kenneth griffin
After a few weeks of patiently reviewing all my trades with this accountant, the audit was finally finished and also the numbers looked good. Actually, the numbers looked too good. Yes, my ridiculous returns may well be a problem.
Lesson #1:
If you consistently beat the marketplace, you'll face endless questions regarding whether you are a fraud.
No matter, I made a decision to create my very own fund and take my chances raising capital. Since I was still attending college coupled with focused solely on trading within the last couple of years, I had not many business connections and most of my close friends and family weren't wealthy enough to get thinking about the all knowing industry regulations stated my investors would need a net worth of $1 million or even more to be worthy of this type of "risky investment". Only my continued performance could attract new money, but, being my cocky self, which was the main one part of the process I wasn't concerned about.
Mutual funds could accept less wealthy investors, but had severe investment limitations. No, I did not want to begin a mutual fund because most of these needed to be invested at all times plus they couldn't even short sell! Hedge funds were considered the new investment vehicle, and so i researched the industry nonstop for some weeks and liked what I saw. I discovered the startup costs to become surprisingly modest and that i loved the legal flexibility that would basically let me invest in any manner I saw fit.
Prior to the emergence of discount hedge fund startup shops over the past few years, I discovered the template for offering documents and lawyer fees could exceed $75,000. Since that time, hedge fund boutiques had appeared, offering their administrative and startup services so startup costs didn't exceed $10,000. Which was some reduction!
I selected the second most affordable boutique I possibly could find (probably something ingrained in me since my dad advised to always buy the second cheapest wine bottle from the restaurant's wine list). Still, I was surprised there have been so many forms to fill out and small fees to be paid, however i went together with whatever my fund administrator said because he had set up dozens of firms in the last couple of years. It was real life therefore it would take patience, something never required of me in the trading world.
Lesson #2:
Everything takes a lot more amount of time in the real business community when compared to trading world.
A lot of it on my small letters of incorporation was barely dry if this struck me. I had been distracted by my pursuit of finding outside investors and creating all my companies that my trading had suffered consequently. Successful trading is about focus, discipline and concentration which lessons have been consumed by my ambition and greed. I'd taken some rather stupid losses and today, with my fund inception just days away, I would no more have that magic whole number while watching millions of dollar under management. No, I would have to put a dreaded decimal point and some other numbers before the word million, hurting my credibility from the beginning.
Lesson #3:
Focus on trading first; never schedule investor meetings during market hours.
Meanwhile my fund administrator convinced me to change brokers because my trusty online discount brokerages were simply not utilized in the hedge fund world. However agreed, however i is at for any rather amaze. This newly recommended brokerage was without any electronic trading platform (I was told it would be ready within weeks) and the traders executing my orders gave me some of the worst executions I had seen. I called to complain, however they brushed me off. They placated me by saying their new online software was only days away from completion. Almost twenty months later, the software continues to be almost ready. I switched to another recommended brokerage that had online trading software and I became friends with one trader who expertly executed my larger orders.
Still, the commissions I paid were much higher than these setup and so i asked for and received several price reductions, based on how much trading Used to do. It quickly became clear which broker I needed to remain with when the broker without electronic access incredibly upped their commission on the trade without saying. After i called to complain, the broker told me he knew I had been paying more in the other broker and for that reason he was eligible for the same rate. He was mistaken along with the fact that he just had taken matters into their own hands without conferring with me. The difference in price on that one trade was just a few dollars, but I lost my temper in line with the principle of the situation.
Luckily, I had started chatting regularly with a popular industry commentator and he known me another broker which was perfect for short selling. This new broker's online software, cost, and short-selling list blew away the competition so, I dropped my other brokers and centered on this new guy.
Lesson #4:
Do not feel below par about changing brokers if they're ripping both you and your clients off. They aren't girlfriends; there is always somebody cheaper and better out there.
The CEO from the brokerage I dropped called me to see what they tried wrong and ask why I'd closed my account. I possibly could not realise why it had been essential my small fund stayed with their firm that supposedly had vast amounts of dollars in accounts. My commissions together barely touched in to the thousands. As ridiculous because this conversation was, I respected this man for his dedication to providing customer support. Too bad their brokerage services weren't right.
