good post. you forgot to add that institutional money is seeking preservation primarily. secondly, even with the proper set up, they will want to see your back up/contingency plans plus your internal staff--- all a huge expense-- even 100 million doesn't get you far in the institutional game. your management fee will be demolished by the costs required by the institutions at even 100 million AUM. regards, surf
Have checked these books, after reading your post I did a quick Amazon.com search to if there were any sources available, I have not read these books but probably would if I were to get started in forming a fund. http://www.amazon.com/Create-Manage...0317743?ie=UTF8&s=books&qid=1176693828&sr=8-2 http://www.amazon.com/Fundamentals-...0317743?ie=UTF8&s=books&qid=1176693828&sr=8-3 Update us how your quest goes. Good luck!
$50k is too small. A $50MM fund with superb track record can go to $500 million just by hiring more PM's after allocation interest and sticking with core strategies. tho u could find ways to leverage the $50k to something worthwhile, ie $500k, etc.
A 6-month update here for anyone interested: I started with a much smaller amount ($15k instead of $50k) and much later than I wanted to (official start of live trading was Aug 1st 2007 instead of 2nd Quarter 2007) for various reasons, the main one being just days before I was finally about to transfer some funds and had the various accounts registered, I was carefully reading some documents and found out you aren't allowed to use IRA funds to invest in an LLC in which you are an operational partner or something to that effect (passive investments are allowed but not active). The good news is it's been 6 months and the actual system has been performing within expectations. The first few trades were kind of interesting as they occurred during a 2.5+ stddev event (meltdown and rebound of the carry trade). Heh I remember thinking maybe IB was having data feed issues when I randomly glanced at one of the first positions then checked the news. We'll see how things go the rest of 2008. I'm not planning on contacting incubation funds or angel investors until 2009 at the earliest, though if things go well I'll start the planning process for this probably 4th quarter 2008.
Management fee on 100M too small?! Egads Surf! The fund bears all of the expenses! Expenses from administrators, prime brokers, tax, audit, legal, etc, etc are directly to the fund. Now it has to be 50M+ or the investors wont bite because they know how much they are paying. Basically, it is 40bps at 100M and then drops pretty quickly to 20bps or so at 250M. Now that doesnt include any salaries, office space, software/hardware systems, furniture, etc which along with the fund managers salary (hopefully) eats up all of the management fee. Fund manager then gets the bulk of the incentive. I think a real trading strategy always has at least small draw downs which would wipe you out with prop leveravge, but other than that, opening a fund is much harder because it is a real struggle and you are a complete schmuck until you have 100M. It wasn't as bad for me because I had traded very successfully for 9 yrs prior to starting my fund and was already set for life. I made big returns and raised 100M my first year and still all my employees made more than me (if you don't count the returns on my own money). Now the second year was nice The brutal truth is that on top of an exceptional and scalable strategy, you have to have very expensive first tier infrastructure and a good crew of people backing you, along with 40M plus and a rolodex full of family offices and FoF. Most institutions want 200 or 300M min and three years of track before they even consider you an emerging manager and there will be over the next few years a trend of consolidation amongst the large firms. Basically, more and more, the large multi billion funds are getting all of the allocations and the smaller < 1B-3B funds are drying up, and gobbled ub by mergers, etc. The barriers to entry are moving up fast and no longer can one start from nothing like you could 10 years back.
well said, joe. your on the inside track here, nice going with your product. it's getting more and more difficult for start up funds to charge any management fee whatsoever, investors are becoming more and more sophisticated and picky. hedge funds have become institutionalized, however this is a good thing for the smaller niche player as its a way to differentiate themselves via unique, capacity constrained strategies that the larger institutional funds ignore. im not talking about SP futures here, if you know what I mean. Send me a PM if you have any interest in diversifying a small amount into a very unique product. best, surf