Possible for average joe to start a hedge fund?

rookieMan

In last 2 years, I have been able to find relatively safe investment opportunities offering 5-10% return annually. I was wondering if it is possible for me (an average person) to start a small hedge fund? Initially looking at starting with about €10K from friends and family to build a track record. None of my contacts/friends are qualified/professional investors, therefore the fund will have to be targeted to retail investors. I am looking at taking about 1% fees on the profit. However, since I have never founded a company before, let alone founding a financial product, I am worried that legal fees & other admin fees (registering a company, etc) would be so high that the fund (initially of about €10K) will not be profitable resulting in negative return to investors. Is there a way to optimize costs to somehow make this profitable?

antoinolachtnai

You want to take in investments of 10k.

You will make a 10 percent return (1k).

You will keep a 1 percent of the return as profit (a tenner), but in bad years, it might only be half that (a fiver).

How could this make sense?

rookieMan

You are right. The profit is a tenner or less but that is just to build a track record of the fund. As in such and such fund gave return of x% in last 6 months - 1 year. I believe that without a track record, I cant expand this beyond friends and family. I dont intent to take cap the fund at 10k forever. I might charge higher fees once established. But just to bootstrap it, I need a way to optimize the costs for setting up the fund. Hiring an account + legal seems to expensive for something that would only potentially return a tenner.

AmberGold

Throw up some of the names of these said investments, especially the 10% ones and I’ll advise further?

rookieMan

AmberGold wrote: »

Throw up some of the names of these said investments, especially the 10% ones and I’ll advise further?

That should be a trade secret, no?

AmberGold

Not amongst friends willing to offer free advice

Paddy The Pirate

This idea feels like you're kinda full of shít , no?

rookieMan

Paddy The Pirate wrote: »

This idea feels like you're kinda full of shít , no?

Care to explain why? If you are doubting that I cant generate 5-10% return, then well, I didn't ask you to invest. That's not what I asked.

rookieMan

AmberGold wrote: »

Not amongst friends willing to offer free advice

Alright I will send you the prospectus once its ready

Paddy The Pirate

Uhm, why?
Because you're clearly deluded.. you're claiming returns that are unviable, you're aiming to start a hedge fund that might just profit you enough to buy a Cornetto in a few years time, and you're asking me questions ? Jesus Christ

rookieMan

Paddy The Pirate wrote: »

Uhm, why?
Because you're clearly deluded.. you're claiming returns that are unviable, you're aiming to start a hedge fund that might just profit you enough to buy a Cornetto in a few years time, and you're asking me questions ? Jesus Christ

Clearly you have never invested in a hedge fund. And dont understand that effort needed to earn a Cornetto or a Lamborghini is same once there are numbers to prove the fund performance.

gogo

rookieMan wrote: »

In last 2 years, I have been able to find relatively safe investment opportunities offering 5-10% return annually. I was wondering if it is possible for me (an average person) to start a small hedge fund? Initially looking at starting with about €10K from friends and family to build a track record. None of my contacts/friends are qualified/professional investors, therefore the fund will have to be targeted to retail investors. I am looking at taking about 1% fees on the profit. However, since I have never founded a company before, let alone founding a financial product, I am worried that legal fees & other admin fees (registering a company, etc) would be so high that the fund (initially of about €10K) will not be profitable resulting in negative return to investors. Is there a way to optimize costs to somehow make this profitable?

I assume your suitably qualified under the central banks minimum competency code to give financial advice in the first place?

rookieMan

gogo wrote: »

I assume your suitably qualified under the central banks minimum competency code to give financial advice in the first place?

Yes

Paddy The Pirate

Eh, it's fairly simple , Cornetto= small money, Lamborghini = big money.. Small thinking leads to dying grass

I like the idea of starting it small, building a track record of achievement and then looking for bigger money in the future. The quantity of money is relative, the percentage returns will speak for themselves over time.

