kenneth griffin 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 desired to know the information on my strategy but wouldn't produce any assurances he simply wouldn't apply it himself. In addition, he wanted my returns audited and just then would he consider helping me raise investment capital in return for a "slight" fee. I could not trust this guy and that i didn't want to simply tell him my secrets so I passed. This encounter made me realize that audited returns could be necessary because my success was rather unbelievable. I figured this expense would be essential to my fund raising, so I found a local accountant familiar with stock trading and spent a university semester's tuition to possess my tens of thousands of trades audited.
After a few weeks of patiently reviewing my trades with this accountant, the audit was finally finished and also the numbers looked good. Actually, the numbers looked too good. Yes, my ridiculous returns may well be a problem.
Lesson #1:
Should you consistently beat the market, you will face endless questions about whether you are a fraud.
No matter, I made a decision to form my very own fund and take my chances raising capital. Since i have was still being attending college coupled with focused solely on trading within the last couple of years, I'd not many business connections and many of my friends and family weren't wealthy enough to invest considering the all knowing industry regulations stated my investors would want an internet price of $1 million or more to be worthy of such a "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 because most of them had to be invested at all times plus they couldn't even short sell! Hedge funds were considered the new investment vehicle, and so i researched the nonstop for a few weeks and liked what I saw. I came across the startup costs to be surprisingly modest and I loved the legal flexibility that will basically let me invest in any manner I saw fit.
Before the emergence of discount hedge fund startup shops over the past couple of years, I found web site for offering documents and lawyer fees could exceed $75,000. Since that time, hedge fund boutiques had appeared, offering their administrative and startup services so startup costs did not exceed $10,000. Which was some reduction!
I chose the second least expensive boutique I possibly could find (probably something ingrained in me ever since my dad advised to continually buy the second cheapest wine bottle from a restaurant's wine list). Still, I had been 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 setup dozens of firms over the past couple of years. It was the real world therefore it would take patience, something never required of me within the trading world.
ed seykotaLesson #2:
Everything takes a lot more time in the real business world compared to the trading world.
The ink on my letters of incorporation was barely dry if this struck me. I had been distracted by my pursuit of finding outside investors and creating my firms that my trading had suffered as a result. Successful trading is all about focus, discipline and concentration and these lessons had 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 longer have that magic whole number in front of the millions of dollar under management. No, I'd have to put a dreaded decimal point and some other numbers before the word million, hurting my credibility from the start.
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 not utilized in the hedge fund world. I quickly agreed, but I is at for a rather amaze. This newly recommended brokerage did not have any electronic trading platform (I had been told it would be ready within weeks) and also the traders executing my orders gave me some 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 program continues to be almost ready. I switched to another recommended brokerage which 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 these setup and so i asked for and received several price reductions, based on how much trading Used to do. It quickly became clear which broker I needed to stay with when the broker without electronic access incredibly upped their commission on the trade without saying. After i called to complain, the broker told me he knew I was paying more at the other broker and therefore he was entitled to the same rate. He was mistaken on top of the fact that he just had taken matters into their own hands without consulting me. The difference in price on that one trade was only a few dollars, but I lost my temper in line with the principle of the situation.
Luckily, I'd started chatting regularly having 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 the competition so, I dropped my other brokers and focused on this new guy.
Lesson #4:
Don't feel bad about changing brokers if they are ripping you and your clients off. They are not girlfriends; there's always somebody cheaper and out there.
kenneth griffinThe CEO from the brokerage I dropped called me to determine the things they had done wrong and ask why I'd closed my account. I could not understand why it was essential my small fund stayed using their firm that supposedly had vast amounts of dollars in accounts. My commissions together barely touched in to the thousands. As ridiculous because this conversation was, I respected this man for his dedication to providing customer support. Too bad their brokerage services weren't up to par.
Every fund manager should price as many brokers as you possibly can that suit 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 out of our online stock trading commissions. They create their money from trading commissions--that's the bottom line. There should be no reason to need to pay a person associated with a significant brokerage whenever we simply use their online software, but that's the way it is. I'm very skeptical when dealing with these people, and that i don't feel below par about getting into arguments together. Actually, I've grown to enjoy these fights.
Inside a couple of months with my quality broker, my performance moved to the plethora of these years, crushing the general market and my investors were happy. Yes, my parents and a few of the friends were elated. After months of solid performance that consistently beat the marketplace, I still had yet to raise much outside capital. I realize since it will take a lot longer than I originally anticipated, however i have made a lot money in the past and i'm positive about my skill like a trader and that's what provides me with the faith to visit forward. It doesn't hurt which 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 greater the 'nest egg' stake the manager has, with the initial startup--the better.
When I first started my fund, I moved to Nyc because I figured it was the epicenter of the hedge fund industry and so i should be able to make thousands of investor contacts. I had met many potential investors and many within 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 the major mutual fund company who had learned about my performance. I met him at his luxurious house in Florida and that we proceeded to discuss my situation. After a couple of hours of hearing my story, he explained I had been very smart and i also should concentrate on raising capital by changing my strategy around to suit potential investors. He explained in his years of experience, investors could be skeptical of these high returns and want really low volatility. I told him in my years of outperforming the marketplace I possibly could care less if people accepted my strategy when i believed people will respond to performance. He's probably right, but I take a certain pride in becoming a true rebel, a modern-day financial speculator.
