Could you become a top Fund Manager ?

Someone offers to give you ~ £1m to manage TODAY ...... an uncle, cousin, best friend - so it's not just other people's money ..........!! Could you achieve 15/20% absolute return per annum including dealing fees - without doing anything too risky or silly and without turning over the portfolio twice a month!!!!

This is what someone asked me to do recently - and I'd like to hear your investment strategy and asset allocation ideas.

My preference is for yield and value plays, initially.... but I'm sure there are lots of ways to skin this one. ...........

Hook Shot

P.s I said NO but it got me thinking!

Of course you can. It is a great puzzle why it is considered so hard to make 20%. I can do it with my eyes closed. You are asking whether you can make 200k out of 1 mio. Under some circumstances, it can be done in a month. I am a forex trader and you can contact me and I will show you how to do it.

Hook Shot said:

Someone offers to give you ~ £1m to manage TODAY ...... an uncle, cousin, best friend - so it's not just other people's money ..........!! Could you achieve 15/20% absolute return per annum including dealing fees - without doing anything too risky or silly and without turning over the portfolio twice a month!!!!

This is what someone asked me to do recently - and I'd like to hear your investment strategy and asset allocation ideas.

My preference is for yield and value plays, initially.... but I'm sure there are lots of ways to skin this one. ...........

Hook Shot

P.s I said NO but it got me thinking!

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Other questions

Hook Shot said:

Someone offers to give you ~ £1m to manage TODAY ...... an uncle, cousin, best friend - so it's not just other people's money ..........!! Could you achieve 15/20% absolute return per annum including dealing fees - without doing anything too risky or silly and without turning over the portfolio twice a month!!!!

This is what someone asked me to do recently - and I'd like to hear your investment strategy and asset allocation ideas.

My preference is for yield and value plays, initially.... but I'm sure there are lots of ways to skin this one. ...........

Hook Shot

P.s I said NO but it got me thinking!

Click to expand...

Hook Shot

I agree with FXScalper2 that this is not a particularly difficult target, which makes me wonder if you have a surprise up your sleeve. Are you going to tell us this is, in fact, the average that most fund managers make ?

It also raises another interesting question:

If the £1m does not belong to someone else, but is instead your own, would you be more or less successful in managing it than if you were a fund manager. Also how would you invest it ? - Trading or something else such as property.

To what extent does the size of your account/portoflio dictate what you strategy is ?

Charlton

15 to 20% is about right in my book, the person that puts up the money is getting a very good return by any standards and lets face it they dont have to put in a lot of effort

For your part you would be looking for some sort of retainer 50k plus a generous percentage of the growth

Hook Shot
its only money
if you can trade with no fear you will be fine
if you can get 20% return on 10k you can do it on a million
the risk does not change for 10k you may trade 2-3 lots for 1m you trade 200-300 lots if your max risk per trade is £300 on a million its £30,000

Andy

You should have taken the deal.

However family and business rarely mix well.

Also remember, 90% of fund managers do NOT consistently out perform the index. So if your relative was requesting that you achieve fund manager like returns then you are probably going to meet or exceed their expectations.

The reason most fund managers perform so poorly is mandated by the fund they are managing (asset mix etc.) or their ideology of "buy and hold" and averaging down!

20% on 1 million is not too difficult I think. Thing is, if you are only taking a % of profit there better be opportunity to grow that money pretty quickly. really need minimum $5mil to startup a worthwhile client business IMO.

Thanks You everyone.

This is investment account not trading money. Think of it a trust or endowment.

Interesting to see so many people thinking it's pretty straightforward - since I'm sure the percentage of money managers doing that year in year out is not as high as people think.... Thanks JDR.

Charlton not mine - my cousin's he's just sold his business etc.....and is being swarmed by wealth managers from everywhere - the roughly one mill is just a part . No surprises just plain old equities and perhaps some bonds. Don't intend to trade at least not this time around. The amount was/is a bit daunting and you're inference is correct it really should not affect my strategy but .....

DC - This kind of return seems pretty good to me too - although I know with all sorts of exotics it can be significantly improved. Thanks for your views about retainer plus share of profits.

andycan - its only money........ until you f*** up and have to explain what happened. But I understand the sentiment. The comparisons about 20% on 10k are logical...but until I've made the money in year one - there has to be question marks (although I believe it is achievable). There is a little trepidation.....

twalker - theoretically should be straightforward........... despite my protestations. Agree larger fund is would make it worthwhile...... but to attact funds you need rep/record...

So .............. I think this level of performance is doable - despite never having managed big money before.

Thanks for encouragement everyone.

Hook Shot

I do not think that 20% on 1mil is hard when compared with 20% on 50 or 100mil. There should be far less liquidity and hence execution risk there, that is all. Slippage makes a huge difference over a year.
I do not believe 20% is ever going to be easy as such but for decent scalpers these sorts of returns come in a month and although they are often only managing 20-100k accounts, I do know however of people with 1mil accounts who scalp and make 100's of % per annum.
If I make 20% on what I manage it would be a really superb year and i would be spraying the magnums around the room.

