I'm interested in starting a proprietary trading firm and seeding investors. What regulation does this fall under? Do traders have to be licensed to trade my funds?
I'm interested in starting a proprietary trading firm and seeding investors. What regulation does this fall under? Do traders have to be licensed to trade my funds?
Ignored
You need proper legal advice.
I think in the US you need to be regulated to accept and manage funds, and there will be restrictions on who you can take money from. Traders do not have to be licensed as they'll be covered by your firm's registration.
I suppose you need insance capital for that. Infrastructure costs, mainly. I read it costs about ~200 mn to set up a hedge fund. No idea about regulatory issues.
I suppose you need insance capital for that. Infrastructure costs, mainly. I read it costs about ~200 mn to set up a hedge fund. No idea about regulatory issues.
Ignored
That is not true, you can start a hedge fund with much less than that.
But it's not easy, starting with all the legal/regulatory stuff to getting the operations running.
{quote} That is not true, you can start a hedge fund with much less than that. But it's not easy, starting with all the legal/regulatory stuff to getting the operations running. If you have a good track record and are serious about this, I suggest you check http://www.fxww.com/manager-development/
Ignored
yeah you´re right. complete blunder from my side. the article I read said ~200 mn in assets if you dont wanna sacrifice getting paid for a few years. thx for correcting me.
{quote} yeah you´re right. complete blunder from my side. the article I read said ~200 mn in assets if you dont wanna sacrifice getting paid for a few years. thx for correcting me.
Ignored
Also not true. The average HF has less than 200mm in assets and many new funds start up with only 5-10mm in assets. The 2% management fees may barely cover the operating expenses for the first year or two. The start up costs can be taken directly from the operating expenses of the fund amortized over 60 months, as long as the seed investors agree. You may operate at a loss for a while, unless you knock performance out of the box the first year.
I did the start up for an 8mm fund and he's able to cover costs just fine. It all depends on office space, amount of employees, computer, etc. Every fund is different and there are many variables. I don't think anyone can make a blanket statement and say you have to have 50mm to cover expenses. It depends on what you need to run the fund.
If you are in US, it costs very little for the investment manager to start a fund. For a domestic (onshore) fund, an attorney who specializes in this work will charge 20k-35k to draw up the three major documents given to fund investors (the limited partners): private placement memorandum, limited partnership agreement, and subscription agreement. However, on day one of the fund's launch, the fund reimburses the general partner (the investment manager) for this 20k-35k cost.
(Most funds then opt to amortize this legal startup cost over a 60-month period so as to not penalize the first group of investors. This is not according to GAAP (generally accepted accounting principles), however 1) most funds do it (in recent years, some have chosen to use a 180-month amortization period), and 2) it is not generally considered large enough to be a "material" event in terms of being a percentage of fund assets, and will therefore pass an annual audit of the fund's financials.)
The only other legal expenses the investment manager incurs out-of-pocket are 1) to form his company (if it is an LLC, a law firm will draft an operating agreement and then register the company with the state in which it is domiciled), and 2) to register with one of the states as a registered investment advisor (RIA). To do this, the law firm draws up a Form ADV for the investment manager and files it with the necessary state.
Once the fund is up and running, there may be the normal expenses of running any business: office rent, clerical help, etc. However, if the fund is starting with just a few million, most of this can be done by the investment manager, who often will operate the fund from a home office. So-called compliance costs can be handled by the investment manager with guidance from his law firm.
If you are serious about this, google "hedge fund law firms" and have a few of them provide you with a free telephone consultation. They will discuss the above in more detail.