If you were coming to me for money to invest in your hedge fund on the basis of this starting method you suggest, I would look for 3 years of data to analyse before I would consider investing with you, and then I would take a punt if you had shown consistent success and results.

If you have the necessary qualifications and licenses, I don't see why you couldn't start this. Pedro will probably know if theres any reason you can't....

Initial fees etc are irrelevant with such small amounts of money until you have proven yourself and want to start it properly and then set it up to work for you financially. The money you will spend on admin and legal, is your startup costs while you prove yourself as a capable hedge fund manager.
But as I said, 3 years for me, and I am risk friendly.

pedroeibar1

rookieMan wrote: »

In last 2 years, I have been able to find relatively safe investment opportunities offering 5-10% return annually. I was wondering if it is possible for me (an average person) to start a small hedge fund? Initially looking at starting with about €10K from friends and family to build a track record. None of my contacts/friends are qualified/professional investors, therefore the fund will have to be targeted to retail investors. I am looking at taking about 1% fees on the profit. However, since I have never founded a company before, let alone founding a financial product, I am worried that legal fees & other admin fees (registering a company, etc) would be so high that the fund (initially of about €10K) will not be profitable resulting in negative return to investors. Is there a way to optimize costs to somehow make this profitable?

I'm not going to bother arguing about luck/investment on a 2 year time frame. Clearly you have done no basic homework. If, without CBI approval, you take in cash for investment you are breaking several laws. A very very large multiple of 10k would not even cover the set-up costs for a fund. Any person capable of writing the above post has zero hope of CBI approval.

If you want to be taken seriously in investment management, even as an employee, you need the CFA exams. Including an (almost mandatory) repeat of one exam it will cost you about 4k in fees, minimum; much more if you take a few courses.

Axwell

Paddy The Pirate wrote: »

This idea feels like you're kinda full of shít , no?

Mod: If you have nothing useful to add then don't bother posting at all.

Glass fused light

Minimun capital for a fund manager was 125K + some risk weighted capital. To become an approved person you would need work history and qualifications as an professional investor. You need access to a professional trading platform. You the need the legal accounting and compliance systems to safegard other peoples money. So to even think that 10k is a good starting point, says a lot about how unprepared you are.

edit_me

Interactive Brokers Friends and Family account.

rookieMan

Glass fused light wrote: »

Minimun capital for a fund manager was 125K + some risk weighted capital. To become an approved person you would need work history and qualifications as an professional investor. You need access to a professional trading platform. You the need the legal accounting and compliance systems to safegard other peoples money. So to even think that 10k is a good starting point, says a lot about how unprepared you are.

Why did you assume that the fund must be setup in Ireland? And why did you assume that I am looking to trade something? Anyways your point is noted that an average joe cannot start a fund.

rookieMan

edit_me wrote: »

Interactive Brokers Friends and Family account.

Thanks for your input. Unfortunately, I am not looking to trade stock or commodities. I dont consider them as 'relatively safe' options.

rookieMan

pedroeibar1 wrote: »

I'm not going to bother arguing about luck/investment on a 2 year time frame. Clearly you have done no basic homework. If, without CBI approval, you take in cash for investment you are breaking several laws. A very very large multiple of 10k would not even cover the set-up costs for a fund. Any person capable of writing the above post has zero hope of CBI approval.

If you want to be taken seriously in investment management, even as an employee, you need the CFA exams. Including an (almost mandatory) repeat of one exam it will cost you about 4k in fees, minimum; much more if you take a few courses.

Thanks. Point noted.

Glass fused light

rookieMan wrote: »

Why did you assume that the fund must be setup in Ireland?

EU regs, 2 main geographical centres.

rookieMan wrote: »

And why did you assume that I am looking to trade something?

:rolleyes: you want to open a hedge fund

rookieMan wrote: »

Anyways your point is noted that an average joe cannot start a fund.

Average joes who know how to do it and have the proper financial backing can do it.
The average joe should avoid trying to open a retail fund as these are the hardest to run.

blackwave

From a regulatory perspective the minimum initial subscription into an Irish domiciled fund is 100k euro. Cayman is 100k USD.