This all comes back to risk and exposure.
People making 20% per month are taking on massive exposure in relation to the amount of capital they have.

Funds typically make less money because they take much less risk.
They take less risk because most passive investors have much lower risk tolerance than futures traders and because the managers can still become rich with returns of 10% per year whilst managing large amounts of money. They are also much more likely to survive to be about in the long term.

Any percentage return is meaningless without some context to the risk taken to achieve it.

twalker - fantastic it's all crystal clear now........much appreciated. The lingering doubts are ebbing away as I type. Thinking ahead ..... where do you set these things up - and why are some in Ireland and some in cayman and some in guernsey ?

many thanks
Relieved from Manchester

jmr is, as ever ,spot on.

Hedge funds come and go all the time. Most are set-up and run by smart people, yet cannot make a decent return, or worse draw-down. You have to think 'why?' before thinking how easy it all is. Amaranth were making stellar returns for investors before losing 60% ($6bn) over the last couple of weeks... JMReeve and twalker are absolutely spot on, IMO.

If you do go for it, think seriously about the legal agreement you have with your cousin. Given your investment style and criteria, what's a worst case scenario for how much you might lose? What would his reaction be if that worst case scenario unfolded? I'm not sure how the FSA regard people managing other people's cash on an unregulated basis - I think 'friends and family' might be okay, but you should check. What will Inland Revenue's perspective be? How will IR impact any returns? (That might help answer your question about why many are set up in Guernsey or the Caymans).

From your other posts, I think you mostly invest in stocks? If you're looking at mid/small cap, then liquidity starts to become an issue. I've run into problems in some small-caps even at my relatively meagre size, especially when trying to buy or sell in a fast market - market makers can take the p1ss if dealing outside the NMS.

I am just curious about the apparent results of fund managers. I don't know anything at all about how these guys function, who they are, etc. However, I would like to know a bit about them. I find the reported results of these funds confusing because, if true, they are either just terrible at their jobs or there is something I do not understand.

Take this guy's case. He is wondering about a 20% return a year on 1mio. In forex, with a risk of 2% per trade and 40 pip average stop loss, you will need to make 400 pips a year to make 20%. This is without compunding and if you compound the profits, you should get there a lot quicker. In most cases, it will not take a half decent trader a year to make 400 pips. Is it really the case that fund managers can't make 400 pips a year?

Hook Shot
this is the thing when you trade you have to look at the strategy and forget the sum of money involved when you start thinking £30k loss ouch that hurts but its relative to what you are managing 3% maybe should be less but you get the drift

Cheers Jack as ever you make plenty of sense - and have added some points which I didn't want to grapple with just yet - but they need considering! Family agreement or contract should be okay since I'm not looking for supernormal returns and therefore won't be taking higher than normal risks - at least that's my intention.

As for a future fund and implications thereof - maybe I'm extrapolating too far right now. I'm (now) confident of investing for those kind of returns in a market which is at worst flat - but will need a different strat for the hairy times. During the last bear market housing and utilities held up pretty well - so there is always some place to go ................ I need to give it some more thought - but it's a great challenge.

Cheers Jack

two more snook in under the radar...

fxscalper - I hear you loud and clear I'm just an average player who thinks he might be able to play in the Premiership. For me It's about that next next step up. I know there are already people up there who see this as a doddle and one day I will think that too. I appreciate your comments.

andycan - Thanks I'm now past that mental block - cheers.

Hook Shot

andycan - Thanks I'm now past that mental block - cheers

Gotcha

Hook Shot said:

twalker - fantastic it's all crystal clear now........much appreciated. The lingering doubts are ebbing away as I type. Thinking ahead ..... where do you set these things up - and why are some in Ireland and some in cayman and some in guernsey ?

many thanks
Relieved from Manchester

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The domicile of a fund depends on finding an approriate tax and regulatory regime.
They are not set up in the UK as the tax regime here is not appropriate. However,
management is often in the UK and there are a set of IR conditions that must be met
in order for a fund to be considered as offshore and not UK taxable.

If you are managing money for a family member on an informal basis then as a minimum you should think about having some sort of administrative agreement in place whereby you are given rights to administer the money and your obligations are set out in black and white.

More generally, to be a money manager operating in this country you will be undertaking regulated activities and so will need to meet all the FSA requirements. Alternatively, you can also operate under the umbrella of another regulated organisation. All of this can be quite costly and would require you to have much more than £1M under management for it to be viable.

It would be advisable to seek some legal guidance on all this.

Hi - jmreeve, much to think about - in addition to finding a methodology which works come rain or shine.

Thanks for taking the time.

Cheers
HS