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Beanyeyes5


Total Posts: 3
Joined: Jun 2018
 
Posted: 2018-06-12 14:56
Hey all,

Before diving into this I think it makes sense to at least give some context and background on me personally just so we're all on the same page. I am very new to this site (literally first post here) so apologies if this is not the place, forum or spot for this post.

The general gist of what I am curious about from anyone with experience is the goal of getting seeded to start a small fund. The goal would be $2mm-$50mm. I'll get into why in a second.

As way of background, I am 34, C-suite exec (think VP of Corp Dev/Treasurer/CFO) at a mid-cap public company on the east coast. I have an MBA and CFA and have done pretty well for myself being outside of the 'high' comp / 'high end' NYC finance world. I started in a Fortune 50 and moved on up the corp ladder quite quickly. I am happy in what I do but not where I am company wise. We're a struggling company, PE backed and in knee deep of a turnaround situation.

Throughout that entire time I've traded my own account. Specifically, I've been trading since I was 16. I am obsessed with trading and have read every and any book on technical analysis and the market. I got serious on the topic in 2014 and started to actually hone in the strategy to the point of creating an algo and several scans.

The account was up 190% in 2017 and is currently up 30% YTD in 2018. I can get into as much detail as people need/want but for now let's say it's a L/S mid to large cap algo based on 4 technical analysis criteria that can, and are, used to find both L and S positions. I literally just flip the criteria for the TA pieces to find shorts. I trade both the underlying and 30-90 day vanilla call/puts as the primary piece of the strat. Win rate is 50%-60%. The account isn't a huge multi million dollar book. Think sub $250K. Nonetheless, I am happy with the results.

I know the strategy can be scaled up to a larger size. Without question the trades can take on additional size as both the underlying and a laddered options approach can be applied to the technical analysis. Trade allocation and risk management are just as important as the technical analysis pieces to me and the reason I haven't gone broke in the early years.

Playing devils advocate, I know 12 months is not enough of a track record. I get that completely and will keep trading this forever if I have to until I can start something. That is the end goal. I've been asked well why don't you just trade your own money and dump more money into it. Personally, I may do that soon. My wife and I are expecting our first baby soon so while I am laser focused on making this fund a reality I can't say I am in a position to dump more cash into it right now. In 6 months? Maybe. I know.....seems silly. Estate planning can do that to you I guess.

So, to my trading brethren, what should I do? How can a nobody in the hedge fund world go out, convince anyone that I am not a jackass, that this track record is real (I obviously have the account statements and scans as backup) and raise $2mm - $50mm to start something. I legit know nothing about getting seed money, emerging manager platforms and the like. From what I've researched thus far, when seeded the back office, legal, accounting are all taken care of. So I am not worried about that part of it.

I thank any and all guidance and comments before hand.

Best,
Anonymous

djfostner


Total Posts: 23
Joined: Oct 2008
 
Posted: 2018-06-12 19:28
While I'm afraid I can't help you with your goal of going down the 'starting your own fund' road, which is often a significant endeavor, might I suggest you consider that perhaps the path of least resistance might be working for a trading firm? While unfortunately I'm very out of touch with what you might expect out of groups in NY, I know there are many top tier Chicago based firms that have bigger credit lines than they know what to do with and a $2M-$25M line wouldn't be cause for hesitation if the performance metrics of the strategy were a good fit. Obviously if your end goal is to run a fund, you'll have to make sure to make sure the conditions of your employment don't give away any of your IP. But I've known a few people who have had success running automated systems at reputable firms while committing a majority of their time to other pursuits (running their own unrelated company, and another who maintained a very demanding grad school schedule while modifying his model in the evenings). Best of luck to you, and if you have any questions feel free to send them my way.

Osiris2


Total Posts: 21
Joined: Sep 2017
 
Posted: 2018-06-12 19:36
my 2 cents - unfortunately for you there is no shortage of guys with excellent returns running tiny (sub $1M) amounts of capital and short track records. While I don't doubt or disparage the time and effort you have put into developing your strategy, nor your results, it's a very tough sell to raise external money.

If you can raise some friends and family money, assuming you are comfortable with that, it would be your easiest path to growing your capital base.

HitmanH


Total Posts: 462
Joined: Apr 2005
 
Posted: 2018-06-13 00:26
djfostner & Osiris make very valid points - lots of people have good PA accounts - proving it's systematic, scalable is what matters.