You are on the right track of needing to have a track record etc in order to set up but the initial seed money needs to be more.

RedRochey

What's your endgame here? Managed a couple million in a few years?

As one poster said you'd need a minimum of 3 years before anyone would look at you, I'd stretch that out to 10 years for anyone to take you seriously. The fact you're confident you can return 10% a year "relatively safe" is in my opinion absolutely bonkers, it would lead me to believe that you must be doing some kind of peer to peer lending, high yield kind of stuff, which can easily blow up in your face, look up the Kerry golf tours as an example.

I appreciate your take on showing a track record for a fund but you yourself would also need to show a long-term track record of professional experience.

Then there is the size issue, not many people would invest in a fund less than €100m, you'd have to survive on friends and family really.

In terms of your fees, 1% of profits is ridiculous if you're trying to make money from this, you'd want to be charging 25 of AUM as a management fee for a start and maybe 10/15/20% of profits as an incentive if you really want to make money, if you only want to cover expenses then ya 1 or 2% of AUM would be realistic.

Also it doesn't have to be a hedge fund, they are for "sophisticated" investors who have millions or for institutions.

Now all of this is my own opinion, completely up to you what you want to do.

I also have no idea what the laws around this stuff is, would be interested in hearing them as I too am investing some of my parents money and would like to be covered legally.

PHG

Hi OP,

You say over last 2 years your returned 5-10%, Which is it? Why would they invest with you if their employer does an pension match, e.g. they put in 5% and the employer matches it?

Not having a pop here but I honestly think you are looking way ahead of yourself. Why?

1. You don't have enough capital
2. Fees, regulation everything will stop you doing this. Even the cost of a website atm.
3. Why do you need other peoples money?
4. Are you aware of how different investing is once it is someone elses money?? It messes with your head!
5. Why not just use your own cash and forget everyone elses? DO NOT TAKE OUT A LOAN!!
6. What happens if you lose your friends and families money, can they and you accept this? They might say yes but I promise you could lose friends over this.
6. Many of us have been there where we made a little cash and started thinking like this after a decent run then lost it. Concentrate on your edge and keep going. Sleep on it for a bit more on it!
7. I know 2 successful traders who trade for themselves. Both have considered a fund and both said no. Why? cause they couldn't be bothered dealing with people and would rather live their own life without the grief. I know they do well but how much they do or do not make I will never know. They have decent houses, cars and life and that is as far as they tell. They are not millionaires, just earn enough to keep them and their family content.
8. I know of 1 more trader through one of them that was doing very well, took on a number of clients after a year of success. He went to the wall!! AFAIK he has not traded since and gone quiet as he felt so guilty for messing up with other peoples cash who trusted him. It wasn't a huge amount but did the damage to him.

Hope that helps

PHG

rookieMan

Glass fused light wrote: »

EU regs, 2 main geographical centres.




:rolleyes: you want to open a hedge fund


Average joes who know how to do it and have the proper financial backing can do it.
The average joe should avoid trying to open a retail fund as these are the hardest to run.

My understanding is that hedge fund can also do alternate investments. Maybe its not called hedge fund then and is just called a fund. Thanks for your input though.

rookieMan

blackwave wrote: »

From a regulatory perspective the minimum initial subscription into an Irish domiciled fund is 100k euro. Cayman is 100k USD.

You are on the right track of needing to have a track record etc in order to set up but the initial seed money needs to be more.

Thanks. Raising 100k might be possible for me but the regulatory expenses are putting me off. I am going to simply reap rewards myself for now

rookieMan

StockTwat29 wrote: »

What's your endgame here? Managed a couple million in a few years?

As one poster said you'd need a minimum of 3 years before anyone would look at you, I'd stretch that out to 10 years for anyone to take you seriously. The fact you're confident you can return 10% a year "relatively safe" is in my opinion absolutely bonkers, it would lead me to believe that you must be doing some kind of peer to peer lending, high yield kind of stuff, which can easily blow up in your face, look up the Kerry golf tours as an example.

