Hey everyone, I’m fairly new to AF. I’ve been reading the threads a lot lately but this is my first post. I’ve been thinking of starting a fund for family and friends but I haven’t been able to find too much information online about how I would go about doing this. I’ve been managing money for myself and my family for a bit over 3 years now and in that time I’ve achieved 43.04% return annually. Since then I’ve had some family friends ask me to manage their portfolios as well so I’m looking for the best way to do this. I did read that the best way to organize a fund is through creating and registering an LLC. However, I’m still quite confused about the process as a whole. I was hoping someone with experience in this area would be able to share it with me or direct me to a good source of information. Thanks!
43% over 3 years (especially the last 3 years) is not too shabby - nice man
Start-up administrative costs plus fees to retain third party service providers run close to $100K in the first year I’ve heard. So if you’re only trading $50K I would go out on a limb and say you shouldn’t do it.
I am not sure, but if you already haven’t you may want to check into setting up as a Registered Investment Advisor. Fidelity seems to have a lot of good information on doing so at http://fiws.fidelity.com/index.shtml?WT.mc_id=s1k10711853&buf=999999 Surely to do what you’re describing you wouldn’t need to set up a full-blown, first-class operation right off the bat (though you would want first-class compliance and, if possible, performance of course). I’d think you could do it for quite a bit less than $100k, but I could very well be wrong.
Don’t let 6-figure start-up costs thrown around a message board throw you off. I know plenty of people (like me) that have put an RIA together for less than $20k.
What resources did you use to do so XSellSide? Is there a one-stop provider for setting one up (properly) relatively on the cheap? Thanks.
Congratulations on the nice returns. I went thru this too, same insane returns over this time period, people say hey manage my bucks, I ask question on AF, idiots make fun of me, I buy book on starting a HF, decide it is way too much BS and $ involved. If you figure out a hassle-free structure please let me know.
Thanks captain, I’ll start off by doing some research on RIAs. If anyone else has any suggestions please let me know. Startup costs of 10k to 20k would probably be reasonable. 100k would be way too much as I don’t expect the fund to be more than 1 mil or so to start off.
Curious: did you actually make 43% return or is it based on back testing data?
Captain – There are several “RIA in a box” type firms out there that do it cheap and I think those are OK to use. I didn’t go that route, though. You should also try to leverage one of the major RIA custodians and see what resources they have – Schwab, Fidelity, and TDA. You’ll have to work with some custodian at some point anyway. One of your best resources is to simply look at what other firms are doing, do research on the web and after you have done as much of the leg work as you can on your own, hire an attorney to sign off on everything. What you don’t want to do is have an attorney charge you $300 per hour to write boilerplate language into an ADV.
XSellSide Wrote: ------------------------------------------------------- > Captain – > > There are several “RIA in a box” type firms out > there that do it cheap and I think those are OK to > use. I didn’t go that route, though. You should > also try to leverage one of the major RIA > custodians and see what resources they have – > Schwab, Fidelity, and TDA. You’ll have to work > with some custodian at some point anyway. > > One of your best resources is to simply look at > what other firms are doing, do research on the web > and after you have done as much of the leg work as > you can on your own, hire an attorney to sign off > on everything. What you don’t want to do is have > an attorney charge you $300 per hour to write > boilerplate language into an ADV. Agree with X wholeheartedly. I started my own RIA and if you are willing to put in a little time, much of the expense can be avoided. I went to the state, started an LLC first then registered with the state as an RIA and did all the ADV work myself. It isn’t THAT bad. You don’t want to pay a lawyer $5,000 for something you can do on your own time in 2 weeks.
needhelp - 43% annually is the actual return starting from january 1st 2007 until now xsellside - Can you recommend any sites/books that have information on all the things I need to start one?
ok. i assume you are going long-short and not long only? heavy use of leverage?
biz - I have some links that I’ll post up later today. Or, for just $250 per hour you can retain me as an RIA startup consultant 
needhelp - long-short and almost no leverage mwvt9 - did you have to register with the SEC for a small fund? Also , I’m assuming for an RIA you can actively trade the portfolio and not simply providing advice to your clients?
biz9r5 Wrote: ------------------------------------------------------ > > > mwvt9 - did you have to register with the SEC for > a small fund? Also , I’m assuming for an RIA you > can actively trade the portfolio and not simply > providing advice to your clients? No. Due to size I only had to register with my home state. It depends on where all of your clients are located. Most states have a “de minimus” exemption from registration. It basically means if you have less than 5 clients in their state you don’t have to register there too. Once you get of 25 Million in assets you have to register with the SEC. You can trade all you want (though technically if you are collecting fees on an AUM basis you are collecting for advice and not commissions for selling a product).
Do you want clients or partners? If clients, then you can use the friends and family account at Interactive Brokers and not have to register as an advisor. If you go beyond that you can form a RIA, as mentioned, which should only cost 3k-5k. If you are looking to form a feeder fund or hedge fund, then see JohnThain’s post…or factor in 40k for a cheap solution. I’m at carlos2665@gmail.com if you want to go into more detail…I have a good bit of experience with RIA. Not so much on the fund set up side.
So-called advisor “Friends & Family” account. Allows you to keep client accounts separate, trade within them seamlessly, charge fees against them seamlessly, and develop custom reporting on them as you wish. Also IB has the best execution and commission fees around in pretty much all liquid asset classes, including foreign markets. I use it for all my family accounts and swear by it. HTH
I just took a look at interactive brokers. I haven’t gotten a chance to dig too deep yet but it looks promising. Conquistador - I’m looking to manage money for about 4-5 clients to start off with and grow from there. For now I’m not planning on having any partners so it sounds like a friends and family account would be the best course of action. I’ll definitely shoot you an email later. Thanks for the offer. For the friends and family accounts, I’m assuming the accounts are under the client’s name so they get taxed directly and I don’t need to create an LLC right? It looks like IB allows you to charge commission on profits so it should be able to do something like charge 20% of profits as the fee?
biz9r5 Wrote: ------------------------------------------------------- > needhelp - 43% annually is the actual return > starting from january 1st 2007 until now > > xsellside - Can you recommend any sites/books that > have information on all the things I need to start > one? Congratulations on your fantastic record. With a record like that you probably beat 90% of investment professionals (assuming the maximum draw-down and other risk measures are within acceptable limits). How do you go long-short with no leverage ? Do you keep a significant portion of the account in cash ?