Palantir Posted January 7, 2013 Share Posted January 7, 2013 The best advice I ever got was from Prem...he said "just start it with whatever capital you have and can raise, and build a track record." I would suggest you just start. We started with only $400K, even though we had verbal commitments of over $2M! So, just start with whatever you have and can raise. What is a good way to show a track record? Would brokerage statements suffice, or is there a more formal way of doing it? Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 After lot of reading on starting a fund i finalized on 2 things, Either to manage my fund as LP(hedge fund) or seperate accounts on IR. I really like LP as you have more flexibilty in investing and dont like static fee structure done on seperate accounts on IR. LP will help me setup similar to buffet partnership but the only concern is can i take funds from non accredited investor(i know i should ask a lawyer but i am cheap) since most of my friends willing to fund are non accredited investors with around 50k to invest. I am willing to do all overhead of LP if their is a way for this otherwise my only option is seperate accounts with IR which is easy. Any ideas/sugestions on this topic is very much appreciated! Investment advisory business is very restrictive in most jurisdictions. Even if you manage individual accounts, I believe you still have to be registered as an investment advisor to take non-accredited accounts...double-check with those that currently manage IR's and are up to date on the regulations. For LP's, even if registered, under the exemptions most fund managers use, there is no way around the accredited investor requirement other than the friends and family exemption...and those are quite restrictive. Incidentally, friends and family are the worst partners because they tend to treat the fund as a personal piggy bank...not understanding the long-term nature of investing. We struggled with this for the first three years in the Canadian fund. We no longer accept friends and family, really into the fund! If you register as an advisor though (you'll need your CFA or MBA), then you can actually structure your fund as a mutual fund and you would be able to solicit any investor like Tilson Funds, etc. There is a significant amount of reporting and regulation though once you start a mutual fund, including trustee expenses, etc. Cheers! Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 The best advice I ever got was from Prem...he said "just start it with whatever capital you have and can raise, and build a track record." I would suggest you just start. We started with only $400K, even though we had verbal commitments of over $2M! So, just start with whatever you have and can raise. What is a good way to show a track record? Would brokerage statements suffice, or is there a more formal way of doing it? Do you mean for your personal account or a fund? Cheers! Link to comment Share on other sites More sharing options...
Palantir Posted January 7, 2013 Share Posted January 7, 2013 The best advice I ever got was from Prem...he said "just start it with whatever capital you have and can raise, and build a track record." I would suggest you just start. We started with only $400K, even though we had verbal commitments of over $2M! So, just start with whatever you have and can raise. What is a good way to show a track record? Would brokerage statements suffice, or is there a more formal way of doing it? Do you mean for your personal account or a fund? Cheers! For a personal account. I have a brokerage account, at some point I'd like to be able to post my results in the same way. Link to comment Share on other sites More sharing options...
constructive Posted January 7, 2013 Share Posted January 7, 2013 Incidentally, friends and family are the worst partners because they tend to treat the fund as a personal piggy bank...not understanding the long-term nature of investing. We struggled with this for the first three years in the Canadian fund. We no longer accept friends and family, really into the fund! Very interesting. Do you have a lockup? It seems like emphasizing the lockup and a fee schedule which rewards longer lockup periods would help solve that issue. Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 Incidentally, friends and family are the worst partners because they tend to treat the fund as a personal piggy bank...not understanding the long-term nature of investing. We struggled with this for the first three years in the Canadian fund. We no longer accept friends and family, really into the fund! Very interesting. Do you have a lockup? It seems like emphasizing the lockup and a fee schedule which rewards longer lockup periods would help solve that issue. Nope, no lockup. We're masochists like Bruce Berkowitz! ;D Cheers! Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 The best advice I ever got was from Prem...he said "just start it with whatever capital you have and can raise, and build a track record." I would suggest you just start. We started with only $400K, even though we had verbal commitments of over $2M! So, just start with whatever you have and can raise. What is a good way to show a track record? Would brokerage statements suffice, or is there a more formal way of doing it? Do you mean for your personal account or a fund? Cheers! For a personal account. I have a brokerage account, at some point I'd like to be able to post my results in the same way. You should probably track it properly (either by spreadsheet or software) including when capital flowed in and out. Use your annual returns, and if you are missing any full years, indicate what the full period for that year was. Cheers! Link to comment Share on other sites More sharing options...
