Hi, good luck to everyone in raising funds. I talked to a very successful private equity manager with a great track record and a couple hundred million in assets and he told me nothing is as difficult as raising funds. He was shocked how hard it was, even with his very good performance and significant assets under managment. So I admire you guys who are out there trying to raise the funds. I have a question. Can you give me any advice on who you used to help set up your funds legally and what I might expect to spend on that process? I'd like to start a small hedge fund but from what I've read it can be pretty expensive and I was wondering if that was your experience as well. I am willing to spend the money but most importantly I'd like to work with someone who does a good job at it. Thanks for any advice you can provide.
For those of you that are set-up as CTA's or HF's already, and you have a short but solid track record, feel free to PM me with some more info. I have several friends that raise capital for smaller CTA's and HF's that I may be able to put you in touch with. I'm not just going to send anyone their way without a little screening first, but if you think you are worthy, drop me a note.
Avid, The deal with a 3TPM varies from person to person. They usually charge more for a smaller shop (they know the extra funds are worth alot more), I have heard anywhere from 50 to 75 basis points of the mgt fee. I would be real reluctant to give up any performance. Also, your scalability question: Almost everyone we talk to is concerned with the scalability of the portfoloio. They all want to make sure you can grow to the point where it is worthwhile to them. meaning, a fund of funds does not want to do due dilligence on a guy who can get to say 25 million, they want to know you are scalable to the 250mm mark. This allows them to do the dilligence once and have you in the stable while you grow. Plus some ask for capacity guarantees into the fund, this way if you get really good results they can market you to their clients. Hope this helps. Bdraws
Ed, I am not sure about the no mgt fee arrangement. My guess would be it is a hard sell to the TPM, because they are guaranteed no money. I would think their preference would be a guaranteed piece. However, if your record is stellar and you find the right firm, they may be willing to take a shot. I would guess they would want a higher fee, based on their risk. If you have luck doing it keep me posted, I am interested to hear. good luck, Bdraws
For encouragement see www.quantitative.com (Quantitative Investment Management). They have excellent returns, low drawdowns and have raised 200M in the pst 7 months. They have AUM of about 215M as of Feb ending. So the money is available...but I think the key is maintaining low drawdowns!
This has been a very interesting discussion. I have not yet made the leap to CTA, but currently work at an established private managed futures fund. I have done plenty of due diligence and continue to come back to the nature of my current company's success: The retail customer. I know, go ahead and frown at the idea. I have spoken with a couple of struggling startup CTA's and all they could talk about was institutional type money, getting meetings and being told to "stay in touch". No one talks about approaching the individual money, but I believe it is the key to building the core base of funds. Simply partner with a proven salesman and agree on a percentage of the fees (ie. 20% of total fees). Let the salesperson raise funds and deal with clients so that you can trade. You will be amazed how many individuals out there will throw you a 100-200K account in no time and your management fee can be higher for these individuals as well. With good performance the institutional money will then come to you.
I've thought of this at times and believe there may be a benefit in this approach. Retail traders if properly advised of the risk can be more loyal/long-term than the fast money crowd from Geneva & NY. However, when you open your fund to the retail crowd you have far greater regulatory/compliance issues. Ideally, I think the best investors arethe UHNW (Ultra High Net Worth) investors. They can provide the stability/loyalty of the retail investor and the large investments/professionalism of the institutions.
As long as the "retailer" is accredited, I see no problem with them. Individuals who take the time to get to know you as a manager will often stick with you during drawdowns when FoFs and institutions are bailing in search of the next big thing. Many HNW retailers play golf with other HNW guys and will talk about you if they are doing well. If there's one thing the Eric Wright blowup should have taught us all, it's that all you need is a few well connected physicians to bring you funds.
wow - I always thought that it would be much easier to raise equity - I find this thread very informative