I appreciate your take on showing a track record for a fund but you yourself would also need to show a long-term track record of professional experience.

Then there is the size issue, not many people would invest in a fund less than €100m, you'd have to survive on friends and family really.

In terms of your fees, 1% of profits is ridiculous if you're trying to make money from this, you'd want to be charging 25 of AUM as a management fee for a start and maybe 10/15/20% of profits as an incentive if you really want to make money, if you only want to cover expenses then ya 1 or 2% of AUM would be realistic.

Also it doesn't have to be a hedge fund, they are for "sophisticated" investors who have millions or for institutions.

Now all of this is my own opinion, completely up to you what you want to do.

I also have no idea what the laws around this stuff is, would be interested in hearing them as I too am investing some of my parents money and would like to be covered legally.

Thank you for your input. I understand that risks of uncollateralized peer to peer lending and that is something I dont not consider safe. The legal/regulatory expenses do not seem to be motivating to pursue something like this. There are alternates that I will consider in future but for now I guess i will keep my investment strategy to myself for now.

simongurnick

rookieMan wrote: »

Thanks for your input. Unfortunately, I am not looking to trade stock or commodities. I dont consider them as 'relatively safe' options.

Stocks range from penny stocks to blue chip. What do you define as a "relatively safe" investment?

sabat

rookieMan wrote: »

My understanding is that hedge fund can also do alternate investments. Maybe its not called hedge fund then and is just called a fund. Thanks for your input though.

A hedge fund could be short and long across several sectors simultaneously as part of the same strategy. For example, if there was some major news concerning copper you could take some action around the commodity itself, the companies that mine it or even the currencies of producer countries, the idea being that no matter what happens you'll have guaranteed margin.

rookieMan

PHG wrote: »

Hi OP,

You say over last 2 years your returned 5-10%, Which is it? Why would they invest with you if their employer does an pension match, e.g. they put in 5% and the employer matches it?

Not having a pop here but I honestly think you are looking way ahead of yourself. Why?

1. You don't have enough capital
2. Fees, regulation everything will stop you doing this. Even the cost of a website atm.
3. Why do you need other peoples money?
4. Are you aware of how different investing is once it is someone elses money?? It messes with your head!
5. Why not just use your own cash and forget everyone elses? DO NOT TAKE OUT A LOAN!!
6. What happens if you lose your friends and families money, can they and you accept this? They might say yes but I promise you could lose friends over this.
6. Many of us have been there where we made a little cash and started thinking like this after a decent run then lost it. Concentrate on your edge and keep going. Sleep on it for a bit more on it!
7. I know 2 successful traders who trade for themselves. Both have considered a fund and both said no. Why? cause they couldn't be bothered dealing with people and would rather live their own life without the grief. I know they do well but how much they do or do not make I will never know. They have decent houses, cars and life and that is as far as they tell. They are not millionaires, just earn enough to keep them and their family content.
8. I know of 1 more trader through one of them that was doing very well, took on a number of clients after a year of success. He went to the wall!! AFAIK he has not traded since and gone quiet as he felt so guilty for messing up with other peoples cash who trusted him. It wasn't a huge amount but did the damage to him.

Hope that helps

PHG

Thanks for your point of view on this. You are right about regulations. To answer your question on why people might invest, if your savings account offers 0.0x% return and then you are losing money due to inflation. That doesn't mean I am suggesting that one should invest all their money, everyone has different risk apatite but doesnt mean people dont invest beyond pension.

Anyways, I thought that if I can come up with a investment strategy with low risk and stable return, then there might be a way to spread the knowledge and benefit larger community. I am totally fine taking profits to myself.

RedRochey

I used to work at a hedge fund of sorts and the lads who started got funding of a good few million from a former boss, my point being a lot of funds get backing from someone rich to start with

Colonel Claptrap

rookieMan wrote: »

Anyways, I thought that if I can come up with a investment strategy with low risk and stable return, then there might be a way to spread the knowledge and benefit larger community. I am totally fine taking profits to myself.

