I was thinking more of structure of a client's portfolio and communication of the structure to the client. For example: 10% commodities, 30% bonds, 10% managed futures, ... Investors should be explained that when 1 asset class perform worse the others performs better etc. Surprisingly not a lot of advisors do this.
I would never share a penny of my Incentive Fees with a broker. They are mine and mine alone. Of course, I charge no management fees and feel comfortable eating only what I kill in battle. To answer Promethesus' question, I think some brokers would be interested in recommending a good CTA program that's more than 7,000 R/T per $1mm, per year at a commission rate of: Between $5.00 and $10 per round-turn. The brokers who are willing to refer me business are generally people I've known from my days as a broker with a big company. But this is a growth industry. ------------------------------------ Obviously, a CTA who is comfortable with paying $25 per R/T might have many brokers selling his program...if he can keep money around.
Do you intent to use introducing brokers? If you do, do you have to share your advisory fee with your introducing brokers?
He's right I had a client like that who was extremely wealthy and he admitted that he was only trading for fun and enjoyment and not to make money. So YES those clients do exist. I know because I WAS A BROKER.
<i>Broker</i>, not <i>CTA</i>? In my experience, whales who want "fun and enjoyment" <i>control the trading themselves</i> rather than turn their money over to a CTA. Where's the fun in opening a printed statement once a month? And institutional clients always exhibit a seriousness of purpose.
I think Rodney, Vulcan and CTA are all correct. Likely recreational "whales" do like to do their own trading. What happens is they develop a relationship with the broker and trust him. Maybe the Broker suggests winning trades or strategies. When the broker says, "I am starting a CTA" The relationship is in place and the "Whale" is willing/happy to invest. I think the lesson here is one of relationship building.
This might be slightly off topic here; however, I noticed that there are some very knowledgeable people here... I am also planning to launch a managed futures fund -- I have a reasonably decent track record for about 7 months now. I have a potential big investor interested in putting some money in. I was thinking about the usual 2/20 fee structure. However, I just got a call from a headhunter (she knows that I've been working on my track record) and she told me about trading for a prop firm and their payout is 50%. She hasn't given me much details yet though. This got me wondering. Why would people with capital get into prop trading (for futures), and not just instead invest with various CTAs and pay only 20% of the profits? The only thing I can come up with is that they are looking for high % return strategies that are usually not that scalable. For instance, they invest $2M in a strategy that can potentially make 50% return a year.... Put $20M into the same strategy as a CTA fund and then you might a 50% drawdown instead of 50% profits... Any other thoughts? Thanks!
It's a complicated question, but, yes, a big part of it is greater control, especially of capacity. Many strategies, and not just 'niche' strategies, have less true capacity than meets the eye.