locatevalue Posted January 7, 2013 Share Posted January 7, 2013 You can have up to 35 non-accredited investors. http://www.hedgefundlawblog.com/non-accredited-investors-in-hedge-funds.html Thanks you! This is really helpfull, I didn't know that we can have upto 35 non-accredited investors. I see yearly audit required if you have non-accredited , I guess everyone does it even if you only have accredited since it provides more transperancey. Investment advisory business is very restrictive in most jurisdictions. Even if you manage individual accounts, I believe you still have to be registered as an investment advisor to take non-accredited accounts...double-check with those that currently manage IR's and are up to date on the regulations. For LP's, even if registered, under the exemptions most fund managers use, there is no way around the accredited investor requirement other than the friends and family exemption...and those are quite restrictive. Incidentally, friends and family are the worst partners because they tend to treat the fund as a personal piggy bank...not understanding the long-term nature of investing. We struggled with this for the first three years in the Canadian fund. We no longer accept friends and family, really into the fund! If you register as an advisor though (you'll need your CFA or MBA), then you can actually structure your fund as a mutual fund and you would be able to solicit any investor like Tilson Funds, etc. There is a significant amount of reporting and regulation though once you start a mutual fund, including trustee expenses, etc. Cheers! Prasad, I started on my CFA but with all my current commitments it will take another 2 to 3 years but i dont like to go in the route of mutual fund as i like LP struture a way better as you have flexibility to invest on any disocunted assets like realestate and can easily move to other countries discounted assets ect. I am planning to take the route of registered investment advisor and then take some non-accredited to build a record without that i really doubt if i will be able to attract any accredited investors. I agree with friends and family, They might treat it as piggy bank but i guess i have live with it at start! Link to comment Share on other sites More sharing options...
racemize Posted January 7, 2013 Author Share Posted January 7, 2013 Nope, no lockup. We're masochists like Bruce Berkowitz! ;D Cheers! Parsad, maybe you can explain this to me, as I've always been confused--why do the redemptions matter? For example, many people have said that Berkowitz shouldn't have taken on the extra money from "hot money" investors, but I never understood why. When they sell, they only hurt themselves and not the other investors right? I think Berkowitz said in one of his videos that everyone could leave and he'd still make money off his portion of the fund. Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 Nope, no lockup. We're masochists like Bruce Berkowitz! ;D Cheers! Parsad, maybe you can explain this to me, as I've always been confused--why do the redemptions matter? For example, many people have said that Berkowitz shouldn't have taken on the extra money from "hot money" investors, but I never understood why. When they sell, they only hurt themselves and not the other investors right? I think Berkowitz said in one of his videos that everyone could leave and he'd still make money off his portion of the fund. No, it just means you have to be prepared for possible redemptions. You need to maintain liquidity, so that means you cannot have significant amounts of the portfolio in illiquid, microcap investments, where there may be a huge discount to intrinsic value. As partners redeem, you end up concentrating in your best ideas like Berkowitz. What you find is that you then get a second exodus because some partners who stayed with you, are now concerned about the amount of concentration in few ideas. In the end, Berkowitz and those partners who stayed, end up doing very well because the fund is very undervalued and concentrated. But in the meantime, the manager is left somewhat frustrated by having to spend so much time massaging emotions and fears. That's just part of the business...whether you have no lockup or a 2-year lockup. There is always redemption risk. It's why someone like Sardar has a massive advantage over any other fund manager...captive capital is a huge advantage! It's also why Buffett can keep compounding massive sums of capital at reasonable rates. If you look at in those terms, what Berkowitz does with $12-15B, is probably as tough, if not tougher, than what Buffett does with $200B. But it is, what it is! Cheers! Link to comment Share on other sites More sharing options...
Palantir Posted January 7, 2013 Share Posted January 7, 2013 In an earlier post you noted that PA performance would not be meaningful to an investor as it is not subject to the many constraints of running public money. I'm a little confused reconciling the first statement regarding PA's with your recommendation from Prem, "start with what you have and build a track record". Isn't that the same thing? Just for clarification, when you started your fund with 400k, was that with OPM or was that your own PA? Link to comment Share on other sites More sharing options...
