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Starting a fund

  #41 (permalink)
 
Schnook's Avatar
 Schnook 
Munich, Germany
 
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Here's a recent interview with Jack Schwager. Interesting read. Also touches upon the fund seeder program and roughly what they're looking for in traders...

https://www.linkedin.com/pulse/futures-trading-interview-jack-schwager-erico-matias-tavares

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  #42 (permalink)
 grausch 
Luxembourg, Luxembourg
 
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Bladesmith View Post
Here's a recent interview with Jack Schwager. Interesting read. Also touches upon the fund seeder program and roughly what they're looking for in traders...

https://www.linkedin.com/pulse/futures-trading-interview-jack-schwager-erico-matias-tavares

One of the annoying things about the way performance was disclosed throughout the Market Wizard books was the inconsistent way of disclosing drawdowns. For instance, when calculating annual returns the final number will automatically include all of the performance during the period. However, if you are only sampling monthly or quarterly drawdowns, then you will not get the full picture of how these returns were accomplished. Since FundSeeder is using daily returns to calculate their numbers it will provide a pretty clear picture of the volatility of the portfolio.

Only thing about these types of performance measurements is that it penalises home-run hitters (who usually have bigger drawdowns) and rewards those who provide more consistent returns. Luckily Jack does mention that they are aware of tail risk (I would have expected this at the very least), and as such options sellers might have a more difficult time raising money through FundSeeder. So, if you wish to rank highly with FundSeeder, you need to be very good at hitting singles.

One downside to their measuring methodology that was not mentioned, is that hedge funds report on a monthly / quarterly basis. Therefore, assuming both an individual and a hedge fund have the same return for the month, assuming they don't end the month on their max drawdown and assuming they traded the same strategy and instruments, the performance of the hedge fund will most like rank better if you just base this on risk-adjusted returns over the period. Gross oversimplification, but it does highlight that the individual will have a tougher "benchmark" to beat that the hedge fund.

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  #43 (permalink)
 
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 Schnook 
Munich, Germany
 
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I've also heard nothing about their ability to attract institutional money. On their website, under the "Why Fundseeder" banner, they mention only their pretty charts, the chance to obtain a verifiable track record (as if you can't do that yourself), and possibly getting featured in an upcoming book. Not one single mention about actual asset gathering, none that I saw anyway.

The closest thing I saw was: "provides visibility" and "benefit from the prospect for referrals to financial institutions seeking to hire trading talent" - not assets, not even real introductions, just the "prospect" of referrals to people possibly looking to hire traders. Really? Please. You're gonna have to do a helluva lot better than that, Jack.

A "fund seeder" that doesn't actually bring in real assets, namely the critical mass you would need to actually have a viable fund, isn't even a fund seeder at all.

Without having more information I'd say it's probably a gigantic waste of time for any serious trader looking to start a fund. Far more likely to cost you a lot of time and foregone profits than it is to actually get you started managing real money.

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  #44 (permalink)
 londonkid 
London, UK
 
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katalyn View Post
Hi,

Trading has been a fulfilling journey for me.I know at some point one might consider starting a fund.

On average,I net 6-8 points a day in ES.Once or twice a week in huge trend days I make much more.5 min chart seems too slow for me & 1 min charts have many false signals,so I added Crude Oil recently & experiencing similar outcomes.I look forward to add Silver after some time period.

If all goes accordingly,I am looking at a high percentage yearly return.Of course,with large size I've to rely on more swing trades & less scalping-so profit may suffer a bit.

In that case,I'm open to currency market.Markets are really all the same,with slightly different personalities.

As based on outside US,I know starting a fund will be difficult.So I think I've to relocate to US.By Investing in US properties or other means-I invite any possible suggestions.

People want to see a large account as judgement for trader's efficiency.So I'm compounding my account. Just don't know how big is satisfactory.Is 10 million enough for starter?Or more?

I can trade stocks-but only liquid & TIER-1 ones like AAPL,MSFT etc.I'm sure I can't tolerate huge moves of small stocks on regular basis with emotional highs & lows-I'll probably crash there.If I added a few liquid markets & traded other timeframes rather than only 5 mins-profit returns will increase significantly.

I'm building my record & account currently. In 5 years,I'll definitely want to start a fund.It's the next logical step.

