Managed Funds

[seancass]

More and more brokers are moving into the realms of offering traders a managed fund facility where they trade a given amount of capital on behalf of the client and then reward themselves with anywhere between 30 - 35 % commission on the profit made! Now, I know some of you would baulk at the prospect of handing over a third of your profits to traders trading on behalf of the client.

One broker that I looked at yesterday claims to make an average monthly gain in their managed service of 10% per month of the capital in the client's account (this does not take into effect compounding.) Now, that seems a very fair return to me in this day of moderate interest rates.

Do any members know of similar brokers or trading houses ( preferably reputable ones) who are producing an excellent return for clients through their managed services?

Sean

 

[anley]

I bet all their 'past' performance figures are great but clients may well be in for a nasty shock with 'future' performance.

Brokers managing money for their clients in 80-90% of cases is a recipe for disaster for the client but very good business for the broker because he has NO downside only upside.

 

[wisestguy]

I pressume the traders are not in house people , folk hired specially for this function ?

 

[jmreeve]

This is similar to using a commodity trading advisor but with an important difference.

If an investor places money with a CTA then it is up to the CTA to choose brokerage facilities to maximise the returns for the clients. If an investment service is offered from a broker then there is a clear conflict of interest as the broker will want to maximise brokerage revenue and not client returns.

Personally, I would stay well clear of any investment scheme offered by a brokerage.
Hedge funds that are run by banks using in-house brokerage facilities also have the same problem in my opinion.

 

[anley]

So many tricks that the brokers can play as well, like putting winning trades in 'friends' accounts and vice-versa. Very easily done with a friend in the back-office (ever wonder why many back-office personal get looked after so well at xmas time)

Unless the broker can deliver iron-clad audited past performance (real-time) figures then forget about it, and I'd reckon that as soon as you ask for this you're going to get a million and one excuses why this isn't possible.

 

[seancass]

Thank you very much for that valuable information.

CTA? What is this please?

Sean

 

[anley]

Commodity Trading Adviser

The term is not really used so much these days, most CTAs I think would preferred to be called 'money managers' or 'hedge funds' etc.

 

[seancass]

Thank you Anley, that is useful.

Sean

 

[jmreeve]

A CTA and hedge fund are not the same thing.
CTA is a definition under US law:

WHAT IS A COMMODITY TRADING ADVISOR?

Person who manage separate accounts for each client are required to register as a commodity trading advisor (CTA).

A CTA is defined as "any person who, for compensation or profit, engages in the business of advising others, either directly or through publications, writings or electronic media, as to the advisability" of buying or selling commodity futures or option contracts. Persons meeting this definition are required to register as a CTA unless they have:

provided advice to 15 or fewer persons during the past 12 months and do not generally hold themselves out to the public as a CTA; or

furnishes trading advice solely to a commodity pool (or pools) of which they are the registered CPO or are exempt from CPO registration; or

is in one of a number of businesses or professions listed in the Commodity Exchange Act or the CFTC regulations and the providing of advice is solely incidental to the conduct of that business or profession; or

is registered in another capacity and the advice is solely in connection with acting in that other capacity; or

is a registered investment adviser under the Federal Securities Laws who provides futures advice incidental to providing securities trading advice to the "otherwise regulated'' trading vehicles files a prescribed notice with the CFTC specified in CFTC Rule 4.5.