Every fund manager should price as many brokers as possible that suit the fund's strategy. There are lots of brokers who may trade on their own, but mainly exist and make money by taking their share out of our online trading commissions. They make their money from trading commissions--that's tha harsh truth. There should be no reason to need to pay a person associated with a major brokerage when we simply use their online software, but that's the actual way it is. I'm very skeptical when confronted with these folks, and I do not feel below par about getting into arguments with them. Actually, I've grown to savor these fights.
Within a few months with my quality broker, my performance moved back to the plethora of my previous years, crushing the general market and my investors were happy. Yes, my parents and a few of the friends were elated. After months of solid performance that consistently beat the market, I still had yet to raise much outside capital. I realize since it will take a lot longer than I originally anticipated, but I make a lot profit the past and i'm positive about my skill like a trader and that's what gives me the faith to go forward. It does not hurt which i constitute a large portion of my fund in order to probably continue forever, however unhappily, even without many outside investors.
Lesson #5:
The larger the 'nest egg' stake the manager has, using the initial startup--the better.
Initially when i first started my fund, I moved to Nyc because I figured it had been the epicenter from the hedge fund industry and so i will be able to make thousands of investor contacts. I had met many potential investors and many within this industry, but no matter how many times people said these were interested, no checks were written nor wires sent.
One interesting meeting was having a senior manager of the major mutual fund company who had learned about my performance. I met him at his luxurious house in Florida and that we proceeded to discuss my situation. After a few hours of hearing my story, he told me I had been very smart and i also should focus on raising capital by changing my strategy around to match potential investors. He explained in the years of experience, investors could be skeptical of such high returns and want really low volatility. I told him in my many years of outperforming the market I possibly could care less if people accepted my strategy as I believed people will react to performance. He's probably right, but I have a certain pride in becoming a genuine rebel, a modern-day financial speculator.
Lesson #6:
Concentrate on what works for you personally and don't change to accommodate others.
Next, I attended several alternative investment conferences and handed out plenty of business cards. I had been even a part of a panel discussion because of my fund administrator's connections, but my speech sounded na?ve and unpolished compared to the more knowledgeable managers and veteran marketers in attendance. In fact, I was mesmerized by a particular fund marketer who had grown his fund exponentially over 6 months. I do not think he said one useful fact during his presentation, but he delivered an eloquent speech and many people, including me, approached him afterwards. Ah, the strength of marketing skill. We discussed marketing my fund, but he charged some ridiculous fees without guaranteeing results whatsoever. I had been only a startup fund; regardless of how great he sounded, I wasn't likely to blow up to $10,000 all according to his incredibly polished speech. So, I decided to transmit out my ads to any or all potential investors. I contacted just about everybody I knew, however the rate of follow-through was ridiculously minimal.
Lesson #7:
Raising money doesn't come easily for a startup manager.
You will find very few reasons for visitors to take a risk on a new operation unless they've known you for a long time or maybe your performance warrants the additional chance of being committed to a startup. People in large firms won't want to take a chance in your fund because of the minimal track record, lack of transparency of positions, and also the volatility of returns. Their job is at risk with any investments they make, and when they mess up--they are fired. Typically, they'd rather underperform than risk losing big. This is what Warren Buffett once called the "institutional imperative." It is a herd mentality, where these "institutional lemmings" move together, not necessarily doing what is best or smartest for their clients, but what is best and smartest on their own. The choice to opt for a high performing emerging manager is a risky bet, because of the outside chance of appearing like a fool. No fund-of-fund manager can make that decision, because they will be fired or scolded if these risky investments don't go exactly based on plan. Similarly, these emerging managers' careers should be ended when they do not make positive yearly performance each year.
My wonderful broker, who I was almost completely satisfied with after months of moving down commissions, recently baited me by saying one of his fund-of-fund clients may be thinking about my fund since he was confident with my strategy and my performance had been above average. I had heard this often before, from brokers trying to lure me to changing to their brokerage services to potential investors whose checks always seemed to explore the mail. Simple common sense dictates that when a fund-of-fund hears about me--if they're serious, they will contact me, not through my broker.
