Looking for a Fund Manager to partner with to start a new fund.
Over the past few years I've developed an automated high sharpe strategy that I'm looking to further capitalize on. I don't come from the HF industry, so I'm looking for someone with experience in the field to partner with in starting our own fund. I've tried reaching out to various funds with no responses, unsurprisingly. I would appreciate any advice on how to find partners or fund managers. I've included a brief description of the strategy and some of the risk measures provided from my broker. I am running this with most of my liquid capital, but I'm looking to further capitalize it. Any advice or suggestions would be greatly appreciated!
The strategy uses derivatives to create a path dependent probability function with a positive expectation value. The strategy is not dependent on any signals and can be deployed at any time. It is only dependent on volatility. There is one volatility band where the operational drag outweighs the EV during which the software does not trade. This band is due to the way volatility scales non-linearly and its effect on the path integrals the strategy builds. The strategy is uncorrelated with the underlying asset and is not dependent on market conditions other than liquidity and spread. The strategy has been running live at the 6-figure scale, but current liquidity should allow it to scale to upper 8 to lower 9 figure scale without major modifications. Below are some of the risk measures of the entire deployment period and the most recent optimization. I am willing to provide broker verification of trades and risk measures if I were to partner with someone.
Full period: September 2022 - April 2024
Trading Days: 415
VAMI: 4,400.94
Draw Down: 13.49%
Sharpe: 2.77
Sortino: 4.75
Correlation: -0.04
Beta: -0.09
Alpha: 0.95
Positive Periods: 73.01%
Optimized Strategy Iteration: October 2023 - April 2024
Trading Days: 142
VAMI: 2,101.59
Draw Down: 6.97%
Sharpe: 4.15
Sortino: 8.23
Correlation: -0.01
Beta: -0.02
Alpha: 1.37
Positive Periods: 71.83%
Thanks!
this has to be a troll right. every thing about this is a red flag
I swear it's not. Maybe a bit niave, but I'm not trolling. I can share trade history from IBKR during DD. I can post risk measures screenshot if that helps.
Why are you looking for help on what is essentially a college chat board? Nobody that can help you is on this website.
It looked like there were some actual fund managers from he other posts I saw. This site was recommended by other sites for connecting with fund managers. I'm not from the industry, so I didn't realize if that is not the case.
If your mean return is 0.38% per day, that's a 300% annual return?
If you're running it with 6 figures, why even bother running outside money? You'll reach 100 billion in 10 years
Yes that's about what is has been doing. Obviously there will some reduction as it scales up, but I'm also running pretty hot on leverage. That near 14% draw down wasn't a fluke and statistically it could reach 30-35% at a 3 sigma confidence at the leverage I've been running. That is a lot for being almost all my liquid capital. I'm looking to derisk some. There's also the time factor, yes it will grow quickly, but that's if the capital is not needed. During that time I withdrew a sizeable portion for a house down payment and taxes. The money rate of return is lower. It will also run jnto other drags in the 8 figure mark so it's a logistical curve not exponential. Finally I'm considering doing this to do some expensive things sooner than in 5+ years from now.
Assuming this discussion is in good faith, sounds like at the moment what you have is a personal account with a thesis. If you said that you've incubated a fund and have an audited track record this would be more realistic.
Exactly, it's a personal account and I'm looking to connect or partner with someone. I don't know anyone in the industry which is why I'm posting on here, and other places. I don't have any connections professionally. Starting a fund is something I could do on my own technically, but I don't have experience or connections to fund raise, let alone the things I don't know about. All I have is some math, code, and good results with my own capital.
No fund manager would trust systematic strategies on a personal account. But if you’re really onto something, just keep running your strategy on your personal savings and then in 5 years you’ll become wealthier than any fund managers on earth
Everyone is going to be skeptical because this industry is built on skepticism.
I am not from the quant world, but my general advice would be to network with people in the quant world, and primarily at the large "platforms". You most likely went to a university, so I'd recommend checking out people from your school or former coworkers who are currently employed at large quant funds and begin a conversation. Do not start with "I want to start a fund" - you are looking for advice and feedback as you contemplate a new career here. Reach out to former teachers, or find coworkers who know people in the field.
Starting a brand new fund these days is exceptionally difficult. No "real" LPs are going to hand over money for a strategy that has only been run in a PA, from someone who has never worked in the industry, no matter how promising it looks. Finding an experienced partner does not significantly change that.
The industry these days is split into a few different categories. The large platforms are places like citadel, millenium, etc. They hire a bunch of individual PMs who get to run their own strategies (known as "pods"), as long as they fit within the risk limits and constraints of the platform, and earn a direct payout based on PnL. In many/most cases, it is more profitable to pursue this path if you are a very talented investor/risk taker, as it leaves you to focus on investing only, without the headache of fund raising, running a full business, additional admin costs, and managing relationships with investors. Then you have more typical quant shops that can be a mix of this "pod" structure, but also more collaborative working on central strategies. Think Two Sigma, DE Shaw, etc. You also have the prop shop firms like Jane Street, HRT, etc., which are implementing tons of different strategies, but have their roots in market making.
You have one strategy, which you have received no feedback on from other experienced investors, and probably haven't diligenced it to the extent that a true quant shop would. My understanding is many strategies can get competed away quite quickly.
This is great, but it does not make an investment firm. If you believe you can successfully replicate this strategy at a large firm with more leverage and limit your drawdowns, while also expanding into new strategies, you will be exceptionally well compensated at these platforms (8-9 figures over a few years is definitely possible). That is likely a better outcome than trying to convince LPs over 3 years to raise $50mn-$100mn, while most real money won't come in until you have a long track record anyways, and as you deal with the headaches of business formation and the exorbitant costs there. IF you perform strongly enough at the platform, you can always start something for yourself afterwards, but you'll probably be making so much it won't matter by then.