Lesson #6:
Concentrate on the things that work for you personally and do not switch to accommodate others.
Next, I attended several alternative investment conferences and passed out plenty of business cards. I had been even part of a panel discussion because of my fund administrator's connections, but my speech sounded na?ve and unpolished compared to the more experienced managers and veteran marketers in attendance. In fact, I had been mesmerized by a particular fund marketer who had grown his fund exponentially over six months. I do not think he said one useful fact throughout his presentation, but he delivered an eloquent speech and many 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 up to $10,000 all based on his incredibly polished speech. So, I made a decision to send out my marketing materials to all potential investors. I contacted just about everyone I knew, however the rate of follow-through was ridiculously minimal.
Lesson #7:
Raising money doesn't come easily for any startup manager.
There are not many causes of individuals to take a chance on a new operation unless they've known you for years or maybe your speed and agility warrants the added chance of being invested in a startup. People in large firms will not wish to take a chance on your fund because of the minimal history, lack of transparency of positions, and also the volatility of returns. Their job is at risk with any investments they make, and if they mess up--they are fired. Typically, they would rather underperform than risk losing big. This is exactly what Warren Buffett once called the "institutional imperative." It's a herd mentality, where these "institutional lemmings" move together, certainly not doing what is best or smartest for his or her clients, but what is best and smartest for themselves. The decision to go with a high performing emerging manager is a risky bet, due to the outside chance of looking like an idiot. No fund-of-fund manager can make that decision, because they will be fired or scolded if these risky investments don't go exactly according to plan. Similarly, these emerging managers' careers should be ended if they don't make positive yearly performance every year.
bill lipschutzMy wonderful broker, who I had been almost completely satisfied with after months of moving down commissions, recently baited me by saying one of his fund-of-fund clients may be thinking about my fund since he was confident with my strategy and my performance had been above average. I had heard this many times before, from brokers trying to lure me to changing to their brokerage services to potential investors whose checks always appeared to get lost in 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 the fund-of-fund manager for lunch therefore we could discuss a possible 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 few weeks later, and so i spent hours creating a new presentation tailored to this fund-of-fund's style. I never reached satisfy the fund-of-fund manager again, but my broker said he showed him my presentation and he supposedly loved it. Yesterday, my broker explained the great news. The manager had decided to invest in my opportunity without even needing to meet me again. Wow! Awesome! Of course, there was a catch. My broker felt horrible telling me (as he claimed), but he could only transfer the funds to me when the commissions on trades for this new investment were quintuple my normal rate! I felt my heart sink. I anticipated compensating my broker with this capital introduction, but quintuple fees without any expect a reduction with time over the lifetime of an investment seemed somewhat ridiculous. I said no.
Lesson #8:
With cap intro, almost always there is a catch.
My fund shows up on many hedge fund databases, but Hedgeco.net and Hedgefund.net have led to the most information requests undoubtedly. Following a year of listing my fund, I've had on the thousand hits on my small fund's web pages. Actually, many 3rd party marketers have contacted me through these websites. I have a premium listing on Hedgefund.net that costs something like a semester of college.
Some third party marketing firms have also contacted me. One marketer said he was showing my PowerPoint presentation to potential investors your 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'd work for my fund, but wanted 50% from the incentive fee I'd receive on any profits around the investment. Another wanted 30% from the incentive fee. With those kinds of figures, it might take me too much time to make it worth my effort even when my returns continued to trample the marketplace. I needed to pay for an upfront finders' fee to them, but they knew which was not in which the big money was. I understood their dilemma; why should they risk their entire reputation on a startup fund with only the chance for a little payoff?
But there is an individual that said he'd the connections and was prepared to take a job full-time with me without taking more than 10% of the incentive fee. I just wanted him introducing my fund to his connections because I have just a handful of family and friend connections that were wealthy enough to be potential investors. He demanded an exorbitant yearly purchase his services, and would not guarantee he could enhance the millions he promised, but he was optimistic reading my presentation and looking at my returns. I was happy yet skeptical 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 checked out the contracts, I had been dismayed.
He desired to concentrate on completely overhauling my marketing by creating new expensive presentations. He also tried to sell me on using his buddy as a graphics designer, supposedly the man who designed the Oakley logo, to create an amazing logo for me that will surely attract investors! I'm no marketing genius, but somehow I felt a brand new logo was not the issue and also the Oakley guy was greater than a little out of my budget range. He also wanted to perform a traveling road show to his contacts to present my fund and so i could stay there and concentrate on my trading. Somehow spending money on him to jet round the country without me wasn't my idea of a great investment. I told him no and I developed a simple logo on Microsoft Paint. I still receive many compliments on my 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 because there are many promises and incredibly little follow-through. Not being able to advertise is very difficult and also you must rely on contacts and networking for capital introductions. You need to be willing to quit your strategy and any chance at tiny yet consistent profits for a shot at the big time. I selected another path; concentrate on what I do best and become content to create some decent money while waiting for more opportunities. I figure there will always be people who wish to raise money for me and they'll only multiply as time passes, especially if I keep outperforming the marketplace. I do not want 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 path of success--a journey I'm prepared to take.
Lesson #10:
Results are much slower in the real world when compared to trading world.