Lets be blunt. Right now you have a strategy, a single one - and not a Fund. This isn't a question of structure - but diversifiaction. Most quant hedge funds running c$100m have >20 strategies. These numbers scale ridiculously after that point.

djfostner is spot in re: prop shops - East coast there are also many others. Care about a Sharpe ratio, and scalability. The fact that you mention playing in 0ptions makes this harder - if this was all delta one it can be risk managed so much better. Are vol plays because you look at mis-pricings - or frankly as it's cheaper leverage for you at the current size? If the latter - and still holds in a D1 space - do that - the strategy is sell-able more.

On that point - contact those prop shops, contact small hedge funds, or bigger ones that operate platform businesses too, contacts us.

There are structures out there from some of the tier 2 FCMs that can give a fund / regulatory structure for sub $50k pa - so if you have some friends - do it in a structue like that - but get more strategies - right now it isn't a fund you have

ronin


Total Posts: 339
Joined: May 2006
 
Posted: 2018-06-13 10:29
All good points.

An additional one. Mid-caps doesn't really scream scalability, unless your holding periods are very long. If you are trading mid-caps daily, you may easily top out under 5-10 million. And that won't feed you.

You won't get professionals interested at this stage. Maybe friends and family in the first instance. Depending on how well you sell, go around single family offices and hnwis and see if you can charm somebody into betting on you. You won't get great terms, but it might get your foot in the door.

Plan B might be to pimp it out under "social trading" on some retail platform. That is probably your best bet if you want to keep your day job. You can't run a hedge fund part time.



"There is a SIX am?" -- Arthur

Beanyeyes5


Total Posts: 3
Joined: Jun 2018
 
Posted: 2018-06-13 16:32
Wow. I didn't anticipate the amount of feedback. Thanks everyone.

I am going to contact a few of the prop shops and see if going that route makes sense. T3 and Great Point Capital are ones that are jumping out. Any other recommendations?

On a similar topic; would a solid track record ever help getting in the door of an existing fund if the journey to opening ones own fund and/or get seeded is to difficult as the consensus implies?

Thanks again.

HitmanH


Total Posts: 462
Joined: Apr 2005
 
Posted: 2018-06-14 01:30
Put an email in your profile / contact me

On 2nd point - now you know I've said contact me - you may say I'm biased - which is fair - but in my view - without a personal relationship that is super strong - to go to another fund (that isn't by design a multi-manager fund - and in that case - run it delta-one as per prior post) - i imagine it'd be v.v.hard

(PS - win rate, account up % - personally - not something we find super interesting. Think Sharpe, Sortino, max DD, vol of daily returns, with genuine understanding of what phenomena you're capturing, why it exists, how it scales, when performs / when not etc. This isn't only for me / us - but most more quantitative shops (hedge & prop) will think this way)

Beanyeyes5


Total Posts: 3
Joined: Jun 2018
 
Posted: 2018-06-14 21:14
I sent you a direct email to continue the conversation. Let me know if that didn't go through. My email is kyfish10gmailcom

Best,
Kyle

afekz


Total Posts: 30
Joined: Jun 2010
 
Posted: 2018-06-22 10:56
ronin wrote:
"Mid-caps doesn't really scream scalability, unless your holding periods are very long. If you are trading mid-caps daily, you may easily top out under 5-10 million. And that won't feed you."

For an outsider to US markets, what qualifies as "mid-cap" for purposes of the present conversation? S&P400 MidCap? Add e.g. bottom 20% of S&P500?

ronin


Total Posts: 339
Joined: May 2006
 
Posted: 2018-06-22 12:31

Good question. I was thinking Russell 3000 stocks, but the original post may have meant something completely different.


"There is a SIX am?" -- Arthur

nikol


Total Posts: 519
Joined: Jun 2005
 
Posted: 2018-06-30 12:31
Coincidentally
FT: Hedge fund investors team up to seed start-up managers

nikol


Total Posts: 519
Joined: Jun 2005
 
Posted: 2018-06-30 12:35
NP seems to be invaded by barbarian nomads offering alibaba stuff. Can it be stopped?

nikol


Total Posts: 519
Joined: Jun 2005
 
Posted: 2018-06-30 12:35
[deleted]

jaiman


Total Posts: 250
Joined: Oct 2004
 
Posted: 2018-09-17 22:29
Not to thread jack, but what sort of strategies are the prop shops interested in, in terms of trading frequency? I have a strategy that I'm running that could handle a decent amount of money (I think), but it doesn't trade very frequently. The core holding is 15 stocks, >2.5bio in market cap, and it would probably turnover twice a year.
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