For hedge funds,20-25% consistent annual return is considered good.I believe I can provide much more than that,but I've to start somewhere in industry initially.

Feel free to contribute.

Regards,
Katalyn

Hi

I dont post much but maybe I can help out as I have experience in this area. A fund structure is best avoided unless you are trading a minimum of 10m or thereabouts. The reason is that the costs and regulatory burden are high and I am coming at this from a UK regulatory stand point.

You are correct in stating that 20-25% consistent low drawdown returns would be a very attractive to larger investors. If you want to earn the big money then I would advise you to make sure you trade only instruments that have sufficient liquidty when you scale. For example fixed income & spot FX.

As a stepping stone to starting a fund many traders in Europe/UK use the 'managed account' route. This is becoming much more popular for people managing 100k to 10m. The regulatory burden is much much lower and also its easier to attract investors as they retain custody of their funds and you simply have limited power of attorney to trade their account.

Using the boilerplate 2% & 20% performance fee structure you would need to trade funds of 2m minimum to be able to make even 100k in fees, assuming you make 25% growth.

What I would advise you to do is make sure all your trades are audited indpendently no matter how small they are.

In London there are a number of companies that will help you launch funds and some also will help you run managed accounts. Here are 2 examples.

Boutique Prime Broker | Linear Investments
Kession ? FCA Umbrella Services via a Regulatory Platform

These firms will help you build an audited track record and have capital introduction services they also handle all compliance and regulatory matters. I don't know much about fundseeder but if they allow you to build a verifiable track record that is a step in the right direction.

So my advice is:

1. Trade personal funds in an independently audited account.
2. When ready look at managed accounts <100k - 1m
3. When ready launch fund 10m-20m+

Remember you need to trade instrument that you can efficiently scale up. Also trading a managed account of 100k on a 2% & 20% basis is not going to earn you much at all if you achieve 20%-25%. You should keep the bigger picture in mind though as once you build a track record managing that small account, the firms above will easily be able to introduce you to more capital depending on the consistency/drawdown of your returns. A lot of hedge funds have been really struggling with returns the last few years so there is capital waiting to be allocated.

good luck.

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  #45 (permalink)
 
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 Schnook 
Munich, Germany
 
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One small note on domicile / jurisdictional issues - in the U.S. under SEC rules any type of performance based incentive fee structure limits eligible investors in your fund to accredited investors, namely those with $5mm or more in assets. If you want to start a friends & family type managed account fund in the U.S. you will have to forego the incentive fee and charge just a flat management fee.

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  #46 (permalink)
Northernlimit
Toronto Canada
 
Posts: 53 since Jan 2017
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If you are starting a fund you are running a business, not trading. The question: "What is your trading plan?", becomes "What is your business plan?". Getting registered is easy; then you have regulatory filings, accounting, sales, audit, office space and back-up systems to consider. Even if you can get 10 clients with a million each, they need hand holding, and regular reporting. The more your business grows the less trading you will be doing.

I suspect you are likely domiciled in China and many there are looking to get money out, so you see an opportunity; if so, then you are in the money export business not the trading business and you should consider finding assets your "investors" want to buy and service them as customers, which has little to so with starting a fund.

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  #47 (permalink)
 joselopezde 
Spain / Europe
 
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tpredictor View Post
I know of one futures prop firm that I spoke with today-- not a traditional prop. If you have 25k to put up and at least a 2 year (most recent 2 year) track record produced with real money of decent size then they are willing to fund traders with considerable backing up to 1 million. You will still take a good amount of the risk though. 70% of the 25k is your risk. This is only for traders who have a real money track record with decent size, I'm guessing minimum 25k starting account. They'd like to see at least 50% to 70% returns, active day trading, and no overnight holds. I've no affiliation with them but PM if you want to know more or if BigMike doesn't care I'll share. Please do not contact if you don't meet these requirements because that's their minimum. You must have both the capital and the most recent 2 year real-money verifiable track record. Even if you have 200k and no track record, they aren't interested and if your account was funded less then 25k they aren't interested either.

Which is that prop firm?

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  #48 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
Posts: 644 since Nov 2011

I think it may have been Advanced Futures. Their website is down. I am not sure if they are still in business or not. In my opinion, what they offered was something of a cross between broker and prop.

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