Raising Capital

[indexbandit]

If you were a trader looking to start a fund or a CTA business, what percent of your business would you be willing to give up in order to attract significant capital? What is a typical arrangement if you are a capital allocator? Assume that the fundraiser will have nothing to do with the day-to day operations of the fund. How about if you receive funds from a commodity pool (CPO)? Does anyone have any experience in this area? What is the "going rate"? Thanks.

 

[ColinRiche]

If you were a trader looking to start a fund or a CTA business, what percent of your business would you be willing to give up in order to attract significant capital? What is a typical arrangement if you are a capital allocator? Assume that the fundraiser will have nothing to do with the day-to day operations of the fund. How about if you receive funds from a commodity pool (CPO)? Does anyone have any experience in this area? What is the "going rate"? Thanks.

the most common is 2 & 20

 

[indexbandit]

the most common is 2 & 20

I realize 2/20 is the most common set-up that I charge as incentive fees to my investors. What I am asking is what is typical for those who place the capital with me? Fund of fund managers, commodity pool operators, and other "middlemen" who match up investors and managers. How (and what do they get paid)? Say you had a friend who was a trader and you were able to match him up with a fund of fund manager who was going to give him 10MM. Would you expect a cut or percentage because you put the deal together? Or say you are in hedge fund sales. Do you make a commission for raising capital for your fund? How much (what percentage) is customary and usual?

 

[Mathemagician]

You'd expect about 20% of revenues for that account.

jj

 

[indexbandit]

You'd expect about 20% of revenues for that account.

jj

Meaning the "middleman" would expect 20% of revenues earned by the trader's incentive fees?

 

[Mathemagician]

Yes. This can vary based on many factors, but 20% is pretty much the baseline. Many traders don't realize this, but good "middlemen" are actually in shorter supply than good traders are.

jj

 

[indexbandit]

Yes. This can vary based on many factors, but 20% is pretty much the baseline. Many traders don't realize this, but good "middlemen" are actually in shorter supply than good traders are.

jj

Yes, I am starting to understand this more and more. Although I think 50% is too excessive, as this is what I have been presented with in a 'take it or leave it' fashion. Obviously there are mitigating factors which can change this situation, but I am just trying to gauge what is typical. thanks for your help.

 

[Mathemagician]

50%!?! Leave it. They are trying to take advantage of you and will treat you like crap for the duration of the relationship.

jj

 

[indexbandit]

50%!?! Leave it. They are trying to take advantage of you and will treat you like crap for the duration of the relationship.

jj

Ha. I already have another thread on the situation and it has since been resolved. While I knew that 50% was unreasonable, I wanted to see what was usual. No, I am not giving up 50%, but if normal was around 30%, I might have considered giving up some for a larger allocation. Thanks again.

 

[TWI]

The market is tougher today than it has been in a long time for obvious reasons. The allocators are asking for more and more or want to pay out less and less unless you are a Brevan Howard or a Blluecrest who I note have opened additional capacity, it is hard work.

 

[indexbandit]

The market is tougher today than it has been in a long time for obvious reasons. The allocators are asking for more and more or want to pay out less and less unless you are a Brevan Howard or a Blluecrest who I note have opened additional capacity, it is hard work.

Please elaborate on BlueCrest. My mates in london have good contact with people at this firm and we were about to open up discussions about the possibility of additional funding. Thx in advance.

 

[TWI]

Well, Bluecrest do not provide funding they suck it up, not sure how much their AUM is but sure it's in excess of $10bln. I think that in the current environment you find a lot of pessimistic prime brokers who will tell you that it is impossible to launch a new fund right now and you will find a lot of investors that are happy to throw money at the well established funds such as bluecrest or brevan as they are not likely to go too far wrong there but as a result of that they are far less happy to put money into new funds unless they demonstrate something very unique, have a very experienced team, have excellent operational setup and also are putting in a large slug of their own cash.

 

[indexbandit]

Well, Bluecrest do not provide funding they suck it up, not sure how much their AUM is but sure it's in excess of $10bln. I think that in the current environment you find a lot of pessimistic prime brokers who will tell you that it is impossible to launch a new fund right now and you will find a lot of investors that are happy to throw money at the well established funds such as bluecrest or brevan as they are not likely to go too far wrong there but as a result of that they are far less happy to put money into new funds unless they demonstrate something very unique, have a very experienced team, have excellent operational setup and also are putting in a large slug of their own cash.

Thanks for your reply. Basically, the talks were about them taking an equity stake in my fund and to help develop some sytems-- nothing formal and over drinks. I understand your meaning though about the big boys sucking up all of the capital that used to float around freely. day late, dollar short.

 

[luckyd1976]

I realize 2/20 is the most common set-up that I charge as incentive fees to my investors. What I am asking is what is typical for those who place the capital with me? Fund of fund managers, commodity pool operators, and other "middlemen" who match up investors and managers. How (and what do they get paid)? Say you had a friend who was a trader and you were able to match him up with a fund of fund manager who was going to give him 10MM. Would you expect a cut or percentage because you put the deal together? Or say you are in hedge fund sales. Do you make a commission for raising capital for your fund? How much (what percentage) is customary and usual?

If you're a new Advisor EXPECT them to STRONG ARM you. You'll end up negotiating out the 2%, and you'll only be working for the 10% Cut of Profits w/High Water Marks. FoF -Their profits generally come from the spread fees.