Fascinating, I wish you well. Just a thought - you say that you continue to add personal funds to the account. Perhaps you might consider segregating such funds so that you can use them for 'experiments' on new trading systems. That way, if things do not work out, it does not affect the performance of the fund. When the new systems or methodologies are proven, then you start using them in trading AUM. I'm sure your clients will appreciate that you are only using proven approaches in managing their funds. When you have much greater AUM, this of course will become insignificant.
HF, you should consider becoming a model manager for Covestor Investment Management. You have the characteristics they like to see, including strategies and trading history. You can save time from marketing, and worrying about the arduous task of presenting compliant performance information for your fund. For $25k you can daytrade, and with $10k at a minimum fund your account for your investor's to follow. This will make your job a lot easier. Covestor.com is definitely the place you should move to, and with regard to Interactive Brokers, a far superior broker than OptionsXpress. You have a wide range of choices especially when it comes to 3rd party API's compatible with IB, and I think getting an esignal subscription will make placing options orders that much easier. If you do well, maybe profit 20% in your first quarter, you should have no problem attracting more capital, but I would say it's probably the case that you do not want to receive anything but asset based fees. I would highly suggest getting your securities license so that you can get AUM. If you don't want to do that, they pay you $120 per month for each subscriber, and if your investor is willing to make you an interested 3rd party on his statements, you can bill him directly, though it is preferable to have a license. You sound like you have a strategy that may be robust, and I think joining Covestor will give you a lot of scale, without the complicated task of being readily able to present your fund's performance while being compliant with performance presentations. Covestor Investment Management needs model managers with this background, but I will say less than a year of experience is a very short track record. I figure after ten years if I can get at least a 400% return 5x I shouldn't have any money problems. Indeed a lot of people sort of complain about the lack of good models, but mostly this is due to a lack of time, as it is a very new experience for investors to consider. If you have your investor's trust, I think the switch will be very easy, and I highly recommend Multicharts and esignal. There are many other API's compatible with IB so if you don't like those there are many others that happen to be all compatible with IB. IB is a superior broker to OptionsXpress, and I really hope you'll consider looking into this. You won't have to worry about marketing, or performance presentations, but you will have to start a new track record. However, a 1 year track record isn't worth the pain of doing things right from the start, and I think you have the character to do very well on it. Let me know what you think on Covestor.com. I think it's the future of investing, and that's where you want to be, I'm sure.
I cover several important areas for hedge fund startups including: constructing a board of advisors, fund formation services, third party marketers, compliance and regulation advisory, prime brokerage services, fund administration services, annual fund auditing services, training and certifications, and, finally, associations and networking groups.
So another quarter has come and gone and I am pleasantly surprised and pleased to let all of you know that the fund is not only still in operation, but also prospering. Investors are happy (for now) and I have learned many new things since my last post that I will share with you now. Many significant and even some unprecedented events have occurred over the last several months (downgrade of US credit, potential government shutdown, European financial troubles, etc.) creating a highly volatile market in which we had 4 back to back days of 400 point moves or greater in the Dow. Many hedge funds and banks have shutdown. I view turbulent periods such as this as an opportunity to demonstrate the effectiveness of my trading methodology to myself and my investors. Of course I have experienced times like these prior to starting my fund, but never as an established incubator fund under the watchful eyes of investors. I monitored my metrics closely and the system behaved exactly as it was intended. My confidence in the methodology has grown and reinforces my stupidity and regret in early trades in which I made trades outside of my system (style drift). I have not done it since and I will never do that again! One of the biggest lessons I have learned over this past year is the differences between being a trader and a portfolio manager. Prior to establishing the fund, I spent over a decade as a trader, more so (in hind sight) a gambler. I was not worried about hedging, consistent performance, or accountability because I was only responsible to myself. I have always been in highly risky occupations and so I never thought much about risk. When I became serious about trading (my day trading experience) and did it full time for a year and a half and blew out my account several times, I quickly learned to value risk management over profits (a tectonic shift in my thinking). The system I trade now is a product of that epiphany. Now as a portfolio manager, I spend a lot of time measuring volatility, correlation and the balance between risk management and profits. For example, for the first three years I traded my trading methodology, I limited its trading only to the Nasdaq 100 equity index (QQQ or QQQQ at the time). I did this because I only had a small amount of trading capital and also because I was getting great results. The problem was that I wasn't hedged and was highly vulnerable. So when I started the fund I made the natural decision to apply the trading model to multiple markets. In fact, I thought, the more the better. I ended up trading 11 different indices (DBC, DIA, EEM, FXE, GLD, IWM, QQQ, SPY, TLT, USO, UUP). Well, I was successful in hedging to the point that the fund effectively remained flat regardless of what the market