Log In | Register
I brought a plan of my strategy and performance to a friend of the family friend, who supposedly had use of many hedge fund and rich clients - he was impressed, but wanted to be aware of information on my strategy but wouldn't give me any assurances he simply wouldn't apply it himself. Additionally, he wanted my returns audited and only then would he consider helping me raise capital in exchange for a "slight" fee. I could not trust this guy and I didn't want to simply tell him my secrets so I passed. This encounter made me understand that audited returns would be necessary because my success was rather unbelievable. I figured this expense would be essential to my fund raising, so I found a nearby accountant acquainted with trading and spent a college semester's tuition to possess my thousands of trades audited.
After a few weeks of patiently reviewing my trades with this particular accountant, the audit was finally finished and also the numbers looked good. Actually, the numbers looked too good. Yes, my ridiculous returns might be a problem.
Lesson #1:
If you consistently beat the marketplace, you will face endless questions about whether you are a fraud.
Regardless of, I decided to create my very own fund and take my chances raising capital. Since i have was still being in college coupled with focused solely on the stock market for the past couple of years, I had very few business connections and most of my friends and family weren't wealthy enough to get considering the all knowing industry regulations stated my investors would need a net price of $1 million or more to become worthy of this type of "risky investment". Only my continued performance could attract new money, but, being my cocky self, that was the one part of the process I wasn't worried about.
Mutual funds could accept less wealthy investors, but had severe investment limitations. No, I didn't wish to begin a mutual fund since most of these needed to be invested all the time plus they couldn't even short sell! Hedge funds were considered the hot new investment vehicle, and so i researched the industry nonstop for some weeks and liked things i saw. I came across the startup costs to become surprisingly modest and I loved the legal flexibility that will basically allow me to invest in any manner I saw fit.
Prior to the emergence of discount hedge fund startup shops in the last few years, I discovered web site for offering documents and lawyer fees could exceed $75,000. Since then, hedge fund boutiques had appeared, offering their administrative and startup services so startup costs did not exceed $10,000. Which was some reduction!
I selected the 2nd least expensive boutique I possibly could find (probably something ingrained in me since my father advised to continually buy the second cheapest wine bottle from the restaurant's wine list). Still, I was surprised there have been a lot of forms to complete and small fees to be paid, but I went together with whatever my fund administrator said while he had set up a large number of firms over the past couple of years. It was the real world so it would take patience, something never required of me in the trading world.
Lesson #2:
Everything takes a lot more amount of time in the actual business world when compared to trading world.
A lot of it on my letters of incorporation was barely dry if this struck me. I had been distracted by my quest for finding outside investors and creating all my companies that my trading had suffered as a result. Successful trading is all about focus, discipline and concentration which lessons have been consumed by my ambition and greed. I'd taken some rather stupid losses and today, with my fund inception just days away, I'd no more have that magic whole number in front of the millions of dollar under management. No, I would have to put a dreaded decimal point plus some other numbers prior to the word million, hurting my credibility from the beginning.
Lesson #3:
Focus on trading first; never schedule investor meetings during market hours.
Meanwhile my fund administrator convinced me to switch brokers because my trusty online discount brokerages were simply not used in the hedge fund world. I quickly agreed, but I was in for any rather amaze. This newly recommended brokerage did not have any electronic trading platform (I was told it might be ready within weeks) and the traders executing my orders provided a few of the worst executions I had seen. I called to complain, but they brushed me off. They placated me by saying their new online software was just days away from completion. Almost twenty months later, the software is still almost ready. I switched to yet another recommended brokerage that had online trading software and I became friends with one trader who expertly executed my larger orders.
Still, the commissions I paid were higher than my previous setup and so i requested and received several price reductions, depending on how much trading Used to do. It quickly became clear which broker I wanted to stay with once the broker without electronic access incredibly upped their commission on the trade without saying. When I called to complain, the broker told me he knew I had been paying more in the other broker and therefore he was eligible for exactly the same rate. He was mistaken along with the truth that he just had taken matters into his own hands without conferring with me. The main difference in price on that one trade was just a few dollars, but I lost my temper based on the principle from the situation.
Luckily, I had started chatting regularly with a popular industry commentator and he referred to me another broker which was perfect for short selling. This new broker's online software, cost, and short-selling list blew away your competition so, I dropped my other brokers and focused on this new guy.