I struggle to see how your investment strategy lends itself to being a hedge fund specifically.

Why a hedge fund?

Glass fused light

Colonel Claptrap wrote: »

I struggle to see how yout investment strategy lends itself to being a hedge fund specifically.

Why a hedge fund?

The question is "do you know what a hedge fund is"

rookieMan

Colonel Claptrap wrote: »

I struggle to see how your investment strategy lends itself to being a hedge fund specifically.

Why a hedge fund?

Maybe hedge fund wasn't the right choice of words. I meant alternate investment fund.

rookieMan

StockTwat29 wrote: »

I used to work at a hedge fund of sorts and the lads who started got funding of a good few million from a former boss, my point being a lot of funds get backing from someone rich to start with

Good for those lads. They had built their credibility and hence got the backing. I doubt that will be true in my vase unless I can show a track record of stable return and have decent write ups/marketing material on how funds are used and why its low risk

JeffKenna

Can I invest 1m please?

JeffKenna

Can I invest 1m please?

Heres Johnny

Lack of capital and liquidity
You will be buried in regulation and legal issues
Lack of credibility
Asking on boards instead of the correct places


Almost impossible to get investors, please don't pressure your friends and family

Iang87

If you're targeting at retail investors then the fund will need to be a UCITS structure or an AIF structure.

There are definite rules around both regarding cash and borrowing. You'd also need to hire an administrator along with a Depositary for safekeeping. These would be eating into the fund. In terms of the startup costs I wouldn't lose sleep on these as you can write them into the funds budget over a specified period. Make it 5 years or so and the fund won't feel the payback.

Your issue will be the retail side of this. Since the crash the retail investor is so protected it makes it hard for an average joe to get 5m for friends and family to start a fund.

I'm not sure how aware you are of certain rules and what your strategy would be but imagine you decided Apple was where you'll make all your money. Under UCITS restrictions you can't have Apple make up more than 10% of your portfolio.

I'm not going to say you can't but I will say it will be incredibly difficult to pull off. Best of luck if you do go forward

Glass fused light

Iang87 wrote: »

If you're targeting at retail investors then the fund will need to be a UCITS structure or an AIF structure.

There are definite rules around both regarding cash and borrowing. You'd also need to hire an administrator along with a Depositary for safekeeping. These would be eating into the fund. In terms of the startup costs I wouldn't lose sleep on these as you can write them into the funds budget over a specified period. Make it 5 years or so and the fund won't feel the payback.

Your issue will be the retail side of this. Since the crash the retail investor is so protected it makes it hard for an average joe to get 5m for friends and family to start a fund.

I'm not sure how aware you are of certain rules and what your strategy would be but imagine you decided Apple was where you'll make all your money. Under UCITS restrictions you can't have Apple make up more than 10% of your portfolio.

I'm not going to say you can't but I will say it will be incredibly difficult to pull off. Best of luck if you do go forward

With respect setup costs can be budgeted per accounting policies but the initial investors ultimately carry that cost. Plus even if the OP managed to label into an existing fund and levered off this saving the setup cost have to be funded up front.

Heres Johnny

My pension fund has achieved 8.9% average return since I started it. It's classified as high risk as I'm still young I'm happy to leave it there.
Projecting 10% in a safe (low risk) over 2 years is bonkers.
Risk is uncertainty. You can't project 10% without any level of uncertainty

rookieMan

Heres Johnny wrote: »

My pension fund has achieved 8.9% average return since I started it. It's classified as high risk as I'm still young I'm happy to leave it there.
Projecting 10% in a safe (low risk) over 2 years is bonkers.
Risk is uncertainty. You can't project 10% without any level of uncertainty

I didn't say no risk and hence I didn't claim no level of uncertainty. However, I am sure the risk that your pension fund is taking is much higher than what I am taking. You may continue to believe its bonkers and can continue assuming that pension funds give best risk to reward ratio.

pedroeibar1

Pathetic how stupid & low the comment on this forum has sunk, more suited to AH.

antoinolachtnai

rookieMan wrote: »

I didn't say no risk and hence I didn't claim no level of uncertainty. However, I am sure the risk that your pension fund is taking is much higher than what I am taking. You may continue to believe its bonkers and can continue assuming that pension funds give best risk to reward ratio.

