how to set-up a tiny fund

This is a discussion on how to set-up a tiny fund within the Trading Systems forums, part of the Methods category; let's say I'm an ex trader in a bank, where I didn't have to deal much with administration. For the ...

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Old Mar 8, 2012, 8:36pm   #9
Joined Mar 2012
Re: how to set-up a tiny fund

gayaku started this thread let's say I'm an ex trader in a bank, where I didn't have to deal much with administration. For the moment, I'm not talking about starting a 20M hedge fund, but about a 100K financial firm.
I have no idea yet on how to set-up a small firm to trade other people's money from the UK.

Also, I can't use Interactive Brokers, as I'm not trading traditional financial products.



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if you have to ask then dont do it

its not for beginners
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Old Mar 8, 2012, 9:03pm   #10
 
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Re: how to set-up a tiny fund

If you were an ex-trader in a bank you'd know that start up funds need $50m to break even for a reason. I know you think everyone is being obstructive but PBoyles' advice is spot on - it will end in tears. If you really really want to go down this route think about setting up a company in which the investors are shareholders in proportion to their capital contribution. I looked at it once before coming to the same conclusion as the others on this thread....
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Old Mar 8, 2012, 9:33pm   #11
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Re: how to set-up a tiny fund

gayaku started this thread Thanks for all the answers.

I'm not talking about stating a 2/20 hedge fund, with a rent to pay, salaries for xx employees, bonus, bloomberg, fixed costs...
I have started on my "free time" a very small, systematic trading system, on "uncommon" financial products, and I'd like to know if there's a simple/efficient way to trade other people's money legally and easily, without using a broker's managed account as I don't trade through a broker. How would I pay myself ? How my customers would pay tax on the profit if any ?


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Originally Posted by Jack o'Clubs View Post
If you were an ex-trader in a bank you'd know that start up funds need $50m to break even for a reason. I know you think everyone is being obstructive but PBoyles' advice is spot on - it will end in tears. If you really really want to go down this route think about setting up a company in which the investors are shareholders in proportion to their capital contribution. I looked at it once before coming to the same conclusion as the others on this thread....
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Old Mar 8, 2012, 10:27pm   #12
 
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Re: how to set-up a tiny fund

My point was that fees from a $50m fund just about cover the legal, compliance, FSA and admin costs before you get to all the stuff that you mentioned. If you do this legally you will need FSA registration, demonstrate MIFID compliance etc etc. Of course you don't need to do that, but if you lose money and one of your friends / family decides to get nasty you could get in a lot of trouble. I have seen rock-solid family and friend relationships founder when money is involved. It's sad, but it happens. The alternative is to set up a trading company that does sports betting or whatever your 'alternative' investment is and pays out its earnings as dividends to the shareholders after paying company tax. You can pay yourself a salary and/or take dividends as a shareholder. But I'm not sure that even this gets you round the need for FSA registration, you'd need to call them and check.

See here:

http://www.fsa.gov.uk/doing/do

Last edited by Jack o'Clubs; Mar 8, 2012 at 10:34pm. Reason: Link added
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Old Mar 8, 2012, 11:15pm   #13
Joined Mar 2012
Re: how to set-up a tiny fund

gayaku started this thread Thanks a lot Jack, that's very helpful.
This business is not and will never be very big. If the costs to start and manage it are over a few Ks, I won't do it, and will just trade my own money.
It also has to be simple to pay myself, my partner, and my investors/friends.

The trading company which pays dividend to its shareholder seems very interesting. What kind of company is that exactly ? is it a LLP ? What if the number of shareholders change over time ? What if they are not all in the UK ? I have friends and ex colleagues in Europe, Asia, US...

I need to keep it simple, cheap, even if it means no US investor for example.

I'm not sure I really need FSA registration, I will check.
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Old Mar 9, 2012, 2:15am   #14
 
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Re: how to set-up a tiny fund

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The trading company which pays dividend to its shareholder seems very interesting. What kind of company is that exactly ? is it a LLP ? What if the number of shareholders change over time ? What if they are not all in the UK ? I have friends and ex colleagues in Europe, Asia, US...
Ex colleagues! Good one
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Old Mar 9, 2012, 7:24am   #15
 
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Re: how to set-up a tiny fund

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The trading company which pays dividend to its shareholder seems very interesting. What kind of company is that exactly ? is it a LLP ? What if the number of shareholders change over time ? What if they are not all in the UK ? I have friends and ex colleagues in Europe, Asia, US...
I don't know because that was as far as I got before I realised I then needed professional advice, and then I discovered that was going to cost me £400/hr and I came to the same conclusion as everyone else on this board - unless you do it properly (ie well into 7 figures of assets), it ain't worth the hassle. Just run your own money, seriously.
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Old Mar 9, 2012, 7:47am   #16
 
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Re: how to set-up a tiny fund

Actually there was one other structure now I think of it... You get your 'investors' to enter loan agreements. The loan has to be structured for the working capital of your business and the lenders have no claim over any other asset in the business or your personal life in the event that the value is impaired. You then need a section on interest payments which are essentially variable and related to the performance of the business. The problem with this is that for your investors they have to take any gains as interest income and so will be taxed at their highest income band which might not be attractive for them. Anyway, I never went into it in detail as by this stage I'd decided friends and family money wasn't worth the aggro.
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