THIS IS THE ANSWER TO YOUR QUESTION . Nice to see after 5 pages of babble no one is yet to give you a definitive answer , thought this was elite trader not amateur trader. Having done that been there and got the T shirt if you like my recommendations would be : The way the big boy¡¦s achieve a nice fully audited account is essentially in 3 stages : Investment manager sends a trade to the PRIME BROKER , prime broker sends an electronic notice to your fund administrator, once your broker has filled you another signal is sent to the admin and obviously the investment manager. The administrator then does a reconciliation check through an independent source i.e Bloomberg. Once a year you bring in the accountant with the best name you can afford and they then check the trade logs, administration logs, and money flows from your bank account. From what I can gather its quite a detailed process. In an ideal world that¡¦s what you need to do to impress the most sceptical of investors. When we 1st started to look into setting up a fully fledged offshore hedge fund and management company we were quoted 100k + the fact is you can do it far cheaper. You really have several options. You can set up a domestic U.S. hedge fund for accredited investors and your ¡¥chmp change¡¦ relatively easily and cheaply. Our fund manager did 90% of the legal work himself for our old fund, I¡¦d be happy to send you the relevant documents. Or if you really want to impress why not set up your own offshore fund, with a view to raising institutional capital , ¡¥chump change¡¦ is just too much hassle. I have an administrator contact (well respected) who can form your fund for $15,000 US. That¡¦s a full ready to go fund all legal fees etc domiciled in the BVI or where ever. A major cost will be admin, but you could probably do a deal, after all you could be the next Soros ƺ . Finding a prime broker might be hard, as most like to see around 3 mill us $ before they take an interest . But again I have several contacts who might be able to help you out. 6 months or a year down the line , you bring in a good accountant to do an audit ,. We use RSM Rhobson Rhodes in London who have really bent over backwards to help us out, like you¡¦d not believe! My company on the other hand unfortunately didn¡¦t take the above route and we have paid for it dearly ! You seen to have a good broker who has supplied a good paper trail ours did not. You can get an accountancy firm do a mini audit which is basically a series of tests to prove your record but its not a full audit. It also helps if you have all your trade logs in electronic formats so investors can bang them into due dill programs and investment analysts (analists) can work there magic on them . You then tout your track record around the (start up) investors and hope for the best. Not sure if you have any intuitional background it does help but its not entirely necessary. Our investment manager was voted the best analyst in the world by Wall St, Times back in 96 I think which looks good on the company brochure. It is extremely difficult to raise any money these days but it can be done and the rewards for even raising 5 ¡V 10 million are great. If you decide to go down this route I have a number of contacts who provide seed deals $1-$10 million. Don¡¦t let anyone tell you otherwise but there is a global lack of talented traders out there and the good ones close their funds real quick. As for the incubator route its ok , if you¡¦re a. lazy , b. have no business sense, c. cant be bothered , d, want to give away huge chunks of your fees . If you want me to go into more depth email me: neil@capitalfirst.co.uk . I have 2 very good contacts in Toronto who you might be interested in. One of them raises money for Canadian based hedge funds with investors in Europe. He¡¦s seeding new managers now as it happens. Good luck. Neil . ------------------------------------------------------------------------------- If you can see the bandwagon , you've missed it !
Do you think that starting initially a separately managed accounts (SMA) service (possibly for small capital clients) would be a viable alternative leading to a hedge fund? It is also due to SMA is getting popular and acceptable to some clients.
Separately Managed Accounts might be an option, but it can become a can of worms. The issues that I see are: * Do you need to register as an investment adviser since you are participating in the profits? (if you do not participate in profits and are running these accounts out of the goodness of your heart for zero compensation, that issue goes away.) The rules for this vary by state. * Depending on the brokerage firm and the way that trades are allocated to the individual accounts, you may quickly run into big hassles trading multiple accounts. * If an account "blows up" and there are losses, what kind of protection are you going to have for your personal assets if the investor sues you? * If you are trading futures/commodities in the account, you need to register with the NFA as a CTA (involves much of the same work/expense as registering as a CPO). My take is that SMAs are not all that they are cracked up to be. If you haven't made the proper determinations as to your liability of registration as an Investment Adviser, you are setting yourself up for trouble. That doesn't mean that the business model is not working for some people. I just hope they know the right questions to ask their advisers.
I definitely need much time to study both SMA/HF. Any potentially right questions you would have in mind?
