http://www.greencompany.com/blog/index.php?postid=164 @sf631 - Thanks for that link to his site. Great resources there, esp. within his blog.
Thanks rallymode. Short answer for anyone not going thru to the link is only on the amount above the AGI threshold (or the amount of net investment income, whichever is less) So, less onerous if you're just over the line into "rich"
I've recently started thinking about OPM as a possibility for the future, so I just read this entire thread (took me 2 hours...). A few interesting points, especially thanks to clerk. I have one question regarding this: Is this just an opinion or a fact? I'm thinking since I have a decent sized retail account with IB right now, if I ever want to start a fund, will I be able to (legally) use the audited track record from my current retail account at IB as past performance, or not? I'm thinking in 3-4 years time. Or, do you think, I can legally, but it won't impress potential investors because it was a retail account? In this case, considering I'm currently building a track record, should I open a different kind of account for the purposes of obtaining a track record that is "useful"? I mean, somebody mentioned what sounded like an opinion that only track records of managed accounts matter at this point before you can manage anything, so I'd like to know where to build this track record since that's not something I can change later. Thanks.
This question, in my opinion, has a few answers. As far as legally going and shopping that p/l, as long as it it's yours there is not an issue. Second, it's not the 'retail' account that will make the difference it's the strategy that you implement that is the difference. Unless, you find an investor who will throw a little money your way just because. If you are looking to raise money in the millions you would be best creating a (name is slipping me here) an LLC with your capital only, you can trade that via IB and use the strategy you plan on implementing once others capital is ready, unless, you are doing spec event type stuff then in that case I'd imagine you would not be posting on this thread. The managed accounts ( I have personally done) are a way to gain client trust with $20k-$50k, whether you're trading futures, options or equities, then from there with a proven record the client and you would agree to up the capital for your new fund. I say this having done this for the last 18 months and I am still in the process, the pitch works because the capital is in their account(s) and its a small amount of money to start and you are able to begin building relationships right away. Hope that helps.
No one "audits" an IRA account. Or any other individual account, really. A full on audit entails a study of your operations, cash-flow procedures, and generates full year financial statements. This is what larger investors want to see before they invest. But you can get an accountant's "opinion statement". You basically show the accountant your returns, and what you think the performance is. The accountant does a quick review, and says yes... the logic + math here seems okay. But they're not really reviewing all the cash flows in/out of the account, whether assets are being priced correctly, etc, etc. Probably good enough for someone casual, the guy you meet at the golf course or here on ET... so might be worthwhile getting your first seed money. There are a lot of great money managers out there. It's extremely hard to convince someone to invest in you on day one, when they have other more established managers out there also beating the index by 500-1000 basis points a year.
Auditing never made sense to me. It's easy to operate multiple accounts and only have the winners audited. Auditing only makes sense after you are invested to prevent chicanery
Agreed, unless you get the really anal type of investors who request it, which, unless they're coughing up a few mill is prob not worth it.
Thanks Busta and heech, for the responses but I'm not sure I'm reading them right. You're saying that retail or LLC account, it won't be much use unless the AUM in it is 1 million or more, and/or the strategy can be fully disclosed and there is good reasonable explanation of how it will work under higher AUM? If explaining a strategy to the investor is useful, other than him sitting down and watching me trade, how can he be sure anyone is telling the truth? I'd probably have two funds, one market neutral arbitrage (less automated) and one trending (more automated). Maybe you mean, I should be able to explain how my entry methods, my executions etc, won't move the market too much and how my time-frames are compatible with larger AUM (this means no inta-day trading)? I know that I can fully disclose the strategy and my estimates are that from 200k up to 20M AUM there won't be much difference in execution (performance) having looked at the market structure. Basically, I'd just like to know if I should start an LLC for the sake of my record, should I do it right now? In other words: If I will be fully transparent, as I intend to be, does the fact that I'm on a retail account now not matter at all (considering what you said about the un-importance of auditing)?
Having ability to fully articulate your strategy is the most important. Next is making the investor feel safe with your operation. Only family and friends will invest without redundancy, supervision via 3rd party administrator and infrastructure. Regardless of returns audited or not. In other words. Track records are way down on the list. Think about it, it's self selection bias, anyone who wants to or thinks they can operate a fund already has a great track record. Otherwise they wouldn't consider this avenue.