THat is what i tried to explain "In other cases the Hedge Funds deposits a portion of their assets with the broker and they trade that account as a normal LLC or corporate account" SO SIPC covered If you keep the hedge fund money with your prime brokerage ( or your banker co-sponsort ) they have great insurances.
I think there is some confusion about L.L.C.'s. Trading L.L.C.'s like Lieber & Weissman Sec., L.L.C. are usually not members of the NASD are are not affored the SIPC coverage. Trading L.L.C.'s do offer advantages for the independent professional trader that include Broker/Dealer margin on Stock Postions hedged by options and leverage on capital. A Prime Broker that is set up as a L.L.C. like Neuberger Berman,LLC can take customer accounts and afford them SIPC protection. See http://www.nb.com/ . Gene Weissman Lieber & Weissman Sec., L.L.C. gweissman@stocktrade.net
By far the simplest method I know of is to set up an "investment club" account. This allows a group of people to pool their funds. You can then set it up so that only you have trading autorization. No issues with LLC/ C-corps or the IRS. I know that Schwab offers such accounts .. i'm sure others do as well.
vikana, The investment club structure may be good for some, but how is the club taxed? Does each individual get a portion of the profits allocated? Is the investment club taxed as ordinary income? If the portfolio is "turned" over (daytrading or swing trading), how will the investment club be taxed? Will the club get a TAX ID#? Will Schwab let an investment club actively turn over a portfolio at reduced commission rates? How many members can a investment club have? What is your liability as the authorized trader if you lose money? When can you distribute profits? Can you write off trading loses?I'm just curious and I don't have the answer to these questions. Before I would start an investment club that actively trades, I would do alot of research and see if this structure was beneficial to a trader or more suitable to a long term investor. Gene Weissman Lieber & Weissman Sec., L.L.C. gweissman@stocktrade.net
This is my first post, so here goes. It has always struck me as odd that aspiring hedge fund managers are quite willing to give 75-80% of trading profits to others. Limited Partners typically receive this much in a hedge fund, subject to a hurdle rate of say 6%. That is, the LLC Managing Member receives 20-25% of profits above this 6%, the outside investors recieve the rest (ignoring management fees here which are typically 1-2% of assets). There are a wide number of scenarios in which this might make sense outside of the short- term, high-turnover, stock trading world that most of this board's members live in. Convertible bond arbitrage, yen carry trades, and commercial mbs, markets have very high entry prices, in the hundreds of millions. Nasdaq and NYSE trading has a relatively low entry price, often $25,000 is enough to start as a serious trader, which of course can be leveraged. I doubt one can raise investor capital to form a hedge fund without a documented track record. And with such a track record, i.e consistent profitability and reasonable equity drawdown, I can't understand why you would want outside money on the terms cited above. Its almost a vote of no confidence in your own performance expectations. I emphasize that I am referring just to daytrading and short term position trading.
This is what I recall. My family is constantly on my case to trade/invest their funds so I went down this path a while ago. If my recollection serves me right, here is what I found: 1. "investment club" accounts are much like a typical retail account and is taxed the same 2. the "club" can be any group of people who pool interest and "jointly" make investment decisions 3. everyone in the club get seperate paperwork from the broker and the broker submits data to the IRS on each members behalf 4. I don't remember if everyone has to invest the same amount. I decided against using this structure, since I just don't want to have to explain what I do to everyone in the family (and I'm sure I'd had to if they saw I had bought and sold IBM 20+ times in a week).
fkeane, We discussed this topic in one of the longest threads in Elite history. I feel the same way you do . If you have 50K in capital and you are a good trader keep 100% of what you make. Down the road, if you have access to a lot of capital and you can afford the 50K+ startup of a true hedge fund, you may want to consider starting one. For 99.5% of the traders out there, a hedge fund is would probably not worth the expense. I do wish all traders the best of success and if you want to start a hedge fund, go ahead and start one. Gene Weissman Lieber & Weissman Sec., L.L.C. gweissman@stocktrade.net
Here's a scenario I'm curious about: I am a trader interested in the leverage a prop firm allows. I also have people who would like to invest with me. Are there any prop firms that an entity can join and get the same leverage as an individual? Also, if I am daytrading for myself as a professional, I am exempt from the Wash Sale rule. People who invest with me however, would not be. How do I split the profits with them in a way that they are not subject to the Wash Sale rule? Thanks, Bill
This scenerio has been addressed quite a bit on the board, and it pretty much comes down to this. An "entity" cannot be a member of most trading LLC's. The OPM (othe people's money) is generally not needed anymore when you consider the "use of capital" provided by professional firms. The debate usually arises about "why" you need the extra money, and "why" you want to split your profits with those other "investors." If you need the money for initial start up capita with a professional firm, simply make some arrangement with the backers (this is done quite often, traders with backers). Gene is the expert on hedge funds, and even though we have had them trade with us in the past, there is really very little need for them anymore. I would be glad to discuss the details directly if you like (as I am sure Gene would). Don
Why would you not want Hedge funds to clear through you? Isn't that business simple to handle? Im sure your Prop traders are experiencing a tough enviroment which equals less revenue, No?I would think that HF biz is easy business! Rumor has it that you are SLk's biggest customer, is that true? If you clear a Hedge fund throught Bright do you clear SLK? And if a fund wanted to do business with you could they Prime with SLK? Are your rates cheaper than going to SLK directly? Do you soft dollar? Provide Goldman research? Short interest rebates? Bullets offered? Provide free space to a fund? Is Redi your only execution system? If this thread isn't the palce email me. thanks Marc