I'd focus on the basics first though. You need feedback from quant PMs, and then advice on how to get started in the industry, not a business partner.
Thank you! This is exactly the type of info I was looking for.
The moment you give this strategy to the quant fund, the other quants will steal your strategy like mice stealing cheese. And these funds will make you sign non-compete — once you’re in these funds, you don’t own the strategy, the fund owns the strategy and you’re just their employee.
I think you have enough to go to some prop shops to ask for capital.
I would need to understand a bit more about why you think it can scale and whether that is based on reality or assumptions. (I mean liquidity is the key requirement for quant strats, and you don’t have a period of illiquidity from 2022, so that’s where I would see risk sitting, in addition to figuring out how a 6 figure liquid strategy scales into 8 figures).
overall I think it looks interesting though - is this just equities? Does it work on other etfs?
It trades SPX options. My current order size is typically 1/20th of the shown bid/ask sizes. The frequency of trades is also limited by my account size and it should be able to add another order of magnitude there. That should easily get into the 8 figures, maybe 9 with some minor order changes to handle aggregations instead of near instant executions. At those scales its likely to be better using continous trading than discrete which eould require modifications. I could also use NDX and futures too, but have no need currently.
Is this a MTF directional strategy or vol arb?
Since you're trading SPX options, hopefully you aren't net selling short-dated options with huge gamma risk as in a 3+ sigma move can spell disaster
If it's something else, especially if you can just trade the underlying instead than I imagine that'll be pretty attractive for some prop trading firm
It's not directional, so no steamroller risk. It's a type fo vol arb. I don't use equities, but derivatives to build a curved vector space of possible returns. The way it sets that are favorable for large sigma moves, but suffers from whiplash as short term vol deviates from longer term vol. I could run it on equities with a beta gradient, but that would mean high sharpe, modest returns due to leverage levels.
Not much exp with quant trading but it seems like its just a delta neutral vol trading algo which has posted phenomenal returns more recently but has some issues in that
A) very difficult to scale as you run into liquidity issues
B) most of your money is made on retail bobos that are buying options as an effective gamble and pushing vol outside of historic bands
C) most of this vol arb is going to disappear over the next few years as retail traders continue to get burned and more money floods into these strats
D) your competition is DE Shaw, Rentech, Jane
My friend helped me code an algo that returned 1200% on 100k backtesting and similar returns to yours if you tighten the screws and don't cheat via backtest adjustments (forward vs backward looking) and if I can do this with intermediate math and options knowledge, unsure how viable this is especially at scale. If I were you I would slow down and make sure that this idea is scalable with real capital (10 mm +) otherwise it doesn't matter what numbers you are putting up.
I would talk to ~8 - 12 prop shops. You are not going to start a fund with something like this, but you could make a lot working with the right prop shop -> see where things go from there.
Thie looks legit but I'm skeptical of the scalability. You could try talking to prop shops, they are more open to stuff like this, but as others said why not just run it yourself. I've been doing something along these lines myself for some years now, but I know for sure that it won't scale (in fact that is why it works long term).
I'm sure there is some point where it becomes less efficient, but order of magnitude analysis as is puts that in the 8 figure possibly 9 figure. Drags lessen as it increases frequency, so it's not until there are fill issues or spread issues that it starts to moderate. I also plan to delever as once I break 7 figures which also reduces drag slightly.
I am and will continue to run this myself. I have some big expenses coming up over the next two years which will limit the amount of net growth, then it's several more years before it reaches my target. I'm just exploring ways to speed that up and several people have suggested starting my own fund so I'm currently exploring that option. It sounds like it's not going to happen without first joining an existing firm, building history, etc. I'm not going to do that, so I'm likely going to continue to run this as is. I do appreciate all the replies to this thread as it's been helpful.
Agree with the above that you should talk to prop shop.
reading this made me realize bankers are actually monkeys
Are you also a Nigerian prince?
I've worked at multiple funds (along the lines of/including some named in the thread), in roles similar to that of the partner you're looking for.
I know of several quant-focused HFs and prop firms who run 'independent portfolio manager platforms', where they select outside PMs to bring their strategies onto the firm's capital and technology infrastructure. This is similar to what the best known "pod shops" (Citadel, Millennium) do. The pod shops have strict risk requirements (e.g. market neutral for equities) and limits (e.g. down 10% and your capital gets halved, another 10% down and you're out). I'd be impressed if you could get even a coffee chat with someone from one of the big pod shops based off what you have so far. Usually they want someone coming from a bank trading desk or buy side firm and/or with an audited performance history at size a couple orders of magnitude larger than you're running.
I think smaller/lesser known firms are more likely to give you the time of day. I would think their requirements are less strict than the large multimanager (pod shop) funds, both in terms of minimum size and perhaps more flexible risk parameters. Try reaching out to some of these. For example, I've personally spoken recently with crypto funds who are aggressively hiring PMs, whose risk requirements are looser than traditional funds, and are often run by younger management from less orthodox trading backgrounds. Perhaps, especially given they tend to run much less capital than traditional trading firms, one might entertain taking a chance with you and your unscaled strategy. (100% return on $500k capital is +1% for a $50mm firm, which means something; the same at a $1bn firm is basically irrelevant.)
Note: BEWARE how much of your strategy you disclose when speaking to anyone. "Business Development" which is what firms call their PM/investment team recruiters, as well as others, have been known to write down every word in candidate interviews, trying to absorb all possible IP.
Feel free to DM me, happy to answer what more I can.
I've found these prop arcade-type places are often shady and will try to scam you in some way. If you only need 500k you are better off trying to get friends/family money or work in another industry to save it up yourself.
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