Personal trading on buy side (Hedge fund)

What usually are the restrictions on personal trading in hedge funds?

Are there any rules by SEC on the same?

I would really appreciate anyone’s inputs.

Thanks.

Every place is different. The weakest ones are usually something like must get pre approval before stock trades, and maybe a holding period. The strongest ones might have total restriction on trading relevant stocks. For sketchy 3-person hedge funds, they might have no controls.

It also depends on what you trade, obviously. If you trade FX in the fund, they probably don’t care about stock trading.

I’m not sure if there is an SEC or other mandated minimum, other than no insider trading and stuff like that.

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fuhgeddaboudit. that’s the policy on the buy side, they will make your life miserable with account statements, forgetting you got approval, making you disgorge profits because now they own it…

To ohai’s point, there are regulations around what an “access person” can purchase. You likely need pre-approval from compliance but there are some exceptions. Most equity funds still allow PMs/analysts to buy index funds and ETFs without pre-authorization.

But buying individual securities that’s in your strategy’s universe that could potentially go in your fund is where it gets really tricky.

lol its kind of funny. so the idea that you arent going to buy the stuff you are trying to sell is non compliant. i mean its one thing to front load. but quite another to prevent eating the shit you cook, just eat last.

Or just invest in the fund you run?

Investing in my fund is what I would prefer, but can’t really afford the ticket. It is a small 2 person fund, I am the first employee (recently joined full time) and there is no compliance department. The official stance is no personal trading.

I really like the opportunity, but because it is a small fund and I am an international (more costs due to visa sponsorship), I am being severely underpaid. I have been trading for exactly a year now and I think I am not bad at it (27% return). I have a lot of loans to pay off and additional income from investing would really help.

My fund is an alpha pod with no strategy. So basically the entire market is the investable universe, hence can’t avoid that. But what if I avoid all securities that overlap with the fund? To be honest I am more concerned about regulatory restrictions.

Generally that’s still frowned upon. Let’s say you buy a stock today and you have no intention of adding it to the fund. But, a couple weeks from now something happens and you do want to add it. That’s front running even if your intentions were good. (Also why you really need a compliance department.)

You should probably stick to ETFs and index funds until your firm provides official guidelines.

If you’re that good at trading, why aren’t you putting that to use in your actual fund? Just get paid more at work, then you don’t have to worry about personal trading (for now).

I would avoid it and stick to indexes as mentioned above. I play around with personal trading in equities but our investments are primarily fixed income and the equity here is run to a specific strategy that precludes a lot of what I would do in my PA so risk of conflict is effectively nonexistent (and we have clear guidelines). Wouldn’t mess with it otherwise.

i disagree. i think you need to gamble from the get go. you need to learn how to stomach risk. and when you are young, you are pretty much broke, so the amount you lose is much smaller in scale. it is a good form of education. but at the end of the day,

“It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.” - Warren Buffett

so better to work in the industry and focus on that as if it was your own!

manage risk and the profits will take of them selves

Buy low and sell high brother. It’s simple

Gotta spend money to make money

Guys, you should never use cliches. They’re old hat. And, not to be a broken record, but don’t repeat yourself. It’s redundant. And lastly, no one anywhere should ever, under any circumstances, generalize.

but ohai does make a good point, you need to have a large bank roll for your ivnestment picsk to be meaningful.

say you are a recent grad with a 60k salary working 40 hrs, you’ll have an hourly rate of 30 bucks.

it doesnt make senes to purchase an individual stock as you are not properly diversified yet. so you first need to rack up diversified portfolio of at least 300k imo.

from there you can divserify to individual stocks. if we assume you can earn 15% a year on your portfolio (a big if), your excess return is 5%, so your effort will be worth 15k.

to pick the top investments, you’ll prolly spend 2 to 3 hrs a day keeping up with news for a list of stocks for 250 biz days so roughly 500 hrs a year.

so on a per year basis. you need a 15k in excess return, using 500 hours of effort. your hourly rate for studying investments is $30/hr which will be equivalent to your salary as a recent grad.

So its prolly best to focus on work. unless you work in the industry, in which case. you dont count the hours against you as you are paid to learn. me personally, i waited around 250k and a year after i cleared the cfa exams.

Nerdy is it time to buy L-Brands again? Are the instamodels going back to VS type stuff in the fashion cycle yet?

i spend an hour a day max on placing buy/sell orders avg ~100% returns. how good is my excess?

personally i dont like instamodels. too muc variety. i dont like thickness.

now what’s wrong with l brands? the same problem with most retailers.

it trades based on its earnings. from a balance shset perspective, if it were liquidated it would be worthless. it generated about 750m in fcf on its last 10k. it has a ton of lease obligations and debt. if we were to look at net debt alone, its about 5b or a 6x multiple to fcf. to make matters worse the business as you said is in decline. and that is the main problem plaguing all retailers. the rise of tech cos with online sales or easy advertising with social media has hurt their biz and brand.