my god to start your oWn fund is it possible?

Discussion in 'Professional Trading' started by chimera, May 22, 2013.

  1. I am just trying to provide some industry insight speaking from experience from the Institutional end, which I thought was the whole point of this website. I was replying to a poster who commented on getting the attention of institutional investors, and how connections play a huge role and that it is a tough industry to crack. This obviously would not come into play until you are well down the path of growing your fund. But if your fund is still in the early stages, then yes, maintaining performance is going to be your biggest hurdle along with keeping costs low.

    I don't know what "semantics" you are referring to, but in the finance world, any joe blow with and LLC in his garage is not considered an institutional investor. Try calling up Blackrock's institutional sales desk and ask what kind of allotment your $20k fund can get and see what they say.
     
    #31     Jun 10, 2013
  2. mokwit

    mokwit

    Actually a very good point but but I think it has to be something of an affinity pitch - the Palm beach set were outraged that he had ripped off his own. Also Madeoff had credibility from being head of NASD(?) in his presumably bona fide market making days used that Austrian woman married to an Aristo and the French (?) aristo who killed himself among others as feeders to tap their networks. There was one major Swiss Private bank as a major investor.

    Unless you are a brilliant salesman/conmen or can hire one I can't help but wonder if you pretty much have to be part of a certain social strata/network e.g raising money from Harvard classmates/parents. People who can sell know what a minority they are and extract stiff terms - the idea that you can find someone who can actually sell and will run around making you not he rich is flawed.

    From what I know of Madeoff it was sold as a nudge nudge wink wink deal and the technique of a "takeaway" which any Timeshare salesman will tell you about was used. The feeders would set up a meeting, Madeoff would grimace throughout as if only meeting to appease the feeder and then shortly after there would be a breathless 'phonecall saying a slot had opened up but they had to have your agreement now. The real story behind Madeoff is known in a certain 'tribe' but they are not saying anything about it to non tribe members it seems. I got stony faced looks from asking.

    I know "of" these tactics, most people don't. But perhaps in contradiction to my previous point, agree a straightforward sales pitch can work - people with belief but no sales training can sell like crazy because they answer objections from the heart not a pitch book.

    Someone I know started from nothing (actually 300k) and has USD200m under management but his key investors were people from his business circle and they WAITED "to see how he did" before committing. He told me you have to have core investors if you are to run it as a business (which you maybe now have to do due to "infrastructure" requirement - Read: salaries).

    One thing that has not been discussed as an option is 'managed accounts' I turned down an offer of 500k on the basis of what it would cost me to set up e.g. contract vs 20% of doubling 500k in a good year. Afterwards I realised I could maybe have done it as managed accounts. Goes without saying if I was trying to raise money the out of the blue 500k offer would have stayed under a rock.

    The other thing to consider is knowing your clients are liveable with - they can drive managers crazy with their suggestions and "how could we have missed that" and "how come we are not finding the 'Chinese Angry birds'. Remember, people invest with hedge funds usually after finding they can't do it themselves and HNWI expect to tell others what to do and they know it is THEIR money.

    The last - clients, is one of the things that has put me off investigating further than I did. I would rather 'live simply and answer to nobody'. Anyway, my sole motive for starting a fund would be to make a big enough nut to live like a fund manager by trading my own book with no clients. If I was a billionaire I would buy forests and live simply anyway.

    Another thing is trades/investments have to sit right with key clients. The old joke about being proved right in the end but there are no clients left to applaud is not a joke. I should point out I am talking about the stock/investing end of the spectre and this thread is more about trading - there are after all black box funds that disclose not much other than presumably their numbers. To quote a fund allocator "everyone sounds great until you start asking about their numbers" - tends to reinforce GoC's point.
     
    #32     Jun 10, 2013
  3. MrN

    MrN

    To sum it up, it is a parasitic "cover your ass" mentality that is completely unable to create value by it's very nature, by its own operating rule book.

    Why on earth anyone who could get to 75m would bother with such detritus is beyond me. Most likely, because they are at the point where they can't create value anymore, and want to get in on the fee-sucking gig too.

    Hey, I don't blame the poindexters, they have a very nice low risk jobs with way too much pay. Why risk it by actually seeking to create value?
     
    #33     Jun 10, 2013
  4. MrN

    MrN

    "don't make investments smaller than $10 mil because its not worth our time and energy"

    Most likely because "institutions" employ people unable to intuitively understand the power of compounding + leverage.
     
    #34     Jun 10, 2013
  5. mokwit

    mokwit


    Might be because they know how drawdowns are perceived. I know of a Fund that was one of the worlds top performing funds one year - but he got no new money because he was making his money in commodity stocks. Too volatile and it was not his speciality - a specialisy wopuld probably have controlled the volatility/protected gains with puts.
     
    #35     Jun 10, 2013
  6. chimera

    chimera

    out of interest..what kind of % gains do $100M+ funds make?

    10-15%? i can't see much higher.
     
    #36     Jun 16, 2013
  7. newwurldmn

    newwurldmn

    Some funds aim for that. Some funds aim for 30percent or higher.

    It depends on the investor base.
     
    #37     Jun 16, 2013
  8. zdreg

    zdreg

    madoff went for12% every year.
     
    #38     Jun 16, 2013
  9. mokwit

    mokwit

    The key was stability of returns - meant you could borrow to inbest and get the leverage effect. Probably completely uncorrelated as well as befits made up made to order for marketability results. then again f you actually took money out to pay interest rather than watching it supposedly grow you would have been an unwanted customer type.
     
    #39     Jun 16, 2013
  10. chimera

    chimera

    I mean why didn't he just do this?

    -------------------------------------------------------
    madoff went for12% every year.
     
    #40     Jun 16, 2013