Full of doubt, I still met my broker and the fund-of-fund manager for lunch so we could discuss a possible investment. Initially, I grew rather excited since the conversation was surprisingly detailed as this manager actually did know about my fund! Actually, his talk of the possible investment sounded rather concrete and the proposed addition would increase my fund assets by 25-50%. We chose to meet again a couple weeks later, so I spent hours developing a new presentation tailored to this fund-of-fund's style. I never reached satisfy the fund-of-fund manager again, but my broker said he showed him my presentation and he supposedly loved it. The other day, my broker told me the great news. The manager had agreed to invest in my opportunity without even having to meet me again. Wow! Awesome! Obviously, there is a catch. My broker felt horrible saying (because he claimed), but he could only transfer the funds to me when the commissions on trades with this new investment were quintuple my normal rate! I felt my heart sink. I anticipated compensating my broker with this capital introduction, but quintuple fees with no expect a reduction with time within the lifetime of an investment seemed somewhat ridiculous. I said no.
Lesson #8:
With cap intro, almost always there is a catch.
My fund shows up on many hedge fund databases, but Hedgeco.net and Hedgefund.net have resulted in the most information requests by far. After a year of listing my fund, I have had on the thousand hits on my fund's web pages. In fact, many 3rd party marketers have contacted me through these websites. I have a premium listing on Hedgefund.net that costs the equivalent of a semester of college.
Some third party marketing firms also have contacted me. One marketer said he was showing my PowerPoint presentation to potential investors the day once i emailed him and that he would get back to me. Three months later, he's yet to get back to me. Another marketer said he would work with my fund, but wanted 50% from the incentive fee I'd receive on any profits on the investment. Another wanted 30% of the incentive fee. With those kinds of figures, it might take me too much time to really make it worth my effort even when my returns continued to trample the market. I wanted to pay an upfront finders' fee to them, but they knew which was not where the big money was. I understood their dilemma; why should they risk all of their reputation on the startup fund with only the chance for a little payoff?
But there is a person having said that he had the connections and was prepared to have a job full-time beside me without taking more than 10% from the incentive fee. I simply wanted him introducing my fund to his connections because I've just a handful of family and friend connections which were wealthy enough to become potential investors. He demanded an exorbitant yearly purchase his services, and wouldn't guarantee he could enhance the millions he promised, but he was optimistic reading my presentation and looking at my returns. I had been happy yet skeptical that he did not want to know much more about my strategies. It took weeks for him to "write out some contracts" and that he insisted I just use his lawyer. Nevertheless, I had been optimistic after having talked to him several times. However when I checked out the contracts, I had been dismayed.
He wanted to concentrate on completely overhauling my marketing by creating new expensive presentations. Younger crowd attempted to sell me on using his buddy like a graphics designer, supposedly the man who designed the Oakley logo, to create an incredible logo for me that will surely attract investors! I'm no marketing genius, but somehow I felt a new logo wasn't the problem and also the Oakley guy was more than a little from my price range. Younger crowd desired to perform a traveling road show to his contacts to present my fund and so i could stay put and concentrate on my trading. Somehow paying for him to jet around the country without me was not my concept of a great investment. I told him no and I designed a simple logo on Microsoft Paint. I still receive many compliments on my simple yet modern logo every week.
Lesson #9:
This market is full of frauds and con artists.
Are you currently seeing the pattern here yet? This market is tough for the little guy because there are many promises and very little follow-through. The inability to advertise is extremely difficult and also you must depend on contacts as well as networking for capital introductions. You need to be prepared to give up your strategy and then any chance at tiny yet consistent profits for any shot in the in a major way. I selected another path; focus on things i do best and be content to make some decent money while awaiting more opportunities. I figure there'll always be people who wish to raise money for me personally and they'll only multiply with time, particularly if I keep outperforming the marketplace. I don't wish to compromise my trading and investing style and I accept the fact that it could take years for investors to come. Only performance and patience will create the path of success--a journey I'm prepared to take.
Lesson #10:
Results are much slower in real life when compared to trading world.
