Transition from Prop to Hedge fund

Discussion in 'Prop Firms' started by Copernicus, Jan 17, 2004.

  1. interested in hearing from former daytraders who made the transition to the hedge fund world

    anyone out there can comment on this process?
  2. 50_luma


    I was a prop trader for 3 years, now trading under the umbrella of a hedge fund. The main issue I faced was the scalability of my trading system. Due to the liquidity issues, the access to large capital wasn't that beneficial to me. The 90 % of profits I can get trading prop. is higher than the 20% (which is an acceptable payout to a hedge fund trader) even if I had access to 100 times more capital than I had to put up as a prop trader. But if you have a working scalable strategy and are looking to move from a prop firm to a hedge fund than let me know, and I'll recommend a hedge fund that might be interested.

    Right now I'm doing my old prop. daytrading, getting about the same payout and paying same commissions to the hedge fund that my old prop. firm is offering. I'm working on new strategies, but even if they don't work out, I'd still pay a little extra in commissions and a small % of profits to be working in the environment that a successful hedge fund can offer.

    My situation is not common for a "regular" hedge fund, most of who, if I understand right, won't even look at your resume if they see you mention "worldco", or the other daytrading shops.

    Another way to get into the hedge fund world would be to start your own. There are several traders on ET who have done that, and this subject has been discussed numerous times in the past. If you do a search you might find the threads, or they might want to share their experience here as well.
  3. GGSAE


    What exactly is a hedge fund?
  4. The main issues are finding capital (not easy) and time commitment. Assume that back office/paperwork/talking with clients/fund raising efforts will take 3 times as long as you normally would assume. Those things definitely affect your profitibility.
  5. We have helped many good traders who thought they wanted to "manage a hedge fund." Very simply, we have the capital to give to good traders to use...and even if we charge for some capital usage (even at a 12%), it's much better than giving away 80% and paying all the fees involved.

    Why go through all the hassle of trying to raise a few million, when we can simply allow you to trade some of ours. Various plans for successful traders.

    My brother even made a point to bring this up in our press release from last week.

    Feel free to call Bob or I to discuss.

  6. The problem with a prop is that you only have so much equity. Basically you are playing with leverage. I feel unsafe being leveraged more than 1.5:1 overnight or 2.5:1 intraday. I think those are very agressive numbers at that. If you want to trade 5m in capital, you need to have a few million in equity in the pool to be safe. If you put in just the minimum funding, you'll blow your equity out.

    The other upside of a fund is that you can grow it to be a few hundred mil.

    Say you have 300m and you make a very conservative 50% a year. That is 150m in gains, and you take 20% of that, or 30m + 3m from a 1% fee. 33m, even after a ton of expenses probably leaves you very rich.

    I do not know of any props with that type of capital to lend.

    If you are happy trading 1m or less, I think you should probably just go prop.

    If you do go hedge, I very highly recommend using GTT.

    This link will supply you with a ton of free info on funds.
  7. Aaron


    Good question. Even the SEC is struggling with this. The SEC thinks they might want large hedge fund managers to register with them. Now they have to define what a hedge fund is.

    "Hedge fund" is not a legal term and there is no codified definition. A hedge fund is a private investment partnership. "Private" means it is a private placement — not a registered security like a mutual fund or equity.

    In practical terms, a hedge fund is like a mutual fund that is less regulated, usually limited to a set number of sophisticated investors, usually has a high minimum investment ($20k to $1m or more), that uses a fair amount of leverage and invests in sophisticated ways (short selling, convertible securities, derivatives, mergers & acquisitions, etc.)