Here is a list of some books for hedge funds (from amazon.com). Would you have any preferred ones to recommend? Hedge Funds : Definitive Strategies and Techniques by IMCA (Editor), et al (Hardcover - August 2003) How to Create and Manage a Hedge Fund: A Professional's Guide by Stuart A. McCrary (Author) (Hardcover) Market-Neutral Investing : Long/Short Hedge Fund Strategies by Joseph G. Nicholas (Hardcover) The Hedge Fund Edge : Maximum Profit/Minimum Risk Global Trend Trading Strategies by Mark Boucher (Author) (Hardcover - November 1998) Hedge Funds: Myths and Limits by François-Serge Lhabitant (Author), Francois-Serge L'Habitant (Hardcover) All About Hedge Funds : The Easy Way to Get Started by Robert A. Jaeger, Robert, Ph.D. Jaeger (Paperback) Hedge Funds: Investment and Portfolio Strategies for the Institutional Investor by Jess Lederman (Editor), Robert A. Klein (Contributor) (Hardcover) Investment Secrets Hedge Fund Manager: Exploiting the Herd Mentality of the Financial Markets by Laurence A. Connors, Blake E. Hayward (Hardcover) The Prudent Investor's Guide to Hedge Funds : Profiting from Uncertainty and Volatility by James P. Owen (Author) (Hardcover - November 2000) The Handbook of Managed Futures and Hedge Funds: Performance, Evaluation, and Analysis by Carl C. Peters (Editor), Ben Warwick (Editor) (Hardcover) The Hedge Fund Handbook: A Definitive Guide for Analyzing and Evlaluating Alternative Investments by Stefano Lavinio (Hardcover) Hedge Fund of Funds Investing: New Strategies for the Hedge Fund Marketplace by Joseph G. Nicholas (Hardcover - October 2003) Macro Trading & Investment Strategies : Macroeconomic Arbitrage in Global Markets (Wiley Trading Advantage Series) by Gabriel Burstein (Author) (Hardcover - February 1999) Managing Hedge Fund Risk: From the Seat of the Practitioner: Views From Investors, Counterparties, Hedge Funds and Consultants by Virginia Reynolds Parker (Editor) (Hardcover) Hedge Fund Risk Transparency by Leslie Rahl (Hardcover) Trade Like a Hedge Fund : 20 Successful Uncorrelated Strategies & Techniques to Winning Profits by James Altucher (Author) (Hardcover - February 2004) Hedge Funds: Strategies, Risk Assessment, and Returns by Greg N. Gregoriou (Editor), et al (Paperback - September 2003) Scaled Buying: How One Professional Hedge Fund Manager Does It [DOWNLOAD: PDF] by Greg Kuhn (Author) (Digital) Starting a Hedge Fund - an Asian Perspective by Sarah Barham, Ian Hallsworth (Paperback) Hedge Funds : Quantitative Insights by François-Serge Lhabitant (Author) (Hardcover - January 2004) Hedge Funds--Styles and Strategies by Bernard Duffy (Author) (Hardcover - November 2003) Starting a Hedge Fund : A US Perspective by Sarah Barham ISI Publications Limited; (March 2001) Hedge Funds and Financial Market Dynamics by Barry Eichengreen (Editor) (Paperback - June 1998) Marketing of Hedge Funds: A Key Strategic Variable in Defining Possible Roles of an Emerging Investment Force by Matthias Bekier (Paperback - June 2000) Starting a Hedge Fund: a European Perspective by Multiple Authors (Paperback) Marketing of Hedge Funds by Matthias Bekier (Paperback - December 2002) The Capital Guide to Hedge Funds 2002 by Sarah Barham (Paperback) Hedge Funds of Funds (Paperback - February 2003) Performance Evaluation of Hedge Funds: A Quantitative Approach by Greg N. Gregoriou (Editor), et al (Paperback - August 2003) European Hedge Funds: Strategic Focus Report Hedge Funds: Law and Regulation (Special Reports) by Helen Parry (Editor), Iain Cullen (Editor) (Hardcover) Evaluating and Implementing Hedge Fund Strategies by Ron Lake (Editor) Avg. Customer Rating: FPRIVATE "TYPE=PICT;ALT=4.5 out of 5 stars" Handbook of Institutional Hedge Fund Management by J. Adam Olive (Hardcover - January 2003)
The initial questions are really variations of what I had in the prior note, such as: Do I need to register as an Investment Adviser? Do I need to register with the NFA as a CTA? What is my personal liability? What happens if there is a problem and someone sues me? How much time will I need to devote to the accounting issues (as opposed to trading)? What happens to a trade if it would result in fractional lots being assigned to one or more accounts? These will likely lead to more questions. Like any business, knowing what you are getting yourself into (before you get there) is critical to being successful. Good luck!
Agree. 1st What's a cost efficient way to PROVE your track record to eventually start hedge fund? 2nd Is there any indicative roadmap generally for the start-up process of hedge fund? 3rd ... ?
I am not at all certain there is a cost efficient way to prove your record. And even once you have a proven track record, what does it get you? You cannot advertise it (if you want to keep your SEC exemption from registration as an Investment Adviser), and some people won't believe it, regardless of what it says. Yes, some people will not invest with you until you are "seasoned." It is my opinion that those people will continue to not invest with you until they see that you have successfully managed other people's money in a hedge fund environment for six months to a year or more. It is very difficult to bring in new investors. Contacts (prospective investors) and early success within the hedge fund both help, but there is no magic--only hard work. As far as a path to follow for how to start a hedge fund, see the November 2003 issue of Active Trader magazine (just arrived in the mail within the last couple of days) for an article I wrote on the topic. I posted a somewhat different version of the article on a different Elite Trader board (in 5 parts). See this page: http://www.elitetrader.com/vb/showthread.php?s=&threadid=3387&perpage=6&pagenumber=27. I hope it proves to be of value.
Apparently, setting up and operating a managed accounts service would be likely easier and simpler than a hedge fund, as far as I can find from many forex trading web sites.
Show them your tax returns......the size of the numbers don't matter as much as the return/consistency. IMO Don