returnonmycapital Posted January 7, 2013 Share Posted January 7, 2013 Parsad is right, it is probably only useful to keep track of your own account(s)' results for your own purposes. It would be very hard to understand why anyone would be attracted to someone's PA results. The best thing to do is exactly what he (and Prem) said: just do it, start a fund. Racemize's discipline of writing an annual letter is a very good idea. It will improve his results, especially if he has to show them to his spouse. Nothing worse than family & friends as clients. For those thinking of starting a fund, the weight of start-up expenses and the thought of the continuing annual administration costs will be enough to get you marketing your services. The thought of expenses weighing down your returns will get you out of bed in the morning. I would argue that the only thing you will ever be really proud of is your track record. As far as the difficulty of registration, there are always going to be hoops to jump through to get started. They will not decrease in the future. If you want to attract OPM, I would be hard pressed to believe that you could do it with your PA results. It's just not the same thing and no one you talk to will believe that it is. Where is MooreCapital when you need him? Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 In an earlier post you noted that PA performance would not be meaningful to an investor as it is not subject to the many constraints of running public money. I'm a little confused reconciling the first statement regarding PA's with your recommendation from Prem, "start with what you have and build a track record". Isn't that the same thing? Just for clarification, when you started your fund with 400k, was that with OPM or was that your own PA? No, Prem was saying build a track record with public money, but use your own and whatever you can raise to get started. The $400K was from our first four partners...all four who are still with us to this day...we couldn't invest directly into the U.S. partnership, as we were Canadian residents. Actually, one of those first partners, Andrew Cooke, became a director and then minority owner in our small firm. None had any idea if we could actually manage any money! Andrew was a board member on the old MSN Berkshire board and he's on here as well. Cheers! Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 If you want to attract OPM, I would be hard pressed to believe that you could do it with your PA results. It's just not the same thing and no one you talk to will believe that it is. While it wasn't his PA results, Dr. Michael Burry's blog helped him raise tens of millions from White Mountain and Leucadia, so I'm not dismissing PA results entirely. I'm just saying it's a very different animal than public money, and much tougher to raise money using PA results. Cheers! Link to comment Share on other sites More sharing options...
ERICOPOLY Posted January 7, 2013 Share Posted January 7, 2013 Give you an example...my personal portfolio was up over 125% in 2012...all BAC! MPIC Fund I, LP and MPIC Canadian LP did better than one tenth of that, because most of our partners would leave if I put everything into one stock! ;D Cheers! Nicely done. Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 Give you an example...my personal portfolio was up over 125% in 2012...all BAC! MPIC Fund I, LP and MPIC Canadian LP did better than one tenth of that, because most of our partners would leave if I put everything into one stock! ;D Cheers! Nicely done. No leverage either. The day I was buying equity for the funds, I was buying equity only for my personal account. Never bought more again for any of them, as the price never hit our bid and BAC has risen ever since! I've done this three times before...BRKB's in 1999/2000, FFH, SNS and now BAC...I'm looking forward to the fifth time whenever that appears! ;D Cheers! Link to comment Share on other sites More sharing options...
Guest Posted January 7, 2013 Share Posted January 7, 2013 Sanj, Those big time opportunities tend to come along every 3 years or so, yes? Link to comment Share on other sites More sharing options...
hyten1 Posted January 7, 2013 Share Posted January 7, 2013 parsad, congrats on pa i don't quite understand, why don't you institute a lock up period etc etc so that you can implement some of the things that you do in your pa in your fund? hy Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 parsad, congrats on pa i don't quite understand, why don't you institute a lock up period etc etc so that you can implement some of the things that you do in your pa in your fund? hy If I mistake in my own portfolio, I live with it and no one can fire me. Even if I institute a lock-up, if I screw up with a big position, when that lock-up comes due...those partners will leave regardless. So, while I may be able to take a slightly bigger position than I currently do now (our max is 25% right now in a single idea), it won't really make a huge difference because I'll be inclined to still not go to 50% or better with other people's money. The obligation, if you are honest and ethical, is to do them no wrong. So you do no wrong because you want to be able to live with the worst case decision. To put it as simply as I can...I would feel ten times worse losing someone else's money than my own! Alot of people don't feel that way. Cheers! Link to comment Share on other sites More sharing options...
compoundinglife Posted January 7, 2013 Share Posted January 7, 2013 FWIW, I manage an account for a close family member that is much larger than my pa and I manage it quite differently WRT to concentration. For example at the end of the year BAC was %30 of my port vs %9 of the other port. A couple of reasons for that, one I did not start managing it till BAC had risen to around $9 for the common , I never know when this person might need to pull out capital even though they say they wont, something unexpected could happen with BAC and I also feel in general its not responsible as a stewart of this persons money to go very large on the best idea. I know that WEB had at points %40 of his partners assets in one position, but I remind myself constantly that I am not him nor will I ever be therefor I need to be more conservative when it comes to OP money. Hell Munger almost blew up managing other peoples money. On the other hand I am 35 with decent earning power and time on my side and I generally feel I am unemotional in comparison to the herd so I am more aggressive with my own money. Question for the pros like Sanjeev. Does managing someone else's account fall into building a track record or do you feel it has to be in the form of a partnership or fund to really count for a track record? Link to comment Share on other sites More sharing options...
hyten1 Posted January 7, 2013 Share Posted January 7, 2013 parsad i hear ya, but on the other hand me as an investor will wonder and think why you manage your pa so differently than the fund, than again i don't really know if there are really different i am just extrapolating from the different in return btw your fund and the pa. in any case, still looking for the next big idea :) i have never been able to put in more than 30% on any idea :( Link to comment Share on other sites More sharing options...
