Professional Performance (Part 1)

A couple months ago I did a long-awaited performance update. Today I want to focus on the last part of that record.

Over the last few years, I have contemplated the idea of trading for others. The main thing holding me back is doubt that others will find me credible. I consider myself an industry outsider (i.e. have never worked for a financial firm) and I don’t have an official track record.

One way to generate an official track record would be to create an incubator fund. My understanding is trading the incubator fund would be no different from what I currently do except that it would be audited by an expensive accountant. An accountant with a solid reputation may leave the performance record with more credibility.

Then I read posts like this and get really discouraged:

     > Unfortunately with hedge funds, you cannot
     > use any track record from a previous fund
     > or personal trading (even if audited). So if
     > you are a famous fund manager you will raise
     > all you want off your reputation because
     > everyone is aware of the returns you have
     > generated in the past—returns that cannot
     > be used to market the new fund. With regard
     > to an audit, the minimum cost of a respected
     > firm is $30K per year. It is supposedly
     > expensive because of their liability. But it
     > would be a waste of time anyway because
     > institutions don’t pay attention to funds
     > smaller than $40M. Even the funds of funds
     > looking to invest in small time start-ups
     > don’t even peek if you’re under $10M. So it’s
     > completely on you to impress others enough
     > to raise the initial millions and start building
     > that track record. Start-ups with little capital
     > face those headwinds of large audit/tax/legal
     > expenses. If you don’t have “friends and family”
     > willing to contribute based on their years of
     > knowing you then your only hope is to
     > outperform most other hedge funds out there,
     > which is not easy to do.

Does this guy know what he’s talking about? I really don’t know but it does not sound encouraging.

I will continue next time.