setting up an incubator hedge fund.

Discussion in 'Professional Trading' started by lasner, Sep 17, 2006.

  1. lasner


    I just need some advice. I want to start a n incubator hedge fund. I have the series 7,63,65,31, and 3.

    With an incubator hedge fund you don't allow other investors into the fund it's just your money that you're trading with.

    I've been told it's simple to set up but lawyers want to charge me $4,000 to set it up. Could anyone point me in the right direction in establishing one.

  2. The options are - you can choose to form an entity (can be desirable for control purposes and to show you are serious) and open a brokerage account in the entity's name and trade it. Your record speaks for itself and for many purposes I've seen some of my clients who have done just fine with this basic set up, some simple disciplined internal accounting and some real good salesmanship.

    Or you can retain an experienced law firm and pay the piper. Hannah Terhune is one out there and there's plenty of others to be found. And then follow that up with a CPA firm. Arthur F Bell is one there and there's plenty of others to be found.

    Of you can do a combo of the above two with what you called an incubator hedge fund. Which can be a nice disciplined way to pay some big bucks to pros (but not as much as using the law firm) to account for your results as you move along.

    In all cases, you roughly get what you pay for. Depending on how much money you want to throw away in the beginning (or looked at differently - how absolutely positive you know you will be successful at obtaining outside money).
  3. lasner


    I have an entity established I formed an LLC.

    Is that all I need to do form an LLC have a brokerage account in it's name, be licensed in the state I'm in as an investment advisor and that's it.
  4. lasner


    Yeah I don't want to spend 5-8 grand for something I can do myself
  5. KDUN02


    I did the same thing, LLC with broker and it works great. I have 8 investors in the LLC and am paid a performance fee quarterly.

    There is no need to spend the money to set up a useless incubator fund unless you want to throw away money to an attorney and don't have other investors.
  6. I wonder that if by paying yourself a performance fee rather than sharing a carried equity ownership interest in the LLC you are #1 needlessly subjecting your compensation to self-employment taxes, and #2 if this does not raise to the level of trader status for IRS purposes, that you are making your compensation somewhat non-deductible to the investors in the LLC.
  7. Depends on how big you want to get. HF's require that investors are accredited and minimum investments are usually $1 million. Majority of investors will NOT deposit his $1MM unless it is at legit prime broker, who won't even talk to you without $10MM up. I'd think you could set it up with any broker dealer, but as I said depends on how big y ou wanna get. Big investors won't plop down and have his $20 million deposited into joe shmo b/d. Also, without a minimum of $20 million, it's not worth the 2%mgmt/20% incentive.

  8. lasner


    All I want to do is establish a fund and invest my own money. It won't be open to other investors.

    I want to develop a track record with my own funds, but I want a fund to hold my liscenses as well.

    Does anyone know where I would start?
  9. stussy


    lasner: I am in the same situation as you were. What did you do eventually?

    Thanks :)
    #10     Apr 16, 2007