How can you say that you offer a low risk investment when you have never invested during or traded through a recession? I don’t think you realize how implausible this sounds.

Do you have some sort of theory or model which explains your exuberant optimism?

pedroeibar1

Glass fused light wrote: »

With respect setup costs can be budgeted per accounting policies but the initial investors ultimately carry that cost. Plus even if the OP managed to label into an existing fund and levered off this saving the setup cost have to be funded up front.

Aaah. An 'expert' :rolleyes:. Perhaps you might like to differentiate between a UCITS management company, an authorised Alternative Investment Fund Manager (AIFM), a self-managed UCITS investment company and an internally managed Alternative Investment Fund which is an authorised AIFM.?
Or perhaps give us your take on designated persons and Regulation 124(3) of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1) (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2017? (Bet I will be waiting!:P)

(Did you miss the bit saying all this is for a guy who wants to start a fund with 10k !!)

Glass fused light

pedroeibar1 wrote: »

Aaah. An 'expert' :rolleyes:. Perhaps you might like to differentiate between a UCITS management company, an authorised Alternative Investment Fund Manager (AIFM), a self-managed UCITS investment company and an internally managed Alternative Investment Fund which is an authorised AIFM.?
Or perhaps give us your take on designated persons and Regulation 124(3) of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1) (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2017? (Bet I will be waiting!:P)

(Did you miss the bit saying all this is for a guy who wants to start a fund with 10k !!)

Did you bother to read the thread, or are you just :rolleyes:

pedroeibar1

Glass fused light wrote: »

Did you bother to read the thread, or are you just :rolleyes:

Go read page 2 of the thread. But I guessed I'd not get an answer to the question I put to you.. So, I'll make it easier. How many INEDS does OP need and what is their usual annual fee?

Glass fused light

pedroeibar1 wrote: »

Go read page 2 of the thread. But I guessed I'd not get an answer to the question I put to you.. So, I'll make it easier. How many INEDS does OP need and what is their usual annual fee?

Yep your all :rolleyes:

As for the questions that's why one pays the rather large legal fees at the start of the process and one makes sure to get the answers in writing.

As for the OP the answer to anything is zero as the OP needs to continue doing what ever they are doing and leave the idea of investing other peoples money alone?

rookieMan

Iang87 wrote: »

If you're targeting at retail investors then the fund will need to be a UCITS structure or an AIF structure.

There are definite rules around both regarding cash and borrowing. You'd also need to hire an administrator along with a Depositary for safekeeping. These would be eating into the fund. In terms of the startup costs I wouldn't lose sleep on these as you can write them into the funds budget over a specified period. Make it 5 years or so and the fund won't feel the payback.

Your issue will be the retail side of this. Since the crash the retail investor is so protected it makes it hard for an average joe to get 5m for friends and family to start a fund.

I'm not sure how aware you are of certain rules and what your strategy would be but imagine you decided Apple was where you'll make all your money. Under UCITS restrictions you can't have Apple make up more than 10% of your portfolio.

I'm not going to say you can't but I will say it will be incredibly difficult to pull off. Best of luck if you do go forward

Thanks for your input. Really appreciate a sane input here. I understand the rules around exposure when trading but I dont know how these rules apply when not trading. For instance, imagine I take gold from someone as a collateral for giving out loans. Does that mean the loan given to the person cant exceed 10% of my portfolio or loans given on gold as collateral cannot exceed 10% of portfolio or all loans cannot exceed 10% of portfolio? Logically, I think it should be mean the loan given to the person cant exceed 10% of my portfolio which is not an issue at all.