Lesson #4:
Do not feel below par about changing brokers if they are ripping you and your clients off. They aren't girlfriends; there is always somebody cheaper and better out there.
The CEO of the brokerage I dropped called me to determine what they tried wrong and get why I had closed my account. I could not realise why it was essential my small fund stayed with their firm that supposedly had vast amounts of dollars in accounts. My commissions together barely touched into the thousands. As ridiculous because this conversation was, I respected this man for his dedication to providing customer service. Too bad their brokerage services weren't up to par.
Every fund manager should price as many brokers as you possibly can that fit the fund's strategy. There are many brokers who may trade on their own, but mainly exist and make money if you take their share from our online trading commissions. They make their money from trading commissions--that's tha harsh truth. There should be no reason to need to pay a person associated with a major brokerage when we simply employ their online software, but that is the actual way it is. I am very skeptical when dealing with these people, and I do not feel below par about getting into arguments with them. Actually, I've grown to enjoy these fights.
Within a few months with my quality broker, my performance moved back to the range of my previous years, crushing the general market and my investors were very happy. Yes, my parents and some of the friends were elated. After months of solid performance that consistently beat the market, I still had yet to raise much outside capital. I realize now that it will take a lot longer than I originally anticipated, however i have made so much money in the past and i'm positive about my skill like a trader and that is what provides me with the faith to go forward. It does not hurt that I make up a large portion of my fund so I can probably go on forever, however unhappily, even without many outside investors.
Lesson #5:
The larger the 'nest egg' stake the manager has, using the initial startup--the better.
Initially when i first started my fund, I gone to live in Nyc because I believed it had been the epicenter of the hedge fund industry so I will be able to make a large number of investor contacts. I'd met many potential investors and many in this industry, but regardless of how often people said these were interested, no checks were written nor wires sent.
One interesting meeting was having a senior manager of a major mutual fund company who had heard about my performance. I met him at his luxurious house in Florida and that we proceeded to go over my situation. After a few hours of hearing my story, he told me I had been very smart and that I should focus on raising capital by changing my strategy around to suit potential investors. He explained in his years of experience, investors would be skeptical of such preferred tax treatment and would want really low volatility. I told him in my years of outperforming the marketplace I possibly could care less if people accepted my strategy as I believed individuals will react to performance. He's probably right, but I have a certain pride in becoming a genuine rebel, a modern-day financial speculator.
Lesson #6:
Concentrate on what works for you and don't change to accommodate others.
Next, I attended a few alternative investment conferences and passed out plenty of business cards. I had been even part of a panel discussion thanks to my fund administrator's connections, but my speech sounded na?ve and unpolished when compared to more knowledgeable managers and veteran marketers attending. In fact, I had been mesmerized by a particular fund marketer who had grown his fund exponentially over six months. I don't think he said one useful fact during his presentation, but he delivered an eloquent speech and several people, including me, approached him afterwards. Ah, the power of marketing skill. We discussed marketing my fund, but he charged some ridiculous fees without guaranteeing results whatsoever. I was only a startup fund; no matter how great he sounded, I wasn't going to blow upwards of $10,000 all based on his incredibly polished speech. So, I decided to transmit out my marketing materials to any or all potential investors. I contacted just about everybody I knew, but the rate of follow-through was ridiculously minimal.
Lesson #7:
Raising money does not come easily for a startup manager.
You will find not many causes of visitors to take a risk on the new operation unless they have known you for a long time or if your performance warrants the added chance of being committed to a startup. People in large firms won't wish to take a chance on your fund because of the minimal track record, insufficient transparency of positions, and also the volatility of returns. Their job is on the line with any investments they create, and when they mess up--they are fired. For the most part, they would rather underperform than risk losing big. This is exactly what Warren Buffett once known as the "institutional imperative." It's a herd mentality, where these "institutional lemmings" move together, not necessarily doing what's best or smartest for their clients, but what is best and smartest on their own. The decision to opt for a higher performing emerging manager is really a risky bet, due to the outside possibility of appearing like an idiot. No fund-of-fund manager will make that decision, because they will be fired or scolded if these risky investments don't go exactly based on plan. Similarly, these emerging managers' careers are to be ended if they do not make positive yearly performance each year.