was doing. This was not good. As it was, I was trying to earn back the money I lost on the style drift trades I made when the fund first started (which I mentioned earlier). My fund was remaining flat while its benchmarks (QQQ, DIA, SPY) were rocketing upward. In early February I made the decision to restrict my trading to only 4 indices consisting of DIA, QQQ, TLT, and GLD. This was one of the most important decisions I have made so far because my fund's performance immediately began to change. While correlation with the major indices and my fund remained low (an average for all three benchmarks of roughly .27), my fund immediately began making money and has been consistently doing so since that time. In fact, as of yesterday I have made back all losses since the fund's inception. Position sizing has also become very important in my portfolio management efforts. Within those four indices, I am finding optimum sizes based on what the market is doing and how much I have invested in each index relative to available cash. Earlier I mentioned metrics. One of my biggest regrets is that I did not start tracking my fund's performance on a day by day basis when I first started the fund. When I realized how important it was to have this data, I went to my broker (Optionsxpress) and asked for them to provide it, but they do not maintain that data. There have been a few other instances of needs I have had that were unable to be met by this broker and this underscores what a hedge fund oriented broker can bring to the table. In my last post I mentioned that I was developing some trading signals that showed promise in early testing. Unfortunately, they did not make it favorably past the backtesting and once again, I am glad I waited until using real money (even in small amounts). These lessons may seem simple and even obvious, but it is one thing to know and quite another to do! At this point, I continue to work to grow my distribution list for when I send out my quarterly reports. The distribution list, ET and Linkedin are my primary methods for networking and getting the word out about my fund without advertising. For the most part, responses have been favorable and I have been successful in attracting some interest. I have come to realize that it is important for a fund manager to be able to understand exactly whom his potential client his. Based on the long term perspective and steady, consistent returns of my fund regardless of market conditions, it is becoming obvious to me that my potential investors are conservative family offices, pensions and endowments. This is not good or bad, it is just what it is. This is a lot of info so I'll stop here. Thank you for taking the time to read this thread. I wish you all continued success in the markets and in your personal lives.
First of all, good luck to you. Glad you're focusing on your core strategy, and it's working for you. Second, the above strategy of raising funds by "networking" through ET is ill-advised, and frankly illegal. The SEC and CFTC does everything under the sun to make that point as clear as possible. If you don't raise any money, if you don't ever reach substantial size, if you never gather anyone's attention... great, probably no one will notice. If, however, you manage to raise money through someone that you "meet" through this approach... you're setting yourself for serious sanctions if the regulators come after you. (And, by the way, an investor could also sue you, hoping to force you to cover *their* losses.)
This is excellent advice. And should be perfectly clear to anyone getting into this business. Yet I see this kind of activity out of start-up hedge funds all the time. Haven't any of these people run their actions past their lawyers?
No shit? I raise 3 to 4 million a month for Private Placements and would never give ET a time or day on that end. Why would you try and raise capital on ET, just from a "Waste of Time" aspect. And read the post, nothing but fools on ET. The HEDGE FUND business is not heavy regulated and these clowns think it's illegal to solicit on ET? And you want to deal with idiots? SEC and FINRA capital raising rules do not apply to HEDGE FUNDS. Nor do the REG A or Rule 144! FOOLS!!!!! Not sure where you go about raising funds for your "START UP" but I can tell you, the channel I am tap'd into has pulled all their investments, usually only 1% of their net worth invested, from hedge funds back in 07. They are completely out of those vehicles. Some may own stock in XOM, IBM blue chips for their grand children but they have sat on those positions for decades....not buying more now. The most popular item now are REITS/Commercial Property in the US that pay out 10% plus with Anchor Tenets, triple net leases and positive cash flow. In other words, distress properties due to over extending of "Credit" and the investors have no choice to dump in order to salvage their net worth. Second most popular item are DPP, MLP, in Oil Wells on the Domestic Front. Third most popular are infrastructure deals on the Global Level. I have zero prospects or current clients looking to invest in "MARKETS" or in anything but "REITS" in the US, on that distress level. Of course, I only deal with Private Business owners, mainly guys that own companies with a net worth between 5 million and 100 million. I just find it hard to believe that "HEDGE FUNDS" are truly raising money because we are all fishing in the same pond for Money and unless they are 3rd generation who took over dadys company and are running it into the ground while watching CNBC (Which I hang up the phone on them all the time.).....0% ask me to find them a "HEDGE FUND" to invest in.
Please follow the link. http://lmgtfy.com/?q=reg+d I understand that you know a lot about private equity raises... your messages pop up in a lot of threads. Let's just say you don't know a lot about "hedge funds", and you should stop giving wrong legal advice.
Rule 501 â Definitions and Terms Used in Regulation D In general this rule defines certain terms used in the rest of the rules. The most important definition is probably the accredited investor definition. ______________________ I said capital raising rules as in Solicitation there Champ. I did not make my self clear. Yes, Hedge Fund have to target "NET WORTH" rules as defined by REG D. But there is a whole lot more to REG D than just the "ACCREDITED RULE.