Another thing, raising AUM has little to do with performance. It's like the food services business, ie restaurants. It is 99% marketing, pedigree and bs hype. You might cook the best food but you probably will make no money opening a restaurant.
The OP is going to do quite nicely trading his own funds if he can continue to put up those kind of returns. Do it long enough and the outside money will find you.
You are ignoring the growth in trader capital. If a trader can live off his own capital and performance, then a fund where the fees exceed the operating costs is only going to boost his earnings, assuming running the fund doesn't reduce his CAGR.
Because when you take in other people's money your costs go up a lot: auditors, accountants, lawyers, marketing, operational enhancements, etc. If you can get investors while keeping these to a minimum you are right. But most strangers want to know you aren't a fly by night shop. They will want to know someone is watching the book if you break your leg on the subway one morning, etc. Again, it depends on from whom you get capital. Friends and family will be a lot friendlier on these costs because their inherent trust in you will preclude needing these safeguards. But a stranger will demand more protection and assurances that you are legit. That all costs money. So, unless you can get to a critical mass, these costs will come out of the OP's pocket. There are a lot of reasons to take the risks. Fortunately, most of these costs don't scale linearly. For the 10MM he may be cashflow negative in his management company. The next 10MM might get him to cashflow flat. Everything after that is gravy. But getting the first 10MM is hard. Anyone who is an accredited investor is already being innundated with hedgefund pitch books. If you can't offer these safeguards, it's no different than a restaurant who doesn't offer clean silverware to continue Lights analogy.
Perhaps you can try contact this guy and figure out how he did it: http://www.smartmoney.com/invest/strategies/the-400-man-1328818316857
Anyone can join ET forums which are free of charge. So I guess you've got to take the good with the bad. Nice comeback though.
I am confused by this: "But surely if I sustain these results for 5 or 7 years, then raising several mil should be no problem? " Assume you have 1/2 million of capital now. Let us the lower the performance to "only" 50% a year. If you can sustain this level of return for 5-7 years, you should have from 0.5*1.5^5 = 3.8 million to 0.5*1.5^7 = 8.5 million Then you would already have your "several million". If the concern is scalability, then you should never manage OPM anyway. I do not mean to sound mean. I have gone through similar thought processes again and again. The number just does not work out. njrookie
I don't manage a hedge fund any longer. I wanted my life back so I switched from a CPO to a CTA. Everything changes once you take possession of OPM. As a CTA I can link my clients accounts to mine and then invoice them each month, depending on whether it was a profitable month. No, I'm not a Citco client.