (or 5 slides) as to how you generate returns and why you will continue to do so. Simple, concise and clear. No magic or promises thereof.

6. You need to be prepared to have your strategy “pigeon-holed” into one of the 10-12 recognised HF strategies. In fact you probably need to pigeon hole yourself. Research the various HF indexes and look at the sub-index categories they use. Test your correlation. You need to be able to say “our strategy is Conv Arb” (for example) so they immediately understand what you do. If you have to explain why your strategy does not fit into the prevailing HF universe you will lose most of your audience.

7. The various types of HF strategies (Long/Short Equities, Managed Futures, Macro, Convert. Arb, Event Driven etc etc) wax and wane in terms of attracting assets. Remember these guys are managing their own portfolios and will be looking for returns that have a specific profile (correlation, volatility etc) and any given point in time.

8. And the underlying logic is not always obvious. For example: they will invest in Managed Futures (CTA’s) as a form of insurance for their long/short portfolio, even though they fully expect the strategy to lose money over the next (say) year. Your job as the CTA is to deliver strongly positive returns when the equity markets tank, because the rest of their portfolios will be getting killed. What you do the rest of the time almost doesn’t matter.

9. Good TPM’s are well worth their 20% fee.

I could go on … but I won’t.

good luck,
bolter

 

it would be unusual for an ib to have issues with the executing fcm as long as they got to clear the business.

as to bolters comments above, i find them very accurate when it comes to institutional money. However, i have not found that to be the case for hnw. we have never had an office and have been able to raise a decent amount of money from hnw and the occasional institution. sometimes the institution will give us prop but not customer $. the more actual trading that an institution does, the closer it is to their own money at risk, the better chance we have had at an allocation. we have also had below market fees. again, when it is the end user with whom you are speaking, they don't care how you look. they appreciate frugality particularly when you remind them that the person paying for the Renior in the marble lobby is them.

we have not elected to spend money on things that we don't think will enhance future returns until we had enough to impress the institutional bs. getting a 1500/mth office is going to be a waste of 1500/mth b/c no FoF from europe is going to walk in and feel "safe" there. so, until we have 300K+/yr to blow on trappings, we have decided to blow $0.

ssb