My wonderful broker, who I had been almost completely pleased with after months of moving down commissions, recently baited me by saying one of his fund-of-fund clients might be interested in my fund since he was confident with my strategy and my performance have been above average. I had heard this many times before, from brokers attempting to lure me to changing to their brokerage services to potential investors whose checks always seemed to explore the mail. Simple common sense dictates that after a fund-of-fund hears about me--if they are serious, they will contact me, not through my broker.
Full of doubt, I still met my broker and also the fund-of-fund manager for supper therefore we could discuss a potential investment. Initially, I grew rather excited since the conversation was surprisingly detailed because this manager actually did know about my fund! In fact, his talk of a possible investment sounded rather concrete and the proposed addition would increase my fund assets by 25-50%. We decided to meet again a couple weeks later, and so i spent hours creating a new presentation tailored for this fund-of-fund's style. I never got to meet the fund-of-fund manager again, but my broker said he showed him my presentation and that he supposedly loved it. The other day, my broker told me the great news. The manager had decided to invest in my opportunity without needing to meet me again. Wow! Awesome! Of course, there is a catch. My broker felt horrible telling me (because he claimed), but he could only transfer the funds to me when the commissions on trades with this new investment were quintuple my normal rate! I felt my heart sink. I anticipated compensating my broker for this capital introduction, but quintuple fees without any hope for a reduction over time over the lifetime of an investment seemed somewhat ridiculous. I said no.
Lesson #8:
With cap intro, there's always a catch.
My fund is listed on many hedge fund databases, but Hedgeco.net and Hedgefund.net have resulted in the most information requests undoubtedly. Following a year of listing my fund, I have had over a thousand hits on my fund's webpages. In fact, many 3rd party marketers have contacted me with these websites. I've got a premium listing on Hedgefund.net that costs the equivalent of a semester of school.
Some 3rd party marketing firms also have contacted me. One marketer said he was showing my PowerPoint presentation to potential investors the day after I emailed him and he would get back to me. Three months later, he's yet to get back to me. Another marketer said he would work with my fund, but wanted 50% of the incentive fee I'd receive on any profits on the investment. Another wanted 30% of the incentive fee. With those kinds of figures, it would take me too long to really make it worth my effort even if my returns continued to trample the marketplace. I needed to pay an upfront finders' fee to them, but they knew that was not where the big money was. I understood their dilemma; why must they risk their entire reputation on a startup fund with only the chance for a little payoff?
But there is a person that said he'd the connections and was willing to have a job full time with me without taking more than 10% of the incentive fee. I just wanted him to introduce my fund to his connections because I've only a number of family and friend connections which were wealthy enough to become potential investors. He demanded an exorbitant yearly purchase his services, and would not guarantee he could raise the millions he promised, but he was optimistic reading my presentation looking inside my returns. I was happy yet skeptical that he didn't need to know much more about my strategies. It took weeks for him to "write out some contracts" and that he insisted I just use his lawyer. Nevertheless, I was optimistic after you have talked to him several times. But when I looked at the contracts, I was dismayed.
He wanted to focus on completely overhauling my marketing by creating new expensive presentations. He also attempted to sell me on using his buddy as a graphics designer, supposedly the man who designed the Oakley logo, to design an incredible logo for me that would surely attract investors! I'm no marketing genius, but somehow I felt a new logo wasn't the issue and the Oakley guy was more than a little from my price range. He also desired to perform a traveling road show to his contacts to present my fund so I could stay put and concentrate on my trading. Somehow spending money on him to jet around the country without me was not my idea of a good investment. I told him no and I designed a simple logo on Microsoft Paint. I still receive many compliments on my small simple yet modern logo each week.
Lesson #9:
This industry is full of frauds and people.
Are you currently seeing the pattern here yet? This industry is tough for the little guy since there are many promises and very little follow-through. Not being able to advertise is very difficult and also you must depend on contacts as well as networking for capital introductions. You have to be willing to give up your strategy and then any chance at tiny yet consistent profits for a shot at the in a major way. I chose the other path; concentrate on things i do best and become content to create some decent money while awaiting more opportunities. I figure there'll always be people who want to raise money for me and they will only multiply with time, especially if I keep outperforming the marketplace. I don't wish to compromise my trading and investing style and that i accept the fact that it might take years for investors to come. Only performance and patience can create the road of success--a journey I'm prepared to take.
Lesson #10:
Answers are much slower in real life when compared to trading world.