ERICOPOLY Posted January 7, 2013 Share Posted January 7, 2013 parsad, congrats on pa i don't quite understand, why don't you institute a lock up period etc etc so that you can implement some of the things that you do in your pa in your fund? hy If I mistake in my own portfolio, I live with it and no one can fire me. Even if I institute a lock-up, if I screw up with a big position, when that lock-up comes due...those partners will leave regardless. So, while I may be able to take a slightly bigger position than I currently do now (our max is 25% right now in a single idea), it won't really make a huge difference because I'll be inclined to still not go to 50% or better with other people's money. The obligation, if you are honest and ethical, is to do them no wrong. So you do no wrong because you want to be able to live with the worst case decision. To put it as simply as I can...I would feel ten times worse losing someone else's money than my own! Alot of people don't feel that way. Cheers! You could always have a separate public fund that is more concentrated -- Berkowitz does something like that. You could claim it's your "single best idea" fund and that it would be concentrated in a single stock. This puts it up to your fund's investors to decide if they are comfortable putting a sizable amount into just one position. Takes all of the pressure off of you -- the ball is in their court to appropriately manage their exposure. I guess the time will come when I'll put some money into the funds of a few different managers and I'd actually prefer if they offered something like that. I feel like I'd rather get the best out of each manager, and spread the risk by putting money with more managers. Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 Question for the pros like Sanjeev. Does managing someone else's account fall into building a track record or do you feel it has to be in the form of a partnership or fund to really count for a track record? No that is public money. As long as you can track it, and you can eventually have the results audited, I think it would count as public money. It's because the psychology of investing is different than your own money. Your behavior with that account is more in line with how you would do as a fund manager with public money. Of course, the more people you deal with, the more personalities and tolerance for risk you encounter, but it is certainly a more accurate gauge than a personal account. Cheers! Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 parsad, congrats on pa i don't quite understand, why don't you institute a lock up period etc etc so that you can implement some of the things that you do in your pa in your fund? hy If I mistake in my own portfolio, I live with it and no one can fire me. Even if I institute a lock-up, if I screw up with a big position, when that lock-up comes due...those partners will leave regardless. So, while I may be able to take a slightly bigger position than I currently do now (our max is 25% right now in a single idea), it won't really make a huge difference because I'll be inclined to still not go to 50% or better with other people's money. The obligation, if you are honest and ethical, is to do them no wrong. So you do no wrong because you want to be able to live with the worst case decision. To put it as simply as I can...I would feel ten times worse losing someone else's money than my own! Alot of people don't feel that way. Cheers! You could always have a separate public fund that is more concentrated -- Berkowitz does something like that. You could claim it's your "single best idea" fund and that it would be concentrated in a single stock. This puts it up to your fund's investors to decide if they are comfortable putting a sizable amount into just one position. Takes all of the pressure off of you -- the ball is in their court to appropriately manage their exposure. I guess the time will come when I'll put some money into the funds of a few different managers and I'd actually prefer if they offered something like that. I feel like I'd rather get the best out of each manager, and spread the risk by putting money with more managers. Hi Eric, That may very well be what we do in the future. I like the way we manage this fund at the moment, because it really allows any accredited investor to invest with us...people like my Mom or even older investors...where they want above average returns, but not necessarily out of the park. They want to be able to access their capital if they need it due to ill health or whatever emergency may arise. Can you imagine a hedge fund manager telling a "Sandy" victim that they cannot redeem to rebuild their house or for other needs? But we may start a second fund, with a clear mandate for investors that there probably is going to be far more volatility in this fund due to concentration, and that there would be a 3 year lockup. It's something we've pondered and thought about. Who knows, we may start it even sooner than most people expect! ;D Cheers! Link to comment Share on other sites More sharing options...
Parsad Posted January 7, 2013 Share Posted January 7, 2013 Sanj, Those big time opportunities tend to come along every 3 years or so, yes? It seems that way...at least at the ones I swing at! ;D Cheers! Link to comment Share on other sites More sharing options...
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