Getting from Here to There
I've been managing my own accounts for 11+ years and am now in my fourth year of full-time trading (i.e. retired from pharmacy). Over the last two years I have done extensive testing on a trading strategy that has done well in my live account for just over 12 months.
If the strategy is truly robust in all markets then I'd like to trade OPM. The biggest impediment to that is my lack of professional experience in the industry. I don't have a business degree. I don't have any finance-related credentials. I don't have any professional work experience for financial/trading firms (except my own trading LLC).
I've begun to explore the possibility of opening up a hedge fund but my preference would be to not start out trading friends-and-family money. This limits me because I doubt any institution would invest based simply on a good backtesting idea without an audited track record. Even an incubator fund, where I would not charge fees, would cost several thousand dollars to set up--and then there is the issue that here in Michigan, I understand that incentive fees cannot even be assessed.
Two other possible ideas I have considered include:
--Sending a "teaser letter" to some RIAs to describe my work so far,
my desire to trade it with a larger sum of money, and what benefits
it may bring to their firms;
--Pursuing a credential such as a CFA designation (for which I will
have the four years of requisite work experience trading my own
account) or Series 65 license.
The latter might put me in a better position to raise capital. I would
still need that audited track record, though, which the former could
potentially provide.
Any thoughts or feedback on what to do next or what path(s)
to pursue would be sincerely appreciated. Thanks!
Why don't you want to trade friends and family money? No one will invest in your fund unless you have plenty of skin in the game.
As far as I know, there is nothing in Michigan law that prevents you from assessing incentive fees.
RIAs hate investing client money in non-exchange funds, because they don't get a commission off sending you money (and risk losing their separately managed accounts business). A CFA is not necessary to get a HF and it's not worth your time, same with Series 65.
Incorporate an LP on the cheap, open an account under it's name, and build a formal track record. Once the track record is established (and it's good and long enough), you can have a lawyer draft up a proper PPM and LPA for the LP entity. You have to build the track record with your own money (and that of others, if possible), otherwise no one will care.
You will have an incredibly hard time overcoming the fact that you don't have a finance pedigree, but a great track record would overcome that (it can't be comparable to that of other funds, it has to be BETTER).
If you want to do this, you are going to have to put capital at risk, both in the strategy, but also in fund set-up costs (which can be substantial). I could've bought a nice luxury car for what I've paid in legal, accounting, etc. costs for my fund, but if you believe in your idea, that's peanuts.
I don't know how doable it is, but some big fund managers advised other funds while having their own operation on the side when they were starting. Druckenmiller is the prime example of this as his Duquesne track record got the attention of Soros and his time at Quantum then got him the rep he needed to expand Duquesne. Others like Jim Leitner advised big funds like Steinhardt before solely focusing on their own firm.
Finding a gig like that would require a lot of networking and some luck but it would overcome the hurdle of recognizable experience and let you build a track record, before turning your operation into a full-blown fund.
Yeah, if the OP can get this, that would be ideal, but it will be hard without a finance pedigree. Also, those guys are from a different era, the HF world has changed (and keeps changing) very quickly. I look at it this way. Getting a job at a HF is like 10x easier than having your own successful fund. If the OP does not feel getting a job at a HF is feasible, then actually having a fund (at least in theory) will be even less feasible.
Agreed. Starting out as a CTA could work if your strategy fits as well. The visibility of CTAs is somewhat higher considering the databases that have popped up for them. If you can build a track record (3+ years) that puts you near the top of your strategy, you should be able to generate some interest.
I actually considered a CTA as a relatively inexpensive and easy way to get a credential. I would take the Series 3 and then pay the NFA about $1000/year for registration, I believe. My strategy trades stock indices, which are technically commodities as viewed by the IRS (Section 1256). Practically speaking, though, they are not commodities so how relevant would the CTA be?
Trading the indices only as you stated would qualify you for a CTA program because the series 3 exam is for futures/options/commodities. It is totally relevant, multiple CTA's trade one product such as scalping the S&P index. As long as your strategy is profitable and you can sell it... give it a shot.
ps- ETF's don't count
Good Luck Trading!
Futures and options on those indices would definitely qualify, I don't know about ETFs.
Thanks to everyone for the comments.
GoodBread mentioned that CTAs get good visbility with the databases. I don't consider this a home run strategy. This won't win any World Championships of trading. I do believe this will generate a very linear equity curve when traded with fixed position size, though. The return should beat the benchmark (index) by several percentage points and have a lower SD of returns.
Does the approach still seem like something that might benefit from having the CTA credential tied to it?
If you wont put your own, your friends and your families money at risk, why wouldnt I just assume that you are setting up a fraudulent operation?
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