Setting up an incubator fund in the UK?

[abottoml]

I think a lot of traders here would like the idea of setting up a managed fund or a collective investment scheme, getting a load of investors on board, trade their capital, and take in a nice 20% performance fee. Let's assume that you have a trading system which shows good results, but you have no investment industry experience or a provable track record.

Without a track record, you won't attract any investment capital, so that's where these "incubator funds" are supposed to come in. You set up a "fund" with only your own seed capital, and run it for a year or two with proper auditing in place. All going well, you might then be in a position to attract a prop trading outfit or some institutional investors.

There are a couple of firms in the US offering these kind of services:

http://www.turnkeyhedgefunds.com/
http://www.greencompany.com/
http://hedgefundstartupguru.com/

Does anyone here have any experience with these incubator funds? Is there anything like this in the UK? Or perhaps the Isle of Man, or somewhere offshore? Do they have another name in Europe? Is this just a scam?

 

[azdo]

no one?

 

[BSD]

Dunno about those firms above, but Arpad Busson funds, em, funds, amongst others he came up with OPM for Paul Tudor Jones and Louis Bacon.

http://www.thisismoney.co.uk/news/article.html?in_article_id=442532&in_page_id=2

 

[abottoml]

This book gives some pretty good insight on the barriers to expect with starting up a fund:

http://www.amazon.co.uk/gp/product/0471748528

The upshot is that setting up shop is simple but selling your product (ie attracting assets) is tough, even if you have plenty of "pedigree" in the finance industry.

And here I was thinking it'd be easy ...

 

[BSD]

Actually I'm not sure how hard it really is to get capital if you have a good verified track record with low drawdowns.

I think the question is how much you're willing to give up in ownership that's the "problem".

Eg take Larry Hite, when he had his trend following method down pat after a decade of tinkering where he went from menial day job to menial job just to pay the bills he approached MAN because he found it too hard to drum up investors on his own. At the time they were just a broker but had the sales force to market his fund. It took him a year of convincing but they finally got together. They started him out with 1 million, the price for getting their money to trade and their sales force to go after OPM was giving up half of his company to them.

Paid off though didn't it, both for him and MAN, his Mint Investments became one of the biggest CTA's ever, bigger than Paul Tudor Jones at the time, and when he retired - he's out of retirement again with a new fund - after 15 years of running the fund he was rich and MAN went on to become one of the biggest hedge funds in the world, win-win thanks to Larry and his willingness to give up so much equity.

 

[azdo]

This is the strategy - shouldn't be too hard to replicate in the UK with a lawyer and accountant... Probably be cheaper too.

http://www.greencompany.com/HedgeFunds/HedgeFundIncubatorFunds.shtml

 

[elitejets]

I don't think its necessary to set up an incubator fund for a couple of years to attract prop funding in the UK. If you have verifiable trading records showing 6-12 months of profitable trading without outrageous drawdowns you shouldn't have a problem.

 

[azdo]

Elite - not sure if I misunderstood you, but I think for attracting funds for a HF, historical performance is required (i.e. trading under the fund's entity)... Prior performance (trading under a different entity i.e. one's own name / another fund) is the norm for prop funding.

 

[elitejets]

I think I misunderstood you, sorry.

 

[azdo]

Anyone else have news/updates on UK incubator funds?

 

[DrGoofy]

I would also be interested to know if anybody has gone this route in the UK and what the approximate costs were.

 

[azdo]

The issue is that there are a few service providers in the US that offer the incubator service as a 'product' - I don't know of anywhere in the UK that does a similar thing... I doubt that even two different partners in the same fund structuring group in the same law firm would quote the same fee...

Let me know if you find out anything interesting/different...

 

[Scotty2Cues]

The upshot is that setting up shop is simple but selling your product (ie attracting assets) is tough, even if you have plenty of "pedigree" in the finance industry.

And here I was thinking it'd be easy ...

Charm those potential investors

 

[Scotty2Cues]

there is also the theory that sugests we are only ever 6 handshakes away from anyone in the world. Watched on bbc horizon, very good. http://news.bbc.co.uk/1/hi/magazine/8029774.stm